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EX-32.2 - CERTIFICATION - Consorteum Holdings, Inc.consort_10q-ex3202.htm
EX-31.1 - CERTIFICATION - Consorteum Holdings, Inc.consort_10q-ex3101.htm
EX-32.1 - CERTIFICATION - Consorteum Holdings, Inc.consort_10q-ex3201.htm
EX-31.2 - CERTIFICATION - Consorteum Holdings, Inc.consort_10q-ex3102.htm



U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER:  000-53153
 

CONSORTEUM HOLDINGS, INC.

 (Exact Name of Company as Specified in its Charter)

Nevada
 
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)

20 Adelaide Street East-Suite 910, Toronto, Ontario Canada M5C 2T6
 (Address of Principal Executive Offices)

(877) 414-2774
(Company's Telephone Number)
 
Suite 550, 141 Adelaide Street West, Toronto, Ontario, M5H 3L5 Canada

 

(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes [X] No [ ].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]
Accelerated filer [_]
Non-accelerated filer (Do not check if a smaller reporting company) [_]
Smaller reporting company [x]

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [_] No [X].

As of May 20, 2011, the Company had 304,147,714 shares of common stock issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]




 
 

 

PART I –FINANCIAL INFORMATION

Item 1.  Financial Statements.

CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
 
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NINE MONTHS ENDED MARCH 31, 2011, and 2010
 
CONTENTS
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Operations and Comprehensive Loss
4
Condensed Consolidated Statements of Cash Flows
5
Notes to Condensed Consolidated Financial Statements
6 - 15
 

 

 
 
2

 

 
CONSORTEUM HOLDINGS, INC.
(formerly Implex Corporation)
(A DEVELOPMENT STAGE COMPANY)
Condensed Consolidated Balance Sheets
March 31, 2011 and June 30, 2010
 (Expressed in U.S. Dollars)
 
 
 
   
March 31,
2011
   
June 30,
2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current Assets
           
Cash (Note 8)
  $ 8,963     $ 9,110  
Other receivables, net (Note 5)
    23,220       11,061  
Total Current Assets
    32,183       20,171  
Equipment, Net (Note 6)
    4,030       5,201  
Intangible Asset (Note 7)
    9,922       9,922  
                 
Total Assets
  $ 46,135     $ 35,294  
                 
LIABILITIES
               
Current Liabilities
               
Bank indebtedness (Note 8)
  $ 135,841     $ 128,489  
Accounts payable
    229,965       211,677  
Accrued liabilities (Note 12)
    255,156       444,761  
Loans payable (Note 9)
    1,109,712       964,498  
Due to stockholders (Note11)
    4,453       253,543  
                 
Total Current Liabilities
    1,735,127       2,002,968  
                 
Convertible Promissory Note (Note 10)
    396,625       -  
                 
Total Liabilities
    2,131,752       2,002,968  
                 
Commitments and Contingencies (Note 16)
               
STOCKHOLDERS' DEFICIT
               
Capital Stock (Note 13)
               
Preferred stock, par value $0.001 per share; 100,000,000 shares authorized; none issued and outstanding.
    -       -  
Common stock, par value $0.001 per share; 500,000,000 shares authorized; 304,147,714 shares (June 30, 2010 – 93,953,715 shares) issued and outstanding.
    304,147       125,954  
                 
Treasury Stock
    3,800       15,286  
Additional Paid In Capital
    3,131,730       2,705,908  
Collateralized Shares Issued
    (137,500 )     (137,500 )
Accumulated Other Comprehensive Loss
    (183,960 )     (54,694 )
Deficit Accumulated during the Development Stage
    (5,203,834 )     (4,622,628 )
                 
Total Stockholders' Deficit
    (2,085,617 )     (1,967,674 )
                 
Total Liabilities and Stockholders’ Deficit
  $ 46,135     $ 35,294  
 
(The accompanying notes are an integral part of these condensed consolidated financial statements)

 
3

 
 
CONSORTEUM HOLDINGS, INC.
(formerly Implex Corporation)
(A DEVELOPMENT STAGE COMPANY)
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three and Nine Months Ended March 31, 2011, and 2010, and Cumulative
from Inception (November 7, 2005) Through March 31, 2011
(Expressed in U.S. Dollars)
(Unaudited)

   
Three Months Ended
March 31, 2011
   
Three Months Ended
March 31, 2010
   
Nine Months Ended
March 31, 2011
   
Nine Months Ended
 March 31, 2010
   
Cumulative from Inception
(November 7,
2005) through
March 31, 2011
 
                               
Revenues
  $ -     $ -     $ -     $ -     $ 248,290  
                                         
Operating Expenses
                                       
Management and consulting fees
    71,215       256,299       100,444       753,966       2,727,980  
General and administration expenses
    74,432       115,262       204,391       448,055       1,733,319  
Bad debt expense
    -       -       -       -       99,738  
Selling expenses
    7,071       -       91,185       -       189,195  
Depreciation expense
    419       568       1,225       1,665       14,572  
Forgiveness of debt
    (157 )     -       (11,761 )     -       (306,735 )
                                         
Total Operating Expenses
    152,980       372,129       385,484       1,203,686       4,458,069  
                                         
Loss from Operations
    (152,980 )     (372,129 )     (385,484 )     (1,203,686 )     (4,209,779 )
                                         
Other Expenses
                                       
Equity in net loss of an affiliated company
    -       (575 )     -       (49,509 )     (282,474 )
Write off of investment in an affiliated company
    -       -       -       -       (78,783 )
Interest and financing costs
    (73,283 )     (42,494 )     (195,722 )     (230,665 )     (632,798 )
Total Other Expenses
    (73,283 )     (43,069 )     (195,722 )     (280,174 )     (994,055 )
                                         
Net Loss
    (226,263 )     (415,198 )     (581,206 )     (1,483,860 )     (5,203,834 )
                                         
Foreign currency translation adjustment
    (40,119 )     (87,993 )     (129,266 )     (319,401 )     (183,960 )
                                         
Comprehensive Loss
  $ (266,382 )     (503,191 )   $ (710,472 )   $ (1,803,261 )   $ (5,387,794 )
 
                                       
Loss Per Share - Basic and Diluted
  $ (0.001 )   $ (0.01 )   $ (0.004 )   $ (0.03 )        
                                         
Weighted average number shares outstanding, basic and diluted
    270,831,444       83,831,016       170,859,180       64,753,396          


(The accompanying notes are an integral part of these condensed consolidated financial statements)


 
4

 
 
CONSORTEUM HOLDINGS, INC.
(formerly Implex Corporation)
(A DEVELOPMENT STAGE COMPANY)
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2011, and 2010, and Cumulative from
Inception (November 7, 2005) Through March 31, 2011
(Expressed in U.S. Dollars)
(Unaudited)
 
   
For Nine Months Period Ended
March 31, 2011
   
For Nine Months Period Ended
March 31, 2010
   
Cumulative from Inception
(November 7, 2005) through March 31, 2011
 
Cash Flows from Operating Activities
                 
Net loss
  $ (581,206 )   $ (1,483,860 )   $ (5,203,834 )
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
                       
Equity in net loss of an affiliated company
    -       49,509       282,474  
Writeoff of investment in an affiliated company
    -       -       78,213  
Depreciation
    1,225       1,665       14,572  
Stock issued on reverse merger
    -       -       35,579  
Stock issued on services rendered
    45,000       59,033       104,033  
Forgiveness of debt
    (11,761 )     -       (306,735 )
Stock option expense
    -       158,436       158,436  
Amortization of deferred debt issuance cost
    26,591       42,570       107,152  
Changes in non-cash working capital, net of effects
                       
from reverse merger transaction:
                       
Other receivables
    (10,649 )     16,564       (13,738 )
Prepaid expenses
    -       1,285       3  
Accounts payable
    1,707       66,392       373,922  
Accrued liabilities
    (23,624 )     527,761       2,228,654  
                         
Net Cash Used in Operating Activities
    (552,717 )     (560,645 )     (2,141,269 )
                         
Cash Flows from Investing Activities
                       
Acquisition of equipment
    -       -       (19,249 )
Acquisition of investment in affiliated companies
    -       9,815       (277,102 )
Net Cash Used in Investing Activities
    -       9,815       (296,351 )
                         
Cash Flows from Financing Activities
                       
Proceeds from promissory note
    396,625       -       396,625  
Proceeds from loans
    237,744       490,498       1,694,216  
Repayment of loans
    (63,961 )     (122,482 )     (207,364 )
Proceeds from bank indebtedness
    5,286       38,821       146,977  
Repayment of bank indebtedness
    (9,527 )     (8,208 )     (16,019 )
Proceeds from issuance of capital stock
    -       130,988       131,074  
Deferred finance charges
    (12,432 )     -       (12,432 )
Proceeds from stockholders’ advances
    61,016       206,174       1,660,135  
Repayments of stockholders’ advances
    (61,319 )     (185,146 )     (1,277,329 )
Net Cash Provided by Financing Activities
     553,432       550,645       2,515,883  
                         
Effect of Exchange Rate Change on Cash
    (862 )     -       (69,300 )
                         
Net Increase (Decrease) in Cash
    (147 )     (185 )     8,963  
                         
Cash - Beginning of Period
    9,110       185       -  
                         
Cash - End of Period
  $ 8,963     $ -     $ 8,963  

(The accompanying notes are an integral part of these condensed consolidated financial statements)
 
 
 
5

 
 
CONSORTEUM HOLDINGS, INC.
(formerly Implex Corporation)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
 
 
1.
Organization, Development Stage Activities, and Going Concern
 
Consorteum Holdings, Inc. ("Holdings" and subsequent to the reverse merger, the “Company”), formerly known as Implex Corporation, was incorporated in the State of Nevada on November 7, 2005.  On April 9, 2009, Holdings changed its name to Consorteum Holdings, Inc.
 
On June 15, 2009 Holdings entered into an agreement and plan of exchange whereby Holdings acquired 100% of the issued and outstanding shares of common stock of Consorteum Inc. (“Consorteum”) from Consorteum's stockholders, by exchanging 39,999,750 shares of Holdings’ common stock, in a reverse merger transaction.  Consorteum is a company incorporated under the laws of the province of Ontario on April 3, 2006. Prior to the agreement and plan of exchange, Holdings had 29,860,000 shares of its common stock, issued and outstanding.  At the closing of the exchange transaction, Holdings cancelled 23,000,000 shares of its common stock held by one stockholder.  As a result of the exchange, the principal stockholders of Consorteum control 85% of Holdings.
 
Development Stage Activities
 
The Company provides pioneering technology solutions and management expertise to companies and organizations looking to develop, streamline or augment their methods of processing payment transactions.  It operates as a technology and services aggregator to meet the diverse needs of its client base by leveraging its wide-ranging partner technologies to develop end-to-end, turn-key card and payment transaction processing solutions.
 
Going Concern Assumption
 
The Company's condensed consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business.  The Company's negative working capital and accumulated deficit during the development stage raise substantial doubt as to its ability to continue as a going concern.  As of March 31, 2011, the Company had negative working capital of $1,702,944 (June 30, 2010 - $1,982,797) and a deficit accumulated during the development stage of $5,203,834 (June 30, 2010 - $4,622,628).
 
The Company's continuance as a going concern is dependent on the successful efforts of its directors and principal stockholders in providing financial support in the short term; raising additional long-term equity or debt financing either from its own resources or from third parties; and the attainment of key contracts.  In the event that such resources are not secured, the assets may not be realized or liabilities discharged at their carrying amounts, and differences from the carrying amounts reported in these condensed consolidated financial statements could be material.
 
As described in note 8, Consorteum is indebted to the Royal Bank of Canada (“RBC”) who holds a general security agreement over the assets of Consorteum, and on May 27, 2010 Consorteum received demand for repayment of the balance due under the demand term loan and the credit facilities. On the same date, Consorteum received a notice of intention to enforce RBC’s security on the property which can be exercised at any time.  Notwithstanding on-going negotiations and court actions, Consorteum has been unable to come to terms with RBC and has not settled the liability.
 
As described in note 9, Consorteum is indebted to a number of lenders with various terms and conditions. However the majority of these loans are in default and the amounts are due on demand. Communications with these lenders is on-going and  no actions have been commenced by any lender to recover their loans.
 
The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability of the Company to continue as a going concern.
 
The Company has no active operations and is therefore unable to generate cash flow in this manner. While the current programs are prepared for launch, the Company has no funds to meet the working capital requirements necessary to commence operations, and efforts are continuing to raise both short-term and longer term funds required. In addition, the Company requires funds for the management of its existing liabilities.
 

 
6

 
 
2.
Basis of Presentation
 
The unaudited condensed consolidated financial statements presented herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and in accordance with the instructions to Form 10Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“US GAAP”) for complete financial statements.  The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and accruals which, in the opinion of management, are considered necessary for fair presentation of the Company’ consolidated financial position, results of operations and cash flows for the interim periods presented. Operating results for the three and nine months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2011. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended June 30, 2010.
 
        BASIS OF CONSOLIDATION
 
The condensed consolidated financial statements include the accounts of Consorteum Holdings,    Inc., Consorteum Inc., and My Golf Rewards Canada, Inc.  All material intercompany balances and transactions are eliminated on consolidation.

3.
Recent Accounting Pronouncements

In September 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-25, “Plan Accounting – Defined Contribution Pension Plans: Reporting Loans to Participants by Defined Contribution Pension Plans” (“ASU 2010-25”). This standard amends ASC Topic 962, “Defined Contribution Pension Plans” to require that participant loans be classified as notes receivable from participants, which are segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest. ASU2010-25 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The amendments in this standard should be applied prospectively upon adoption. Retrospective application to all prior periods presented upon the date of adoption also is permitted, but not required. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company does not expect the adoption of ASU 2010-20 to have a material impact on its consolidated financial statements.
 
In December 2010, the FASB issued ASU 2010-28, “Intangibles – Goodwill and Other – When to Perform Step 2 of the Goodwill Impairment Test for Reporting Unites with Zero or Negative Carrying Amounts”(“ASU 2010-28”). This standard amends Accounting Standards Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Others” to require an entity, with a reporting unit with zero or negative carrying amounts, to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15. Early adoption is not permitted for public entities but is permitted for non-public entities. The Company does not expect the adoption of ASU 2010-28 to have a material impact on its consolidated financial statements.

The FASB issues ASU’s to amend the authoritative literature in ASC. There have been a number of ASU’s to date that amend test of ASC. Except for the ASU’s listed above, those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have significant impact on the Company.
 
 
 
7

 

 
4.
Fair Value Measurements
 
The Company adopted ASC 820 “Fair Value Measurements and Disclosures”. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
 
 
Level 1-
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
 
Level 2 - 
Other inputs that are directly or indirectly observable in the marketplace.
 
 
Level 3 - 
Unobservable inputs which are supported by little or no market activity.
 
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Cash, bank indebtedness (Level 1), other receivables, due to stockholders, accounts payable, accrued liabilities, loans payable and convertible promissory note (Level 2) are reflected in the balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments, or the market rate of interest in the case of convertible promissory note.

5.
Other Receivables, Net

   
March 31,
2011
   
June 30,
2010
 
Other receivables
  $ 23,220     $ 11,061  
 

 
Other receivables include the estimated amount of recoverable sales taxes.

6.
Equipment, Net
 
Equipment comprises the following:
 
   
Cost
   
March 31, 2011
Accumulated
Depreciation
   
Cost
   
June 30, 2010
Accumulated Depreciation
 
Computer equipment
  $ 18,887     $ (14,857 )   $ 18,887     $ (13,686 )
                                 
Equipment, net
          $ 4,030             $ 5,201  
 
Depreciation expense charged to operations amounted to $419 and $1,225 respectively for the three and nine month period ended March 31, 2011 (three and nine month period ended March 31, 2010 - $568 and $1,665 respectively).
 

 
 
8

 
 
 
7.
Intangible Asset
 
As a result of the acquisition in January 2010 of the additional interest in My Golf Rewards Canada Inc., the Company acquired an interest in the rights to a software license and other proprietary software necessary to operate the business. Accordingly, the asset has been recorded at its estimated acquisition cost, which value has been supported by recent arms-length negotiations.
 
The asset will be amortized on a systematic basis over its estimated life. The software license is subject to an annual renewal fee which will be expensed as incurred.
 
Purchase price allocation as follows:

Purchase Price
 
 
          $ 46,717  
                     
Cash
          9,814          
Accounts Receivable
          150,872          
Software License
          9,922          
Total Assets
          170,608          
                       
Accounts Payable
    40,199                  
Loan Payable
    83,692                  
                         
Total Liabilities
            123,891          
                         
Net Assets Acquired
                    46,717  
 
The intangible asset has not been amortized during the current fiscal period as the program was not active.  It is anticipated that amortization of the intangible asset will commence in the fall of  2011 when the initial program will be launched, and will be amortized over a five year period. The launch of the program which was estimated at May 2011 has been delayed due to the lack of working capital.
 
Despite the delay in the launch of the program, management of the Company is of the opinion that none of the underlying assets are impaired.
 
8.
Bank Indebtedness
 
Bank indebtedness of $135,841 is comprised of a RBC demand term loan, an operating credit facility and accrued interest (June 30, 2010 - $128,489). This indebtedness is repayable in Canadian dollars, will include interest and costs to be determined by the court, which total liability has been estimated by management at $131,705 CDN (June 30, 2010 -$136,255 CDN). Starting July 2008, the loan was repayable on a monthly basis at $1,792 plus interest, at RBC’s prime rate plus 2% per annum.  The loan was scheduled to mature in June 2013. The loan is secured by a general security agreement signed by Consorteum constituting a first ranking security interest in all personal properties of Consorteum and personal guarantees from certain stockholders.
 
As at March 31, 2011, the demand term loan and the operating line of credit are both in default and demands for full repayment have been made. Consorteum has been unable to meet repayment terms and accordingly RBC has commenced legal proceedings to recover the full balances due. The legal proceedings have also named an officer and a former officer as defendants under guarantees in writing by both officers acting as stockholders.
 
On May 27, 2010, Consorteum received notice of intention to enforce security by RBC, as secured creditor, on all the property of Consorteum. Consorteum has engaged legal counsel to act on this matter and is working towards a settlement of the bank indebtedness.
 
In the nine month period ended March 31, 2011, the parties were in court and a judgment was issued in January 2011, which judgment ordered an initial payment of $70,000 by the Company towards the indebtedness and a further court date in the summer of 2011 to determine how the balance of the indebtedness will be repaid. At that time, the Company made a counter offer to RBC under which management proposed an initial payment of $50,000 in January 2011, followed by $20,000 per month until the loan would be repaid. RBC declined the Company’s offer and is appealing the judgment, with a court date set for the summer of 2011 for the matter to be heard before the court. No payments have been made against the liability as of this date pending resolution of the appeal.  There were no court appearances and no court dates have been set in the three month period ended March 31, 2011.
 
The Company had originally placed $75,000 of the short-term loan proceeds in the period to December 31, 2010 with legal counsel to meet the obligations under the court order. In the three months ended March 31, 2011, the Company has utilized this cash for working capital and legal fees and $6,493 remains with counsel, which amount is included in the balance sheet figure of $8,963 as at March 31, 2011.
 

 
9

 
 

9.
Loans Payable

   
March 31, 2011
   
June 30, 2010
 
Loan 1. Investment loan, secured by shares of an individual shareholder, bearing interest at 18% per annum, principal due February 2010.  In default, due on demand.
  $ 373,674     $ 299,349  
Loan 2. Investment loan (net of discount of $17,132), secured by 1,500,000 shares of an individual stockholder, bearing no interest, principal plus bonus due March 2010. In default, due on demand.
    188,787       177,490  
Loan 3. Investment loan (net of discount of $12,022), unsecured, bearing no interest, due June 2009. In default, due on demand.
    142,365       123,789  
Loan 4. Investment loan, unsecured, bearing interest at 18% per annum, due January 2009.  In default, due on demand.
    62,519       50,084  
Loan 5. Investment loan, unsecured, bearing interest at 15% on late payments, with eleven monthly repayments commencing January 2010. No payments have been made since April 2010.  In default, due on demand.
    63,191       56,578  
Loan 6. Investment loan, unsecured, bearing interest at 10% per annum, due on demand.
    99,289       84,246  
Loan 7. Investment loan, unsecured, bearing interest at 18% per annum, due June 2009.  In default, due on demand.
    43,351       34,728  
Loan 8. Investment loan, unsecured, bearing interest at 18% per annum, due on demand.
    37,740       30,302  
Loan 9. Investment loan, unsecured, bearing interest at 18% per annum, due October 2009.  In default, due on demand.
    36,179       30,234  
Loan 10. Investment loan, unsecured, bearing interest at 18% per annum, no fixed terms of repayment.
    -       29,929  
Loan 11. Investment loan, unsecured, bearing interest at 18% per annum, due June 2009.  In default, due on demand.
    14,025       20,312  
Loan 12. Investment loan, unsecured, non-interest bearing, with no fixed terms of repayment.
    -       48,000  
Loan 13. Investment loan, unsecured, bearing interest at 12% per annum, due December 2011.
    77,828       -  
Deferred finance charges
    (29,236 )     (20,543 )
                 
    $ 1,109,712     $ 964,498  
 
 
 
 
10

 

9.
Loans Payable (cont’d)

Loans 2 and 3 are non-interest bearing loans.  These loans are recorded at their discounted value, which was computed at a discount rate of 12% which approximates the current rate of borrowing for the Company.   The difference between the discount value and the principal amount of the loan was recorded as interest payable.  The discounted loan amount will be accreted to the principal amount with an offsetting charge to interest expense.

On September 17, 2009, the Company entered into an agreement with a lender, who provided a $100,000 loan to the Company, and a stockholder pledged 1,500,000 common shares of the Company as security for the loan (Loan 2).  The lender is entitled to receive a bonus of $100,000 on the maturity date.

On February 3, 2010 the Company had negotiated the assignment of its obligations to affiliates and directors to an unrelated third party, which provided up to $404,746 in the form of a promissory note bearing interest at 15% per annum. The promissory note contained a conversion feature that allows the holder of the note to convert the note into shares of common stock of the Company at a 50% discount. As at March 31, 2011, a total of $124,000 of this facility has been converted in to 17,500,000 shares of common stock.

The Company received a $48,000 loan in June 2010 and later that month agreed to repayment of the loan through the issuance of 24,000,000 shares of common stock at a conversion price of $0.002 per share. These shares were issued September 16, 2010 and accordingly the loan has been extinguished with an equal increase in capital stock.

 In December 2010, the Company negotiated a short-term loan of $120,000, bearing interest at 12% per annum, unsecured and repayable within twelve months. As at December 31, 2010, the Company had received $75,000 of this facility.  These funds had originally been advanced to the legal counsel for the Company handling the RBC indebtedness, as described in note 8 but have subsequently been substantially utilized for working capital. $6,493 remains with legal counsel as at March 31, 2011.

10. 
Convertible Promissory Note

In November 2010, the Company secured $380,000 by way of a promissory note which bears interest at 12% per annum, payable quarterly. The promissory note is secured by a second charge on the assets subject to the general security agreement constituting a first ranking security interest in all personal property of the Company as described in note 8 to the consolidated financial statements.

The loan is repayable in two years and is convertible into common shares of the Company at any time within the two years at a conversion price of $0.03 per share without restrictions.
 
11.
Due to Stockholders

The amounts due to stockholders are non-interest bearing, unsecured and have no fixed terms of repayment.

In the three and nine month periods ended March 31, 2011, the stockholders advanced a further $nil and $61,016 to provide working capital, while withdrawing $30,142 and $61,319 in the three and nine month periods respectively then ended. The stockholders also utilized $93,233 and $261,359 of the advances to subscribe for additional capital stock in the Company as described in note 13 in the three and nine month periods respectively ended March 31, 2011.

12.
Related Party Transactions and Balances
 
The following were charged to the Company by certain stockholders for services provided:

   
Nine month
period ended
March 31, 2011
   
Nine month
period ended
March 31, 2010
 
a)   Management and consulting fees
  $ 100,444     $ 253,557  
                 
b)   General and administrative
  $ -     $ 44,787  
 
 
In the three and nine months ended March 31, 2011 these charges of $71,215 and $100,444 respectively relate to services provided by the President, Chief Financial Officer, former Chief Financial Officer and Chairman of the Board of Directors and were provided through companies owned or controlled by those individuals.  In the three and nine months ended March 31, 2010 these charges of $101,751 and $298,344 relate to services provided by the President, Chief Executive Officer and Chairman of the Board of Directors, and were provided through companies owned or controlled by those individuals.
 
Included in the management and consulting fees for the current year is $24,000, representing the value of restricted common shares issued to the Chief Financial Officer for services rendered. There were no comparable issues of common shares for management and consulting services in the prior year.
 
Included in accrued liabilities as at June 30, 2010 was an amount of $160,341 owed to certain stockholders for management fees, consulting fees and other expenses, related to contracts for services. In December 2010, the Company issued 50,000,000 common shares at an issue price of $0.003 per share in settlement of $150,000 of this liability. The balance of the liability had been paid in the three months ended December 31, 2010, and accordingly, there are no such liabilities owing as at March 31, 2011.
 
 
11

 
 
12.
Related Party Transactions and Balances (Cont’d)
 
In the nine months ended March 31, 2011, the Company paid an officer $12,432 ($12,500 Cdn.) as a finder’s fee for securing the promissory note of $380,000 and short-term loan of $120,000. As at March 31, 2011, the Company had received $75,000 of this short-term loan facility.  The fee was determined at approximately 2.5% of the principal raised and the fee is being amortized over the term of the loans. The balance of the funds has been committed and has been received.

13.
Capital Stock
 
On September 13, 2010, the Company received approval to increase its authorized share capital from 100 million to 500 million common shares.
 
On September 16, 2010 the Company issued the previously agreed upon 24,000,000 common shares in settlement of loans payable of $48,000.

On October 7, 2010 three officers of the Company returned 3,800,000 common shares to treasury. These shares were originally issued in September 2009 as compensation for services rendered. These individuals have declined to accept the shares and therefore the shares were retired and retuned to treasury.

On December 2, 2010 the Company issued 1,000,000 restricted shares of common stock in relation to services provided for a value of $3,000.

On December 2, 2010 the Company issued 56,000,000 restricted shares of common stock in relation to the settlement of liabilities of $168,000.
 
On December 2, 2010 the Company issued 7,500,000 restricted shares of common stock in relation to services provided for securing new financing for the Company for a value of $22,500.

On December 2, 2010, the Company settled an outstanding interest obligation through the issuance of 500,000 restricted shares of common stock of the Company for a value of $1,500.

On December 9, 2010, the Company issued 4,500,000 restricted shares of common stock to a company pursuant to a six-month public and investor relation service contract for a value of $13,500.

On December 9, 2010, the Company issued 1,500,000 restricted shares of common stock for finance charges, in relation to the issuance of a short term loan that has been repaid, for a value of $4,500.

 
12

 
 
13.
Capital Stock (cont’d)

On December 21, 2010 the Company re-issued 17,835,000 shares of the common stock of the Company, originally returned to the Company in March 2010, to the shareholders.

On December 21, 2010, the Company issued 5,000,000 restricted shares of common stock in relation to the settlement of liabilities of $12,000.

On December 21, 2010, the Company settled outstanding debt to stockholders of $168,126 through the issuance of 42,083,333 restricted shares of common stock of the Company.
 
On December 21, 2010 the Company issued 8,000,000 restricted shares of common stock in settlement of loans payable of $19,200.
 
On March 1, 2011 the Company issued 4,998,000 restricted shares of common stock in settlement of loans payable of $14,970.
 
On March 1, 2011 the Company issued 31,077,666 restricted shares of common stock in settlement of stockholders loans payable of $93,233.

On March 28, 2011 the Company issued 10,000,000 restricted shares of common stock in relation to services provided by the chief financial officer for a value of $24,000.

Warrants
 
As at March 31, 2011 and June 30, 2010, 4,140,000 warrants were outstanding, having an exercise price of $0.001 per share of common stock with a remaining contractual life of 0.75 of a year, expiring December 31, 2011
 
Options

As at March 31, 2011, 2,500,000 options were outstanding, having an exercise price of $0.15 per share of common stock with a remaining contractual life of 1.73 years. These options were valued at $158,436 using the Black-Scholes model, using key assumptions of volatility of 62%, risk-free interest rate of 1.56%, a term life equivalent to the life of the options and reinvestment of all dividends in the Company of zero percent.

The Company had a commitment to issue 500,000 stock options to a private investor as a bonus for a loan, and a further 50,000 stock options to an  individual as a finder's fee which commitments were made on January 12, 2010. By Board resolution dated October 18, 2010, these stock options granted have been replaced by the issue of common shares in an equivalent number at the then current market price of $0.003 per share.  The shares were issued in December 2010.
 
14. 
Income Taxes
 
No provision for Federal, state or provincial income taxes was required for the three and nine month period ended March 31, 2011, due to the significant operating losses.
 
As of June 30, 2010, the Company had approximately $3,432,000 of Federal, provincial and state net operating loss carry forwards available to offset future years’ taxable income, expiring in varying amounts to June 30, 2030. Certain of these amounts are subject to annual limitations under certain provisions of the Internal Revenue Code related to “changes in ownership”.
 
The Company has net operating loss carry forwards available to be applied against future years' taxable income.  Due to the losses from operations and expected future operating results, it is more likely than not that the deferred tax asset resulting from the tax losses available for carry forward will not be realized through the reduction of future income tax payments. Accordingly, a 100% valuation allowance has been recorded for deferred tax assets and current income taxes.

 
 
13

 
 

15.
Cash Flow Supplemental Information
 
Non-cash financing and investing activities are as follows:
 

   
Nine month
period ended
March 31, 2011
   
Nine month
period ended
March 31, 2010
   
Cumulative from Inception
(November 7, 2005) Through
 March 31, 2011
 
Issuance of shares for services rendered
  $ 45,000     $ 59,033     $ 104,033  
                         
Issuance of shares to extinguish debt
  $ 83,670     $ 391,397     $ 515,067  
                         
Issuance of shares to extinguish stockholders debt
  $ 261,359     $ -     $ 261,359  
                         
Issuance of shares to settle liabilities
  $ 180,000     $ 1,000,000     $ 1,180,000  
                         
Acquisition of investment in an affiliated company through incurrence of liability
  $ -     $ -     $ 139,946  
                         
Issuance of shares to settle finder’s fee that are in deferred finance charges
  $ -     $ 48,300     $ 48,300  
                         
Issuance of shares to settle Investor Relations fees that are in prepaid expenses
  $ -     $ 52,667     $ 52,667  
                         
Assumption of liabilities and loan on reverse merger transaction
  $ -     $ -     $ 105,029  
 
 
During the nine month periods ended March 31, 2011 and 2010, the Company had cash flows arising from interest and income taxes as follows:
 
 
   
2011
   
2010
 
Income tax
  $ -     $ -  
                 
Interest
  $ -     $ -  
 
 

 
14

 
 
16.
Commitments and Contingencies
 
Consorteum is in default under its bank facilities with the RBC and demands have been made for full repayment. Consorteum provided a general security agreement in favour of RBC in November 2006. Legal proceedings have been commenced by RBC to recover the full balances and on May 27, 2010 a notice of intention to enforce security was received by Consorteum. Negotiations with RBC are on-going but no resolution has been reached, as described in note 8.
 
The Company is a defendant in a legal proceeding brought by a former consultant seeking the payment of approximately $91,000 for services provided to the Company. Management is of the opinion that the action is without merit and intends to defend the action and is considering a counter claim against the consultant for damages. A defense has been filed without response.
 
The Company is committed to an annual fee for the software license for My Golf Rewards Canada, Inc. in the amount of approximately $100,000. This fee is renewable on an annual basis.

17.
Comparative Information
 
Certain figures for the period ended March 31, 2010 have been reclassified to conform with the current period’s financial statement presentation.
 

 
15

 
 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD LOOKING STATEMENTS.

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. In evaluating such statements, prospective investors should review carefully various risks and uncertainties identified in this release and matters set in the Company's SEC filings. These risks and uncertainties could cause the Company's actual results to differ materially from those indicated in the forward-looking statements.  We caution that words used in this document such as "expects," "anticipates," "believes," "may," and "optimistic," as well as similar words and expressions used herein, identify and refer to statements describing events that  may  or  may  not  occur in the future.

These forward-looking statements and the matters  to  which  they  refer are subject to considerable uncertainty that may cause  actual  results  to  be materially different from those described herein. There  are numerous factors that could cause actual results to be different than those anticipated or predicted by us, including: (i) a deterioration in economic conditions in general; (ii) a decrease in demand for our products or services in particular;  (iii)  our  loss  of  a  key employee or employees; (iv) regulatory changes,  including  further changes  in  the area of credit card regulation or implementation of new regulations in furtherance of the new legislation that  may have an adverse  affect on the demand for our products or services; (v) increases in our operating  expenses  resulting  from  increased costs of labor and/or consulting services; (vi) our inability to exploit existing or secure additional sources of revenues  or  capital  to  fund  operations;  (vii) a failure to collect upon or otherwise  secure  the  benefits  of existing contractual commitments with third parties,  including our customers; and (viii) other factors and risks identified in our SEC filings. This list provides  examples  of  factors  that  could  affect  the  results  described by forward-looking  statements  contained  in this press release; however, this list is not  exhaustive  and  many  other  factors  could  impact our business and it is impossible  to  predict with any accuracy which factors could result in negative impacts.

These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
 
OVERVIEW

The company provides pioneering technology solutions and management expertise to companies and organizations looking to develop streamline or augment their methods of processing payment transactions. It operates as a technology and service aggregator to meet the diverse needs of its client base by leveraging its wide-ranging partner technologies to develop end-to-end, turn-key card and payment transaction processing solutions.

In November 2010, the company completed a successful financing by securing a facility of up to $500,000 in the form of a two year promissory note in the amount of $380,000 convertible into common shares of the Company at a conversion price of $0.03 per share and up to $120,000 in the form of a one year short term loan. These funds were used to meet working capital needs of the Company, meet the initial launch costs of the MasterCard program, and allow for the management of existing liabilities.

In December 2010, the Company issued 143,918,333 shares in the capital stock of the Company in settlement of current and past services and in settlement of debt obligations of the Company. The issues were part of the strategy of reducing, wherever possible, the level of liabilities of the Company, managing the current cost structure so as to position the Company for the launch of the MasterCard program.

In December 2010, the Company signed a five (5) year Prepaid Card Distribution Agreement with Peoples Trust Company to provide a “Consorteum custom branded” MasterCard prepaid payroll card program to the First Nations communities throughout Canada. This agreement enables the Company to market and distribute its own co-branded MasterCard card such that the cards can be directly loaded by each First Nations community administration with payroll and benefits through direct payroll loads. The cards will be issued by Peoples Trust Company as a licensed issuer of MasterCard prepaid cards in Canada.

In December 2010, the Company appeared in court to settle the legal proceedings related to the bank indebtedness owed to the Royal Bank of Canada. A judgment was issued in January 2011 under which the Company was to make an initial payment of $75,000 towards the indebtedness, and a court date in April 2011 to determine how the balance of the indebtedness would be paid. The Company made a counter offer to RBC which offer was declined, and RBC appealed the judgment and a court date was set for March 2011 for the matter to be heard. Neither of the aforementioned court dates was held, and while the parties have held some brief discussions, the matter has not yet been resolved.

During the three months ended March 31, 2011, the company invested considerable time and cash resources in attempting to secure funds for the launch of the First Nations and My Golf Rewards programs but to date has been unsuccessful in completing a financing arrangement.
 
 
 
16

 

In response to the need to manage its current liabilities, the company issued a total of 36,075,666 common shares of the Company in settlement of $108,203 of liabilities, and issued 10,000,000 common shares in consideration of services provided to the Company.

LIQUIDITY AND CAPITAL RESOURCES

In the nine months ended March 31, 2011, the Company’s working capital position improved by $279,853 compared to a decrease in the working capital position to March 31, 2010 of $187,496. The working capital deficiency as at March31, 2011 amounts to $1,702,944 compared to $1,982,797 as at June 30, 2010, the Company’s last fiscal year end. The improvement in the working capital position is primarily the result of additional long-term loans secured in the period and the issuance of shares of capital stock in settlement of liabilities, loans payable and amounts due to stockholders. In the three months to March 31, 2011, the working capital position decreased by $122,390 as compared to December 31, 2010 as resources were used to meet travel and other corporate expenses,

During the three and nine months ended March 31, 2010 the Company continued to look for additional working capital to finance its activities and management was successful in securing both long-term and short-term facilities totaling $500,000 of which $455,000 was received by December 31, 2010, with the balance received in May 2011. The size of the working capital deficit and absence of operating revenues continue to negatively impact these efforts. The termination of management contracts as at June 30, 2010 has slowed the growth of accrued expenses and is seen as a positive measure to control operating costs.

As of March 31, 2011, the Company had $32,183 in total current assets, compared to total current assets of $20,171 as of June 30, 2010. The current assets as at March 31, 2011 include cash of $8,963 and other receivables of $23,220. The current assets as at June 30, 2010 include cash of $9,110 and accounts receivable at $11,061.

Current liabilities decreased in the nine months ended March 31, 2011 by $267,841 principally as a result of reducing accrued expenses by $189,605 and advances from stockholders by $249,090, both principally through the issuance of shares of capital stock in settlement of such liabilities. These decreases were offset by increases in loans payable of $145,214, and small changes in accounts payable and bank indebtedness. Total current liabilities total $1,735,127 as at March 31, 2011 compared to $2,002,968 as at June 30, 2010.

There are no significant commitments for the purchase of capital assets or intangible assets, or for operating leases.
 
The Company may continue to face significant uncertainty relating to liquidity and intends to continue to search for additional sources of working capital, and to actively search for collaborative partners. Many of the existing contracts and initiatives require capital expenditure by the Company to move forward and management anticipates that delays will continue if funds are not available.

RESULTS OF OPERATIONS

The Company had no revenues in the three or nine month periods ended March 31, 2011 or March 31, 2010.

Management and consulting fees totaled $71,215 and $100,444 for the three and nine months ended March 31, 2011 respectively compared to $256,299 and $753,996 for same period in the prior year, a decrease of $653,552 or 87% for the nine months ended March 31, 2011.  The decrease can be explained by the termination of management contracts as at June 30, 2010 and in the three and nine months ended March 31, 2011 management and consultants were paid only for specific work completed. There are no existing management contracts for services. The fees for the three months ended March 31, 2011 include $24,000 in the value of services which were settled by the issuance of common stock of the company.

General and administrative costs totaled $74,732 and $204,391 for the three and nine month period ended March 31, 2011 respectively compared to $115,262 and $448,055 for the three and nine months ended March 31, 2010, a decrease of $243,664 or 54% for the nine months ended March 31, 2011.  The decrease can be attributed to efforts to control costs and fees while the Company attempts to raise new financing and implement a number of pilot projects. The number of personnel in the company has been reduced and accordingly costs have been curtailed. During the three months ended March 31, 2011 the Company incurred significant travel related costs as management continued its efforts to secure new funds.

Selling expenses for the three and nine months ended March 31, 2011 were $7,071 and $91,185 compared to nil for the same periods in the prior year. In the three and nine months ended March 31, 2011, the pilot project with the First Nations commenced. These costs are directly associated with the initial stage of the pilot project, and the Company incurred the initial cost associated with the launch of the Feather program.

Interest and financing costs amounted to $73,283 and $195,722 for the three and nine month period ended March 31, 2011 compared to $42,494 and $230,665 for three and nine month periods ended March 31, 2010.  The change year over year can be attributed to a large bonus payable on one specific loan arrangement in 2010 of $100,000 which inflated the interest costs in that year. Excluding that one item, the increase of $65,057 or 50% (calculated as the difference between $195,722 and $130,665 for the prior year) in the nine months ended March 31, 2011 reflects the increased level of borrowing within the Company and reflects the additional costs of borrowing associated on specific loans. Details of the loans are provided in note 9 to the condensed consolidated financial statements.
 

 
 
17

 
 
In the three and nine months ended March 31, 2011 the Company recorded forgiveness of debt of $11,761 arising on the settlement of trade payables compared to nil for the same periods in the prior year.

For the three and nine month period ended March 31, 2011 the Company recorded a net loss of $226,263 and $581,206 respectively compared to a net loss of $415,198 and $1,483,860 for the three and nine month period ended March 31, 2010. Loss per share for the three and nine month period ended March 31, 2011 was $0.001 and $0.004 compared to $0.01 and $0.03 for the same periods in the prior year.  The decrease in the size of the operating loss of $902,654 or 71% was due principally to the termination of the management contracts for services and efforts by management to contain costs as they look for new financing and to implement new pilot projects.
 
GOING CONCERN

These interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States assuming the Company will continue as a going-concern basis. The Company has incurred losses since inception and the ability of the Company to continue as a going-concern depends upon its ability to develop profitable operations and to continue to raise adequate financing. Management is actively targeting sources of additional financing which would assure continuation of the Company’s operations and pilot programs. In order for the Company to meet its liabilities as they come due and to continue operations, the Company remains solely dependent upon its ability to generate such financing.

There can be no assurance that the Company will be able to continue to raise funds in which case the Company may be unable to meet its obligations. Should the Company be unable to realize on its assets and discharge its liabilities in the normal course of business, the net realizable value of its assets may be materially less than the amounts recorded on the balance sheet. The interim unaudited condensed Consolidated Financial Statements do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

The current market conditions and volatility increase the uncertainty of the Company’s ability to continue as a going concern given the need to both curtail expenditures and to raise additional funds. The Company is and has experienced negative operating cash flows and needs to invest in continuing pilot projects and operating partnerships which cannot be met from existing cash balances. The Company will continue to search for new funds and for new collaborative partners for the projects but anticipates that the current market conditions may impact the ability to source such funds.
 
As described in note 8 to the condensed financial statements, the Company is indebted to the Royal Bank of Canada who holds a general security agreement over the assets of the company, and on May 27, 2010 the company received demand payment for the balance due under the credit facilities. On the same date, the company received a notice of intention to enforce its security on the property which can be exercised at any time.  Notwithstanding on-going negotiations, the company has been unable to come to terms with the secured party and has not settled the liability. In the period to December 31, 2010 the parties were in court and a judgment was issued January 2011, which judgment ordered an initial payment of $70,000 by the Company towards the indebtedness and a further court date in April 2011 to determine how the balance of the indebtedness would be paid. At that time, the Company made a counter offer to RBC under which management proposed an initial payment of $50,000 followed by $20,000 per month until the loan was repaid. RBC declined the Company offer and is appealing the judgment, with a court date set for March 2011 for the matter to be heard before the court. No payments have been made against this liability as of this date pending resolution of the appeal. There have been no court proceedings in the three month period ended March 31, 2011, and while the parties have held discussions, there has been no resolution to the matter.

As described in note 9, the Company is indebted to a number of lenders with varying terms and conditions. However most of these loans are in default and due on demand. Discussions with these lenders are on-going and no lender has commenced action to recover their loan.

BALANCE SHEET

Total assets as at March 31, 2011 were $46,135 compared with $35,294 at June 30, 2010, representing an increase of $10,841 or 131%. Substantially all of the change is accounted for by the increase in other receivables related to taxes recoverable and a change in the amount of deferred finance charges.
 
 Current assets increased by $12,012 in the nine month period ended March 31, 2011 to $32,183 with the principal change being represented by the increase in receivables.

Bank indebtedness increased by $7,352 in the nine month period to March 31, 2011 and reflects a payment of principal of $9,527, offset by interest charges and foreign exchange rate change. As at March 31, 2011 bank indebtedness stands at $135,841.  However the loan is repayable in Canadian dollars and may include additional interest and costs to be determined by a court. The Company has defaulted under its indebtedness to its lender and the bank loan is in default.  The bank has begun an action for repayment of the loans against the Company and certain individual guarantors. (Refer to note 8 to the interim condensed consolidated financial statements).

Trade payables and accrued liabilities have decreased $171,317 in the nine month period ended March 31, 2011 and total $485,121. The bulk of the decrease can be attributed to the settlement of liabilities through the issue of shares of capital stock in the nine months ended March 31, 2011 offset by increases in liabilities due to officers, employees and professionals for work associated with the annual and quarterly filings of financial materials. As at June 30, 2010 trade payables and accrued expenses were $656,438.
 
The Company faced a continuing need for working capital in the nine month period ended March 31, 2011 and was able to secure additional loans payable and capitalized interest of $634,369 in the period, compared to new loans and capitalized interest of $490,498 for the nine months ended March 31, 2010. The new loans in the nine month period to March 31, 2011 included of a promissory note of $380,000 and a short-term loan of $75,000.  Loan repayments in the nine month period to March 31, 2011 were limited to $63,961 despite significant pressure from the lenders for a reduction in the obligations ($122,482 for the nine months ended March 31, 2010). Total current loans outstanding are $1,109,712 as at March 31, 2011 compared to $964,498 as at June 30, 2010.

As at March 31, 2011, the Company has a balance of $396,625 outstanding in the form of a promissory note, which amount includes accrued interest of $16,625. (2010 $nil). The promissory note is convertible into common shares of the company at a conversion price of $0.03 at any time.

In the nine month period ended March 31, 2011 stockholders advanced the company an additional $61,016 to be used for working capital compared to $206,174 for the same period in the prior year. There was $61,319 of repayments of stockholder advances in the nine months ended March 31, 2011 compared to $185,146 in the same period in the prior year. As at March 31, 2011 a total of $4,453 is due to stockholders compared to $253,543 as at June 30, 2010, with the bulk of the decrease accounted for by the issuance of common shares of the Company in settlement of the obligation.
 
18

 
 
During the nine months ended March 31, 2011 the Company had the following capital stock transactions:

On September 13, 2010, the Company received approval to increase its authorized share capital from 100 million to 500 million common shares.
 
On September 16, 2010 the Company issued the previously agreed upon 24,000,000 common shares in settlement of loans payable of $48,000.

On October 7, 2010 three officers of the Company returned 3,800,000 common shares to treasury. These shares were originally issued in September 2009 as compensation for services rendered. These individuals have declined to accept the shares and therefore the shares were retired and retuned to treasury.

On December 2, 2010 the Company issued 1,000,000 restricted shares of common stock in relation to services provided for a value of $3,000.
 
On December 2, 2010 the Company issued 56,000,000 restricted shares of common stock in relation to the settlement of liabilities of $168,000.

On December 2, 2010 the Company issued 7,500,000 restricted shares of common stock in relation to services provided for securing new financing for the Company for a value of $22,500.

On December 2, 2010, the Company settled an outstanding interest obligation through the issuance of 500,000 restricted shares of common stock of the Company for a value of $1,500.

On December 9, 2010, the Company issued 4,500,000 restricted shares of common stock to a company pursuant to a six-month public and investor relations service contract for a value of $13,500.

On December 9, 2010, the Company issued 1,500,000 restricted shares of common stock for finance charges, in relation to the issuance of a short term loan that has been repaid, for a value of $4,500.

On December 21, 2010 the Company re-issued 17,835,000 shares of the common stock of the Company, originally returned to the Company in March 2010, to the shareholders.

On December 21, 2010, the Company issued 5,000,000 restricted shares of common stock in relation to the settlement of liabilities of $12,000.

On December 21, 2010, the Company settled outstanding debt to stockholders of $168,126 through the issuance of 42,083,333 restricted shares of common stock of the Company.

On December 21, 2010 the Company issued 8,000,000 restricted shares of common stock in settlement of loans payable of $19,200.

On March 1, 2011 the Company issued 4,998,000 restricted common shares in settlement of loans payable of $14,970.

On March 1, 2011, the Company settled outstanding debt to stockholders of $93,233 through the issuance of 31,077,666 restricted shares of common stock of the Company.

On March 28, 2011, the Company issued 10,000,000 restricted shares of common stock in relation to services provided for a value of $24,000.

Accordingly after the share issuances, there are a total of 304,147,714 shares outstanding as at March 31, 2011.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

         The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the Company's periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

         Under SEC Rules that affect the Company, the Company is required to provide management's report on internal control over financial reporting for its first fiscal year ending on or after December 15, 2008. The Company has prepared management's report as required.

         As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the Company's principal executive officer and principal financial officer, of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the Company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. In addition, the Company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
 
 
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Item 4A.  Controls and Procedures.

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company's financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of  March 31, 2011. We identified the following material weakness in our internal control over financial reporting- we did not have adequately segregation of duties, in that we only had one person performing all accounting-related on-site duties. Because of the "barebones" level of relevant personnel, however, certain deficiencies which are cured by separation of duties cannot be cured, but only a monitored as a weakness.
 
In addition, we do not have an independent person serving on the Audit Committee, however, our Chairman is a qualified financial expert.

Attestation Report of Independent Registered Public Accounting Firm

 An attestation report of our registered public accounting firm regarding internal control over financial reporting is not required as a result of the enactment of the Dodd-Frank Act of 2010.

Changes in Internal Control over Financial Reporting

 There was no change in our internal control over financial reporting identified in connection with our evaluation that occurred during our last quarter (our fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

In 2010 the Company defaulted on a loan from the Royal Bank of Canada (“RBC”) in the amount of $125,000 (the “RBC Loan”). RBC also holds a general security agreement over the assets of the Company. On May 27, 2010 the Company received demand payment for the balance due under the RBC Loan. On the same date, the Company received a notice of RBC’s intention to enforce its security on the Company’s collateral which can be exercised at any time.  Notwithstanding on-going negotiations, the Company was unable to come to terms with RBC, and RBC began an action in Toronto, Canada to enforce the Loan. In December 2010 the Company and RBC appeared in Court, and in January 2011 the Court entered a judgment directing the Company to make an initial payment of $75,000 to RBC, and ordering a further hearing in April 2011 to determine how the balance of the RBC Loan would be paid. At that time, the Company made a counter offer to RBC under which management proposed an initial payment of $50,000 followed by $20,000 per month until the RBC Loan was repaid. RBC declined the Company offer and is appealing the judgment, with a court date set for March 2011 for the matter to be heard before the court. No payments have been made against this liability pending resolution of the appeal. Although the Company initially deposited in its counsel’s escrow account the $75,000 initial payment so that these funds would be available as soon as needed, the Company has subsequently drawn down most of these funds for working capital requirements such that only $6,493 remains with Company counsel as at March 31, 2011.
 
Item 1A.  Risk Factors.

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the nine months ended March 31, 2011 the Company had the following capital stock transactions:

On September 13, 2010, the Company filed an amendment to its articles of incorporation  to increase its authorized shares of common stock from 100 million to 500 million common shares.

On September 16, 2010 the Company issued the previously agreed upon 24,000,000 common shares in settlement of loans payable of $48,000.

On October 7, 2010 three officers of the Company returned 3,800,000 common shares to treasury. These shares were originally issued in September 2009 as compensation for services rendered. These individuals have declined to accept the shares and therefore the shares were retired and returned to treasury.

On December 2, 2010 the Company issued 1,000,000 restricted shares of common stock in relation to services provided for a value of $3,000.

On December 2, 2010 the Company issued 56,000,000 restricted shares of common stock in relation to the settlement of liabilities of $168,000.
 
 
 
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On December 2, 2010 the Company issued 7,500,000 restricted shares of common stock in relation to services provided for securing new financing for the Company for a value of $22,500.

On December 2, 2010, the Company settled an outstanding interest obligation through the issuance of 500,000 restricted shares of common stock of the Company for a value of $1,500.

On December 9, 2010, the Company issued 4,500,000 restricted shares of common stock to a company pursuant to a six-month public and investor relation service contract for a value of $13,500.

On December 9, 2010, the Company issued 1,500,000 restricted shares of common stock for finance charges, in relation to the issuance of a short term loan that has been repaid, for a value of $4,500.

On December 21, 2010 the Company re-issued 17,835,000 shares of the common stock of the Company to certain shareholders who voluntarily returned the identical number of shares to the Company in March 2010.

On December 21, 2010, the Company issued 5,000,000 restricted shares of common stock in relation to the settlement of liabilities of $12,000.

On December 21, 2010, the Company settled outstanding debt to stockholders of $168,126 through the issuance of 42,083,333 restricted shares of common stock of the Company.

On December 21, 2010 the Company issued 8,000,000 restricted shares of common stock in settlement of loans payable of $19,200.

On March 1, 2011 the Company issued 4,998,000 restricted shares of common stock in settlement of loans payable of $14,970.

On March 1, 2011 the Company issued 31,077,666 restricted shares of common stock in settlement of stockholders loans payable of $93,233.

On March 28, 2011 the Company issued 10,000,000 restricted shares of common stock in relation to services provided by the chief financial officer for a value of $24,000.


All of the transactions were exempt from registration under Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involving a public offering.
 

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  (Removed and Reserved).


Item 5.  Other Information.

None.

Item 6.  Exhibits.

See list below.
 
 
 
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SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
   Consorteum Holdings, Inc.  
       
Date:  May 23, 2011
By:
/s/ Craig A. Fielding  
    Craig A. Fielding, CEO  
    (Principal Executive Officer)  
 
 
     
  By:  /s/ Geoffrey William Smethurst  
    Geoffrey William Smethurst, CFO  
   
(Principal Financial Officer)
 
 
 
 
 
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EXHIBIT LIST
 
Exhibit No.
Description
   
31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
   
31.2
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
   
32.1
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.
   
32.2
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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