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 SEPTEMBER 30, 2010





OR





o 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 Incorporation or Organization)

(I.R.S. Employer Identification No.)





Suite 550, 141 Adelaide Street West, Toronto, Ontario, M5H 3L5Canada


(Address of Principal Executive Offices)





(877) 414-2774


(Company's Telephone Number)








(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 o.





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 o


Accelerated filer o


Non-accelerated filer (Do not check if a smaller reporting company) o


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 o No x.





As of November 12, 2010, the Company had 114,153,715 shares of common stock issued and outstanding.





Transitional Small Business Disclosure Format (check one): Yes o No x

















PART I –FINANCIAL INFORMATION





Item 1.  Financial Statements.







CONSORTEUM HOLDINGS, INC.


(FORMERLY IMPLEX CORPORATION)


(A DEVELOPMENT STAGE COMPANY)




CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


THREE MONTHS ENDED SEPTEMBER 30, 2010, and JUNE 30, 2010




CONTENTS


Condensed Consolidated Balance Sheets
1Condensed Consolidated Statements of Operations and Comprehensive Loss
2Condensed Consolidated Statements of Cash Flows
3Notes to Condensed Consolidated Financial Statements
4 - 18





CONSORTEUM HOLDINGS, INC.


(formerly Implex Corporation)


(A DEVELOPMENT STAGE COMPANY)


Condensed Consolidated Balance Sheets


September 30, 2010 and June 30, 2010


(Expressed in U.S. Dollars)


September 30,

2010


June 30,

2010(Unaudited)


(Audited)ASSETSCurrent AssetsCash

$
4,015


$
9,110Other receivables, net (Note 5)


11,414



11,061Deferred finance charges


6,848



20,543Total Current Assets


22,277



40,714Equipment, Net (Note 6)


4,811



5,201Intangible Asset (Note 7)


9,922



9,922Total Assets

$
37,010


$
55,837LIABILITIESCurrent LiabilitiesBank indebtedness (Note 8)

$
122,704


$
128,489Accounts payable


216,429



211,677Accrued liabilities (Note 11)


496,456



444,761Loans payable (Note 9)


985,071



985,041Due to stockholders (Note10)


301,648



253,543Total Current Liabilities


2,122,308



2,023,511Commitments and Contingencies (Note 15)STOCKHOLDERS' DEFICITCapital Stock (Note 12)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; 117,953,715 shares (2010 - 93,953,715 shares) issued and outstanding.


149,954



125,954Treasury Stock


15,286



15,286Additional Paid In Capital


2,729,908



2,705,908Collateralized Shares Issued


(137,500
)


(137,500
)Accumulated Other Comprehensive Loss


(100,830
)


(54,694
)Deficit Accumulated during the Development Stage


(4,742,116
)


(4,622,628
)Total Stockholders' Deficit


(2,085,298
)


(1,967,674
)Total Liabilities and Stockholders? Deficit

$
37,010


$
55,837






(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 1




CONSORTEUM HOLDINGS, INC.


(formerly Implex Corporation)


(A DEVELOPMENT STAGE COMPANY)


Condensed Consolidated Statements of Operations and Comprehensive Loss


For the Three Months Ended September 30, 2010, and 2009, and Cumulative


from Inception (November 7, 2005) Through September 30, 2010


(Expressed in U.S. Dollars)


(Unaudited)




Three Months

Ended

September 30,

2010



Three Months

Ended

September 30,

2009



Cumulative from

Inception

(November 7,

2005)

Through

September 30,

2010Revenues

$
-


$
-


$
248,290Operating ExpensesManagement and consulting fees


14,436



254,796



2,641,972General and administration expenses


37,534



116,440



1,566,462Bad debt expense


-



-



99,738Selling expenses


17,374



-



115,384Depreciation expense


398



538



13,745Forgiveness of debt


-



-



(294,974
)Total Operating Expenses


69,742



371,774



4,142,327Loss from Operations


(69,742
)


(371,774
)


(3,894,037
)Other ExpensesEquity in net loss of an affiliated company


-



(22,224
)


(282,474
)Write off of investment in an affiliated company


-



-



(78,783
)Interest and financing costs


(49,746
)


(34,620
)


(486,822
)Total Other Expenses


(49,746
)


(56,844
)


(848,079
)Net Loss


(119,488
)


(428,618
)


(4,742,116
)Foreign currency translation adjustment


(46,136
)


(237,334
)


(100,830
)Comprehensive Loss

$
(165,624
)

$
(665,952
)

$
4,842,946
)Loss Per ShareBasic and Diluted

$
(0.001
)

$
(0.01
)Weighted average number shares outstanding - basic and diluted


97,646,022



49,784,859





(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 2




CONSORTEUM HOLDINGS, INC.


(formerly Implex Corporation)


(A DEVELOPMENT STAGE COMPANY)


Condensed Consolidated Statements of Cash Flows


For the Three Months Ended September 30, 2010, and 2009, and Cumulative from


Inception (November 7, 2005) Through September 30, 2010


(Expressed in U.S. Dollars)


(Unaudited)




Three Month

Period Ended

September 30,

2010


Three Month

Period Ended

September 30,

2009


Cumulative from

Inception

(November 7, 2005)

Through

September 30,

2010Cash Flows from Operating ActivitiesNet loss

$
(119,488
)

$
(428,618
)

$
(4,742,116
)Adjustments to reconcile net (loss) to net cash (used in) operating activities:Equity in net loss of an affiliated company


-



22,224



282,474Writeoff of investment in an affiliated company


-



-



78,213Depreciation


398



538



13,745Stock issued on reverse merger


-



-



35,579Forgiveness of debt


-



-



(294,974
)Stock option expense


-



158,436



158,436Amortization of deferred debt issuance


13,695



-



45,652Changes in non-cash working capital, net of effects from reverse merger transaction:Other receivables


(23
)


(1,718
)


(3,112
)Prepaid expenses


-



-



3Accounts payable


(518
)


-



371,697Accrued liabilities


41,998



43,841



2,401,913Net Cash Used in Operating Activities


(63,938
)


(205,297
)


(1,652,490
)Cash Flows from Investing ActivitiesAcquisition of equipment


-



-



(19,249
)Acquisition of investment in affiliated companies


-



-



(277,102
)Net Cash Used in Investing Activities


-



-



(296,351
)Cash Flows from Financing ActivitiesProceeds from loans


36,050



224,395



1,492,522Repayment of loans


(9,141
)


(37,360
)


(152,544
)Proceeds from bank indebtedness


-



19,884



141,691Repayment of bank indebtedness


(9,527
)


(7,786
)


(16,019
)Proceeds from issuance of capital stock


-



140,100



131,074Repayments of stockholders? advances


-



(142,705
)


(1,216,010
)Proceeds from stockholders? advances


41,238



16,245



1,640,357Net Cash Provided by Financing Activities


58,620



212,773



2,021,071Effect of Exchange Rate Change on Cash


223



(6,175
)


(68,215
)Net (Decrease) Increase in Cash


(5,095
)


1,301



4,015Cash - Beginning of Period


9,110



185



-Cash - End of Period

$
4,015


$
1,486


$
4,015






(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 3




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.




(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 4




1.
Organization, Development Stage Activities, and Going Concern (cont’d)




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 September  30, 2010, the Company had negative working capital of $2,100,031 (June 30, 2010 - $1,982,797) and a deficit accumulated during the development stage of $4,742,116 (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, Consorteum has been unable to come to terms with RBC and has not settled the liability.




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




2.        Basis of Presentation




The unaudited 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 10-Q. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals which, in the opinion of management, are considered necessary for a fair presentation of the Company's consolidated financial position, results of operations and cash flows for the interim periods presented. Operating results for the three months ended September 30, 2010 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 February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855); Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-9”). The standard amends Subtopic 855-10, “Subsequent Events” to remove the requirement for a SEC filer to disclose the date through which subsequent events have been evaluated. ASU 2010-9 is effective upon issuance of the final update. The Company does not expect the adoption of ASU 2010-9 to have a material impact on its consolidated financial statements.




In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). The standard amends ASC Topic 310, “Receivables”to enhance disclosures about the credit quality of financing receivables and the allowance for credit losses by requiring an entity to provide a greater level of disaggregated information and to disclose credit quality indicators, past due information, and modifications of its financing receivables.ASU 2010-20 is effective for interim and annual fiscal years beginning after December 15, 2010 for public entities and for interim and annual fiscal years beginning after December 15, 2011 for nonpublic entities.The Company does not expect the adoption of ASU 2010-20 to have a material impact on its consolidated financial statements.




The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. Except for the ASUs 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 a significant impact on the Company.




(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 6




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, and loans payable (Level 2) are reflected in the balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.






5.
Other Receivables, Net


September 30,

2010


June 30,

2010Other receivables

$
11,414


$
11,061


Other receivables represent the estimated amount of recoverable sales taxes.


6.
Equipment, Net




Cost


September 30,

2010

Accumulated

Depreciation


Cost


June 30,

2010

Accumulated

DepreciationComputer equipment

$
18,887


$
(14,076
)

$
18,887


$
(13,686
)Equipment, net





$
4,811






$
5,201





Depreciation expense charged to operations amounted to $398 for the three month period ended September 30, 2010 (three month period ended September 30, 2009 - $538).







(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 7




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







$
46,717Cash




$
9,814Accounts Receivable




$
150,872Total Assets




$
160,686Accounts Payable

$
40,199Loan Payable

$
83,692Total Liabilities





$
123,891Net Assets









$
36,795Purchase Price Discrepancy









$
9,922





The intangible asset has not been amortized during the current fiscal year as the program was not active.  It is anticipated that amortization of the intangible asset will commence in May 2011 when the initial program will be launched, and will be amortized over a five year period.






(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 8




8.
Bank Indebtedness




Bank indebtedness of $122,704 is comprised of a RBC demand term loan and an operating credit facility (June 30, 2010 - $128,489). 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 September 30, 2010, 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 three month period ended September 30, 2010, there have been no further developments in the action.




(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 9




9.
Loans Payable




2010



2009Loan 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.

$
322,256


$
299,349Loan 2. Investment loan (net of discount of $22,510), secured by 1,500,000 shares of an individual stockholder, bearing no interest, principal plus bonus due March 2010. In default, due on demand.


182,868



177,490Loan 3. Investment loan (net of discount of $15,775), unsecured, bearing no interest, due June 2009. In default, due on demand.


126,753



123,789Loan 4. Investment loan, unsecured, bearing interest at 18% per annum, due January 2009.  In default, due on demand.


53,916



50,084Loan 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.


58,717



56,578Loan 6. Investment loan, unsecured, bearing interest at 10% per annum, due on demand.


88,944



84,246Loan 7. Investment loan, unsecured, bearing interest at 18% per annum, due June 2009.  In default, due on demand.


37,385



34,728Loan 8. Investment loan, unsecured, bearing interest at 18% per annum, due on demand.


32,621



30,302Loan 9. Investment loan, unsecured, bearing interest at 18% per annum, due October 2009.  In default, due on demand.


32,547



30,234Loan 10. Investment loan, unsecured, bearing interest at 18% per annum, no fixed terms of repayment.


32,219



29,929Loan 11. Investment loan, unsecured, bearing interest at 18% per annum, due June 2009.  In default, due on demand.


16,845



20,312Loan 12. Investment loan, unsecured, non interest bearing with no fixed terms of repayment.


-



48,000$
985,071


$
985,041






(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 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 September 30, 2010, a total of $124,000 of this facility has been converted into 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.




10.
Due to Stockholders





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





In the three month period ended September 30, 2010, the stockholders advanced a further $41,238 to provide working capital.






(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 11




11.
Related Party Transactions and Balances




The following were charged to the Company by certain stockholders for services provided:


Three month

period ended

September 30,

2010



Three month

period ended

September 30,

2009a
)
Management and consulting fees

$
14,436


$
81,963b
)
General and administrative

$
-


$
14,480





In the three months ended September 30, 2010 these charges relate to services provided by the president and chief financial officer and were provided through companies owned or controlled by those individuals.  In the three months ended September 30, 2009 these charges 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 accrued liabilities is $162,400 (June 30, 2010 - $160,341) owed to certain stockholders for management fees, consulting fees and other expenses. Subsequent to quarter ended September 30, 2010, the stockholders have agreed to the issuance of 50,000,000 common shares at an issue price of $0.003 per share in settlement of $150,000 of this liability.




12.
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 July 6, 2009, the Board of Directors passed a resolution to issue 3,280,000 shares of common stock to investor relations companies and specified consultants for purpose of building market awareness. The shares were issued between July 7 and September 14, 2009.





On July 13, 2009, the Company issued 300,000 shares of the Company's common stock, pursuant to subscription agreements dated July 13, 2009, for cash consideration of $130,988.








(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 12






12.
Capital Stock (cont’d)




On September 19, 2009, at a meeting of the Board of Directors, the Company granted 2,500,000 stock options pursuant to the stock option plan established by the Company. In addition, the Board of Directors approved an allotment of 5,800,000 common stock of the Company, valued at $0.15 per share of common stock, to satisfy liabilities owed to directors and officers of the Company.





On November 24, 2009, the Company issued 3,125,000 shares of common stock to a company, in relation to marketing services provided for a value of $50,000.





On November 25, 2009, the Company issued 3,125,000 shares of common stock to a company, in relation to marketing services provided for a value of $50,000.





On December 1, 2009, the Company issued 1,500,000 shares of common stock for finance charges, in relation to the issuance of debt of $130,000.





On December 9, 2009, the Company issued 1,500,000 shares of common stock to a company pursuant to a six-month public and investor relation service contract for $60,000.





On December 18, 2009, the Company issued 8,750,000 shares of common stock in relation to legal services provided for a value of $87,500. The common stock has been put into an escrow account until May 31, 2010 and will be released back to the Company if the services are paid in full, prior to that date.





On January 18, 2010, the Company settled an outstanding debt of $300,000 plus interest through the issuance of 1,500,000 restricted shares of common stock of the Company.





On February 3, 2010, $50,000 of a loan payable was converted into 6,500,000 shares of common stock of the Company by the holder of the loan.





On March 1, 2010, the Company entered into a professional services agreement (the "PSA") with its corporate counsel, pursuant to which the Company agreed to issue 5,000,000 shares of its common stock to its corporate counsel as collateral for compensation for accrued and unpaid professional fees of $50,000 for the period between January 1, 2009 and June 30, 2009.





On March 1, 2010, the Company issued a total of 3,000,000 shares of its common stock to a director and Chairman of the Board of the Company. Of this total 1,500,000 shares were issued as indemnification for the foreclosure and seizure by a Company creditor of the identical number of a director's shares posted by the director as collateral for a loan by the creditor to the Company.  The remaining 1,500,000 shares were issued to the director at $0.01 a share as payment for $15,000 of accrued expenses.







(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 13




12.
Capital Stock (cont’d)





On March 1, 2010, $50,000 of a loan payable was converted into 7,500,000 shares of common stock of the Company by the holder of the loan.





On March 11, 2010, $24,000 of a loan payable was converted into 3,500,000 shares of common stock of the Company by the holder of the loan.





On March 11, 2010, a shareholder of the Company returned 1,500,000 shares to the Company's treasury.





On March 18, 2010, two shareholders of the Company returned a total of 2,000,000 shares to the Company's treasury.





On March 31, 2010, a shareholder of the Company returned 11,786,035 shares to the Company's treasury.





On May 5, 2010, the Company settled debt of $40,000 through the issuance of 8,000,000 restricted shares of common stock of the Company. The balance of the debt is still outstanding as at June 30, 2010.




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








Warrants




As at September 30, 2010 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 1.25 years, expiring December 31, 2011.





(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 14




12.
Capital Stock (cont’d)




Options





As at September 30, 2010, 2,500,000 options were outstanding, having an exercise price of $0.15 per share of common stock with a remaining contractual life of 2.23 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 has 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. As at September 30, 2010, these options have not been issued. 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.





13.
Income Taxes




No provision for Federal, state or provincial income taxes was required for the three month period ended September 30, 2010, 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.







(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 15




14.
Cash Flow Supplemental Information




Non-cash financing and investing activities are as follows:




Three month

period ended

September 30,

2010


Three month

period ended

September 30,

2009


Cumulative from

Inception

(November 7, 2005)

Through

June 30,

2010Issuance of shares for services rendered

$
-


$
-


$
1,071,579Issuance of shares to extinguish debt

$
48,000


$
-


$
553,897Issuance of shares from term note

$
-


$
-


$
1,500Acquisition of investment in an affiliated company through incurrence of liability

$
-


$
-


$
139,946Assumption of liabilities and loan on reverse merger transaction

$
-


$
-


$
105,029




During the three month period ended September 30, 2010 and 2009, the Company had cash flows arising from interest and income taxes paid as follows:
 
 2010


2009Income tax

$
-


$
-Interest

$
-


$
-


(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 16




15.
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.




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.




(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 17




16.
Subsequent Events




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. The individuals have declined to accept the shares and therefore the shares were retired and returned to treasury.




On November 2, 2010, the Company issued a convertible promissory note bearing interest at 12% per annum to a lender to secure new financing in the amount of $300,000. The Company has received $200,000, with the final $100,000 due and payable in the next month. The principal is due and payable November 2, 2011. Interest is payable quarterly in arrears. At the option of the lender, all or part of the principal may be paid by cancelling the amount sought to be converted through the issuance of the Company’s common stock at a discount of thirty-five per cent (35%) from the average bid and ask price of the common stock for ten days preceding the date selected for conversion. In the event that the shares of the Company trade at a price above $0.10 for a period of twenty (20) consecutive trading days, the Company may require the lender to convert the principal amount of the loan into shares of common stock at a conversion price equal to 35% below to 20 days average bid and ask prices. The Company issued the lender 7,500,000 restricted shares of its common stock as part of the loan transaction.




On November 8, 2010 the Company signed a contract with a service provider under which the Company is committed to an initial annual fee of approximately $50,000 and annual fees of approximately $5,000 per annum.




(The accompanying notes are an integral part of these condensed consolidated financial statements.)
 18





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.






19





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 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.





Liquidity and Capital Resources





In the three months ended September 30, 2010, the Company’s working capital position decreased by $117,234 since June 30, 2010 compared to a increase of $508,799 for the same period in the prior year. The working capital deficiency as at September 30, 2010 amounts to $2,100,013 compared to $1,982,797 as at June 30, 2010, the Company’s last fiscal year end. The increase in the working capital deficiency is primarily the result of additional accruals for costs and further cash advances by the stockholders.





During the three months ended September 30, 2010 the Company continued to look for additional working capital to finance its activities. 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 September 30, 2010, Consorteum had $22,277 in total current assets, compared to total current assets of $40,714 as of June 30, 2010. The current assets as at September 30, 2010 include cash of $4,015, other receivables of $11,414 and deferred finance charges of $6,848. The current assets as at June 30, 2010 include cash of $9,110, accounts receivable at $11,061 and deferred compensation costs of $20,543.





Current liabilities increased in the three months ended September 30, 2010 by $98,797 principally as a result of additional accrued expenses of $51,695 and an increase in advances from stockholders of $48,105. Total current liabilities total $2,122,308 as at September 30, 2010 compared to $2,023,511 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 Consorteum to move forward and management anticipates that delays will continue if funds are not available.





20





RESULTS OF OPERATIONS





Consorteum had no revenues in the three month periods ended September 30, 2010 or September 30, 2009.





Management and consulting fees totaled $14,436 for the three months ended September 30, 2010 compared to $254,796 for same period in the prior year, a decrease of $240,360 or 94%.  The decrease can be explained by the termination of management contracts as at June 30, 2010 and in the three months ended September 30, 2010 management and consultants were paid only for specific work completed. There are no existing management contracts for services.





General and administrative costs totaled $37,534 for the three month period ended September 30, 2010 compared to $116,440 for the three months ended September 30, 2009, a decrease of $78,906 or 68%.  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.





Selling expenses for the three months ended September 30, 2010 were $17,374 compared to nil for the same period in the prior year. In the three months ended September 30, 2010, the pilot project with the First Nations commenced and these costs are directly associated with the initial stage of the pilot project.





Interest and financing costs amounted to $49,746 for the three month period ended September 30, 2010 compared to $34,620 for three month period ended September 30, 2009. This increase of $15,1260  reflects the stable level of borrowing within the Company but reflects the additional cost of borrowing associated on a specific loan, triggered by a default situation, and the cost of the deferred finance charges.





For the three month period ended September 30, 2010 Consorteum had a net loss of $119,488 compared to a net loss of $428,618 for the three month period ended September 30, 2009. Loss per share for the three month period ended September 30, 2010 was $0.001 compared to $0.01 for the same period in the prior year.  The decrease in the size of the operating loss of $309,130 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.




21




GOING CONCERN





These  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  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, Consorteum 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 Consorteum received demand payment for the balance due under the credit facilities. On the same date, Consorteum received a notice of intention to enforce its security on the property which can be exercised at any time.  Notwithstanding on-going negotiations, Consorteum has been unable to come to terms with the secured party and has not settled the liability.





BALANCE SHEET





Total assets as at September 30, 2010 were $37,010 compared with $55,837 at June 30, 2010, representing a decrease of $18,827 or 34%. Substantially all of the decrease is accounted for by the amortization of deferred finance charges and use of the limited cash resources.





22





Current assets decreased by $18,437 in the three month period ended September 30, 2010 to stand at $22,277 with the principal change being represented by the amortization of deferred finance charges and use of cash resources.





Bank indebtedness decreased by $5,785 in the three month period ended September 30, 2010 and reflects a payment of principal of $9,527 and foreign exchange rate changes. As at September 30, 2010 bank indebtedness stands at $122,704.  Consorteum 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 againstConsorteum and certain individual guarantors. (Refer to note 8 to the Condensed Consolidated Financial Statements). The Bank has also issued notice of its intention to foreclose of its security. Consorteum is working with the bank to resolve the repayment issue.





Trade payables and accrued liabilities have increased $56,447 in the three month period ended September 30, 2010 and total $712,885. The increase can be attributed to the amounts 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 stand at $656,438.





The Company faced a continuing need for working capital in the three month period ended September 30, 2010 and was unable to secure additional loans payable in the period, compared to new loans and capitalized interest of $224,395 for the three months ended September 30, 2009. The increase in the balance sheet obligation in the three month period was associated with capitalized interest of $36,050 for the three month period ended September 30, 2010. Loan repayments in the period were limited to $9,141 despite significant pressure from the lenders for a reduction in the obligations. Loan repayments were $37,360 for the three months period ended September 30, 2009. Total loans outstanding are $985,071 as at September 30, 2010 compared to $985,041 as at June 30, 2010.





In the three month period ended September 30, 2010 stockholders advanced the company an additional $41,238 in advances to be used for working capital compared to $16,245 for the same period in the prior year. There were no repayments of stockholder advances in the three months ended September 30, 2010 compared to $142,705 in the same period in the prior year. As at September 30, 2010 a total of $301,648 is due to stockholders compared to $253,543 as at June 30, 2010.





Capital stock and Additional Paid in Capital increased in the three month period by $24,000 each, representing the issue of 24,000,000 common shares of the Company in settlement of a loan payable in the same amount. These shares were issued in September 2010 and were the only transaction on capital stock in the three month period ended September 30, 2010. In the prior year, the Company received $140,100 in proceeds from the issuance of capital stock.




23





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. The Company was not required to file the auditor's attestation report on internal control over financial reporting until it filed an annual report for its first fiscal year ending on or after June 30, 2009; however, the requirement for the attestation report was eliminated for smaller reporting companies under the Dodd-Frank Act of 2010.





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.





Item 4A.  Controls and Procedures.




24





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 September 30, 2010. 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.





None.





Item 1A.  Risk Factors.





None.





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





(a)  On October 18, 2010 the Company issued 500,000 restricted shares of its common stock to Genesis Ventures Group as a  fee for locating a new investor  and for services to be rendered to the Company.





(b)  On October 18, 2010 the Company issued 500,000 restricted shares of its common stock to Lori Ochman to replace an option for the same number of shares previously granted to her on January 12, 2010.





(c) On October 18, 2010 the Company issued 500,000 restricted shares of its common stock to Lori Ochman as an interest payment in lieu of cash for her outstanding loan to the Company.





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.








25








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.RegistrantNovember 22, 2010

/s/ Craig A. FieldingDate

Craig A. Fielding, CEONovember 22, 2010

/s/ Geoffrey William SmethurstDate

Geoffrey William Smethurst, CFO




EXHIBIT LIST




Exhibit No.

Document




31.1

Certification ofPrincipal 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 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.