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, 2009
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: 333-140236
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.)
Canada Suite 202 - 2900 John Street, Markham, Ontario L3R 5G3
---------------------------------------------------------------
(Address of Principal Executive Offices)
(866) 824-8854
--------------
(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 [ ].
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 December 10, 2009, the Company had 56,239,750 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND JUNE 30,
2009 3
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR
THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER
30, 2008, AND CUMULATIVE FOR THE PERIOD FROM INCEPTION
(NOVEMBER 7, 2005) THROUGH SEPTEMBER 30, 2009. 4
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008, AND
CUMULATIVE FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 2005)
THROUGH SEPTEMBER 30, 2009. 5
NOTES TO CONDENSED FINANCIAL STATEMENTS. 6
2
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Condensed Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)
SEPTEMBER 30 June 30
2009 2009
ASSETS
CURRENT ASSETS
Cash $ 1,486 $ 185
Accounts receivable 9,651 7,303
Prepaid expense 1,396 1,285
-----------------------------
TOTAL CURRENT ASSETS 12,533 8,773
INVESTMENTS IN AFFILIATED COMPANIES (Note 5) 70,763 86,123
EQUIPMENT, NET 6,807 6,774
-----------------------------
TOTAL ASSETS $ 90,103 $ 101,670
=============================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 6) $ 107,437 $ 87,765
Accounts payable 293,372 276,459
Accrued liabilities 1,044,274 1,730,325
Loans payable (Note 7) 1,093,150 917,944
Due to stockholders -- 30,779
-----------------------------
TOTAL CURRENT LIABILITIES 2,538,233 3,043,272
-----------------------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' DEFICIT
CAPITAL STOCK (Note 9)
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; 100,000,000
shares authorized; 56,239,750 shares (2009 -
46,859,750 shares) issued and outstanding. 56,240 46,860
DISCOUNT ON COMMON STOCK -- (116,224)
ADDITIONAL PAID IN CAPITAL 1,033,820 --
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (86,292) 151,042
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (3,451,898) (3,023,280)
-----------------------------
TOTAL STOCKHOLDERS' DEFICIT (2,448,130) (2,941,602)
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 90,103 $ 101,670
=============================
(The accompanying notes are an integral part of these condensed
financial statements.)
3
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Condensed Statements of Operations and Comprehensive Loss
For the Three-Month Periods Ended September 30, 2009 and 2008, and Cumulative for
the Period from Inception (November 7, 2005) Through September 30, 2009
(Expressed in U.S. Dollars)
(Unaudited)
Cumulative for
the period from
Inception
(November 7,
2005)
FOR THE THREE MONTH PERIODS ENDED Through
SEPTEMBER 30 September 30 September 30,
2009 2008 2009
REVENUES $ -- $ -- $ 246,417
---------------------------------------------------------
OPERATING EXPENSES
Management and consulting fees 254,796 147,452 2,056,301
General and administration expenses 116,440 33,218 902,608
Bad debt expense -- -- 99,738
Selling expenses -- -- 98,010
Depreciation expense 538 811 11,646
---------------------------------------------------------
TOTAL OPERATING EXPENSES 371,774 181,481 3,168,303
---------------------------------------------------------
LOSS FROM OPERATIONS (371,774) (181,481) (2,921,886)
---------------------------------------------------------
OTHER EXPENSES
Equity in net loss of an affiliated company (22,224) (4,444) (254,773)
Write off of investment in an affiliated company -- -- (78,783)
Interest and financing costs (34,620) (20,339) (196,456)
---------------------------------------------------------
TOTAL OTHER EXPENSES (56,844) (24,783) (530,012)
---------------------------------------------------------
NET LOSS (428,618) (206,264) (3,451,898)
Foreign currency translation adjustment (237,334) 82,329 (86,292)
---------------------------------------------------------
COMPREHENSIVE LOSS $ (665,952) $ (123,935) $ (3,538,190)
=========================================================
LOSS PER SHARE
BASIC $ (0.01) $ (0.00)
===================================
DILUTED $ (0.01) $ (0.00)
===================================
WEIGHTED AVERAGE NUMBER SHARES OUTSTANDING -
BASIC AND DILUTED 49,784,859 69,854,695
===================================
(The accompanying notes are an integral part of these condensed
financial statements.)
4
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Condensed Statements of Cash Flows
For the Three-Month Periods Ended September 30, 2009 and 2008, and Cumulative for the
Period from Inception (November 7, 2005) Through September 30, 2009
(Expressed in U.S. Dollars)
(Unaudited)
Cumulative for
the period from
Inception
FOR THE THREE MONTH PERIODS ENDED (November 7, 2005)
SEPTEMBER 30 September 30 Through September
2009 2008 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (428,618) $ (206,264) $(3,451,899)
Adjustments for non-cash items:
Equity in net loss of an affiliated company 22,224 4,444 254,773
Writeoff of investment in an affiliated
company -- -- 78,213
Depreciation 538 811 11,646
Stock issued for services rendered -- -- 35,579
Options issued 158,436 -- 158,436
Changes in non-cash working capital, net
of effects from reverse merger
transaction:
Accounts receivable (1,718) (283) (9,925)
Prepaid expenses -- -- (1,282)
Accounts payable -- 69,638 222,266
Accrued liabilities 43,841 97,886 1,768,751
-----------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (205,297) (33,768) (933,441)
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment -- -- (19,249)
Acquisition of investment in affiliated
companies -- -- (286,916)
-----------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES -- -- (306,165)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 224,395 73,960 1,189,370
Repayment of loan (37,360) -- (41,649)
Proceeds from bank indebtedness 19,884 -- 129,750
Repayment of bank indebtedness (7,786) (4,003) (14,728)
Proceeds from issuance of capital stock 140,100 -- 140,186
Repayments of stockholders' advances (53,180) (51,868) (1,269,190)
Proceeds from stockholders' advances 16,245 -- 1,271,570
Repayment from related party (89,525) -- (89,525)
-----------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 212,773 18,089 1,315,784
-----------------------------------------------
EFFECT OF EXCHANGE RATE CHANGE ON CASH (6,175) (334) (75,692)
-----------------------------------------------
NET INCREASE IN CASH 1,301 16,013 1,486
CASH - BEGINNING OF PERIOD 185 16,066 --
-----------------------------------------------
CASH - END OF PERIOD $ 1,486 $ 53 $ 1,486
===============================================
(The accompanying notes are an integral part of these condensed
financial statements.)
5
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
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. While Holdings is the
legal parent, Consorteum became the parent for accounting purposes.
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 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, 2009, the Company had a negative working capital of
$2,525,700 (June 30, 2009 - $3,034,499) and a deficit accumulated during
the development stage of $3,451,898 (June 30, 2009 - $3,023,280).
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 financial statements could be
material.
6
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
1. ORGANIZATION, DEVELOPMENT STAGE ACTIVITIES, AND GOING CONCERN (cont'd)
Going Concern Assumption (cont'd)
---------------------------------
The accompanying condensed 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.
2. BASIS OF PRESENTATION
The accompanying condensed financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") for interim financial information.
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. In the opinion of the
Company's management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended September 30, 2009 are
not necessarily indicative of the results that may be expected for the
full fiscal year ending June 30, 2010. The accompanying condensed
financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the fiscal year ended
June 30, 2009. The Company has evaluated subsequent events for recognition
or disclosure through December 10, 2009, which was the date we filed this
Form 10-Q with the SEC.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2009-05, "Measuring Liabilities at
Fair Value" ("ASU 2009-05"), which clarifies, among other things, that
when a quoted price in an active market for the identical liability is not
available, an entity must measure fair value using one or more specified
techniques. ASU 2009-05 was effective for the first reporting period,
including interim periods, beginning after issuance. The Company adopted
the update effective July 1, 2009, with no impact on its financial
statements.
In October 2009, the FASB issued ASU 2009-13, "Multiple-Deliverable
Revenue Arrangements" ("ASU 2009-13"). ASU 2009-13 applies to revenue
arrangements currently in the scope of FASB ASC Subtopic 605-25, "Multiple
Element Arrangements", and provides principles and application guidance on
whether arrangements with multiple deliverables exist, how the
deliverables should be separated, and the consideration allocated to the
deliverables. ASU 2009-13 is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning
on or after June 15, 2010. The Company is currently reviewing the effect,
if any, the proposed guidance will have on its financial statements.
7
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
4. FAIR VALUE MEASUREMENTS
The Company adopted SFAS No. 157, except as it applies to the nonfinancial
assets and nonfinancial liabilities subject to FSP SFAS No. 157-2. SFAS
No. 157 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, SFAS No. 157
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), accounts
receivable, 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. INVESTMENTS IN AFFILIATED COMPANIES
SEPTEMBER 30, June 30,
2009 2009
Acquisition costs
49% ownership interest in My
Golf Rewards Canada Inc. $ 343,502 $ 343,502
-------------------------
Accumulated equity in net loss of
My Golf Rewards Canada Inc.
Balance, beginning of period (257,379) (224,945)
Equity in net loss for the period (22,224) (17,777)
Translation adjustment 6,864 (14,657)
-------------------------
Balance, end of period (272,739) (257,379)
-------------------------
Total $ 70,763 $ 86,123
=========================
8
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
6. BANK INDEBTEDNESS
Bank indebtedness is comprised of a Royal Bank of Canada ("RBC") demand
term loan, in the amount of $87,553 (June 30, 2009 - $87,765) and an
overdraft of $19,884 (June 30, 2009 - $nil). Starting July 2008, the loan
is repayable on a monthly basis at $1,792 plus interest, at RBC's prime
rate plus 2% per annum. The loan matures June 2013. The loan is secured by
a general security agreement signed by the Company constituting a first
ranking security interest in all personal properties of the Company and
personal guarantees from certain stockholders.
7. LOANS PAYABLE
SEPTEMBER 30 June 30
2009 2009
Loan 1
Investment loan, secured against shares of Company,
interest rate of 18% per annum, no fixed terms of
repayment. $ 357,584 $ 315,188
Loan 2
Investment loan, secured against shares of the Company,
interest rate of 18% per annum, principal due
February 13, 2010. 259,907 229,091
Loan 3
Investment loan, unsecured, bearing no interest,
no fixed terms of repayment. 140,100 146,166
Loan 4
Investment loan, secured against 1,000,000
shares of an individual stockholder, matures
end of November 2009. 100,000 -
Loan 5
Investment loan, unsecured, interest rate of 18%
per annum, no fixed terms of repayment. 90,368 83,887
Loan 6
Investment loan, unsecured, interest rate of 18%
per annum, no fixed terms of repayment. 37,802 45,992
9
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
7. LOANS PAYABLE (cont'd)
Loan 7
Investment loan, unsecured, interest rate of 18%
per annum, no fixed terms of repayment. $ 30,152 $ 26,577
Loan 8
Investment loan, unsecured, interest rate of 18%
per annum, principal due October 25, 2009. 26,251 23,138
Loan 9
Investment loan, unsecured, interest rate of 18%
per annum, principal due February 17, 2010. 25,986 22,905
Loan 10
Investment loan, unsecured, bearing no interest,
no fixed terms of repayment. 25,000 25,000
-------------------------------------
$ 1,093,150 $ 917,944
=====================================
8. RELATED PARTY TRANSACTIONS AND BALANCES
The following were charged to the Company by certain stockholders for
services provided:
SEPTEMBER 30 September 30
2009 2008
a) Management and consulting fees $ 81,963 $ 72,045
=====================================
b) General and administrative $ 14,480 $ 7,205
=====================================
These transactions were in the normal course of business and recorded at
an exchange value established and agreed upon by the related parties.
Included in accrued liabilities is $462,700 (June 30, 2009 - $1,126,109)
owed to certain stockholders for management fees, consulting fees and
other expenses.
10
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
8. RELATED PARTY TRANSACTIONS AND BALANCES (cont'd)
Included in accounts payable is $133,282 (June 30, 2009 - $122,693) owed
to My Golf Rewards Canada Inc., an affiliated company, as part of the
Company's equity investment obligation (see Note 5).
9. CAPITAL STOCK
Deficit
Discount Accumulated Accumulated
Preferred Stock Common Stock on Additional Other During the Total
----------------- ------------------ Common Paid-In Comprehensive Development Stockholders'
Shares Amount Shares Amount Stock Capital Income (Loss) Stage Deficit
-----------------------------------------------------------------------------------------------------------
Balance - June 30, 2009 - $ - 46,859,750 $46,860 $(116,224) $ - $ 151,042 $(3,023,280) $(2,941,602)
Common stock issued
for market awareness 3,280,000 3,280 (3,280) - -
Common stock issued
for cash 300,000 300 119,504 11,184 130,988
Common stock issued
for services 5,800,000 5,800 - 864,200 870,000
Options issued 158,436 158,436
Foreign currency
translation adjustment (237,334) (237,334)
Net loss for the period (428,618) (428,618)
-----------------------------------------------------------------------------------------------------------
Balance - September 30, 2009 - $ - 56,239,750 $56,240 $ - $1,033,820 $ (86,292) $(3,451,898) $(2,448,130)
===========================================================================================================
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
a value of $130,988.
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.
WARRANTS
As at September 30, 2009, 4,140,000 warrants were outstanding, having an
exercise price of $0.001 per share of common stock with a remaining
contractual life of 2.25 years.
OPTIONS
As at September 30, 2009, 2,500,000 options were outstanding, having an
exercise price of $0.15 per share of common stock with a remaining
contractual life of 2.98 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.
11
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
10. INCOME TAXES
No provision for Federal or state income taxes was required for the period
ended September 30, 2009, due to the Company's operating losses. At
September 30, 2009, the Company has unused net operating loss
carry-forwards of approximately $2,763,451 which expire at various dates
through 2029. Most of this amount is subject to annual limitations under
certain provisions of the Internal Revenue Code related to "changes in
ownership".
As of September 30, 2009, the deferred tax assets related to the
aforementioned carry-forwards have been fully offset by valuation
allowances, since utilization of such amounts is not presently expected in
the foreseeable future.
11. CASH FLOW SUPPLEMENTAL INFORMATION
During the period, the Company had cash flows arising from interest and
income taxes paid as follows:
Cumulative for the
period from
Inception
(November 7, 2005)
SEPTEMBER 30 September 30 Through
2009 2008 September 30, 2009
Income tax $ -- $ -- $ --
===========================================
Interest $ -- $ -- $ 57,104
===========================================
12
CONSORTEUM HOLDINGS, INC.
(FORMERLY IMPLEX CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Notes to Condensed Financial Statements
September 30, 2009 and 2008
(Expressed in U.S. Dollars)
(Unaudited)
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space under a non-cancellable operating lease,
expiring May 2010. The Company's remaining commitment for minimum rent for
2010 is approximately $13,600.
In addition, the Company has contractual commitments for various
management and consulting fees and general and administrative expenses
totaling approximately $554,500 for 2010. Of this amount, approximately
$296,700, is committed to certain stockholders of the Company.
The Company entered into a loan agreement for $100,000 whereby upon
maturity, the loan will be repaid with an additional $100,000 bonus
payment in November 2009. In addition, a holder of 1,000,000 shares of
Consorteum will pledge such shares as security for the repayment of the
loan.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
EXECUTIVE LEVEL OVERVIEW
Consorteum, Inc. (hereafter "the Company") was incorporated under the
laws of the Province of Ontario on April 3, 2006. On June 15, 2009, the Company
became a wholly-owned subsidiary of Consorteum Holdings, Inc., a Nevada
corporation ("CHI" or the "Parent"), as a result of the closing under an
agreement and plan of exchange pursuant to which all of Consorteum Inc.
stockholders exchanged all of their issued and outstanding shares of Consorteum
Inc. for an equivalent number of shares of common stock of CHI. As a result of
the exchange agreement closing, Consorteum Inc. will function as the operating
company and CHI will be a holding company.
The Company will focus on providing leading edge solutions to financial
institutions, healthcare, government, associations, and private sector companies
for electronic transaction processing and systems integration. The Company's
services provide customized, innovative technology solutions that create,
augment and enhance customers' existing systems. These enhancements and programs
are aimed to serve underserved markets and provide equal opportunity for
financial services to a greater audience. The Company works with a multitude of
global technology partners that enable the Company to create customized
solutions for each of its clients across a broad spectrum of industries.
Until the closing of the exchange agreement, the Company relied on
financing from sales of its common stock to related parties and private lending
arrangements with individual investors. Management believes the Company's
changed status as a subsidiary of a public company will make it easier to attain
working capital stability, allowing the Company to grow and meet its operational
forecast. The Company must raise an estimated total of $600,000 of operating
capital in order to implement the first phases of the various contract
initiatives described in Item 1 entitled "The Business" in its filing on Form
10-K for the year ended June 30, 2009. To the extent that the Company receives
less than the amount sought or receives it over time instead of as one payment,
management will be required to select which initiatives to deploy and which to
defer pending the receipt of additional funding.
The Company is currently in negotiations with more than one source of
potential investor funding for the Company; however, the amount, terms and
conditions of any such investment are still to be determined, and there can be
no assurance that any such negotiations will result in a closing for all of the
funds needed or be concluded successfully at all.
The Company has several contracts in place that will begin in the
fourth quarter of 2009. The Company will earn the majority of its revenue in the
near future from debit and credit card transaction fees and in longer term
payroll card fees.
The financial results of the first quarter of 2009 are reflective of a
Company in initial stages that has been focused on growing the proper management
team, putting infrastructure in place and organizing the initial phases of
implementation of its existing contracts.
14
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009, the Company had $12,533 in total current
assets, compared to total current assets of $8,773 as of June 30, 2009. The
September 30, 2009 current assets were comprised of $1,486 in cash, $9,651 in
accounts receivable and $1,396 in prepaid expenses.
As of September 30, 2009, the Company's fixed assets consisted of
computer equipment valued at $18,690 less accumulated depreciation of $11,883.
Until the Company has the necessary financial operating capital to
execute its business plan, revenues will be limited due to program deployment
delays. Many of the existing contracts and initiatives require capital
expenditure by the Company.
RESULTS OF OPERATIONS
The Company had revenues of $nil for the quarter ended September 30,
2009, compared with $nil for the quarter ended September 30, 2008. For the
quarter ended September 30, 2009, the Company had a net loss of $428,618
compared to a net loss of $206,264 for the quarter ended September 30, 2008.
Operating expenses increased from $181,481 for the quarter ended September 30,
2008 to $371,774 for the quarter ended September 30, 2009. The majority of this
increase can be attributed to an increase in management and consulting fees.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not currently have any off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS
The Company does not have any significant contractual obligations with
the exception of a contract to pay $100,000 in four equal quarterly installments
of $25,000 to Fidelisoft under a software licensing agreement for the period
September 2009 through August 2010.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and judgments that affect our reported assets,
liabilities, revenues, and expenses, and the disclosure of contingent assets and
liabilities. We base our estimates and judgments on historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
Future events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements, we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:
Risk and Uncertainties
Factors that could affect the Company's future operating results and
cause future results to vary materially from expectations include, but are not
limited to, lower than anticipated retail transactions, and inability to control
expenses, technology changes in the industry, relationships with processing
agencies and networks, changes in its relationship with related parties
providing operating services to the Company and general uncertain economic
conditions. Negative developments in these or other risk factors could have
material adverse effects on the Company's future financial position, results of
operations and cash flow.
15
Cash and Cash equivalents
The company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents. There are no cash
equivalents at September 30, 2009 or September 30, 2008.
Equipment, net
Equipment is recorded at cost. Depreciation, based on the estimated
useful life of the equipment, is provided at an annual rate of 30% based on the
declining-balance method.
Impairment of long lived assets
In accordance with Statement of Financial Accounting Standard ("SFAS")
No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS," long
lived assets to be held and used are analyzed for impairment whenever events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. The Company evaluates at each balance sheet date whether events and
circumstances have occurred that indicate possible impairment. If there are
indications of impairment, the Company uses future undiscounted cash flows of
the related asset or asset grouping over the remaining life in measuring whether
the assets are recoverable. In the event such cash flows are not expected to be
sufficient to recover the recorded asset values, the assets are written down to
their estimated fair value. Long lived assets to be disposed of are reported at
the lower of carrying amount or fair value of asset less cost to sell. As
described in Note 1, the long-lived assets have been valued on a going concern
basis. However, substantial doubt exists as to the ability of the Company to
continue as a going concern. If the Company closes operations, the asset values
may be materially impaired.
Accounts Receivable
The Company carries its accounts receivable at invoice amount, less an
allowance for doubtful accounts. On a periodic basis, the Company evaluates its
accounts receivable and establishes an allowance for doubtful accounts, based on
a history of past write-offs and collections and current credit conditions.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 104, Revenue Recognition ("SAB 104"). SAB 104 requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services have
been rendered; (3) the selling price is fixed and determinable; and (4)
collectability is reasonably assured.
Equity Investments
Equity investments include entities over which the Company exercises
significant influence but does not exercise control. These are accounted for
using the equity method of accounting and are initially recognized at cost net
of any impairment losses. The Company's share of these entities' profits or
losses after acquisition of its interest is recognized in the statement of
operations and cumulative post-acquisition movements are adjusted against the
carrying amount of the investment. When the Company's share of losses of these
investments equals or exceeds the carrying amount of the investment, the Company
only recognizes further losses where it has incurred obligations or made
payments on behalf of the affiliate.
Joint ventures are entities over which the Company exercises control
jointly with another party or parties. Joint ventures are also accounted for
under the equity method as described above.
16
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"ACCOUNTING FOR INCOME TAXES." Deferred tax assets and liabilities are recorded
for differences between the financial statement and tax basis of the assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is recorded for the amount of income tax payable or
refundable for the period increased or decreased by the change in deferred tax
assets and liabilities during the period.
Foreign Currency Translations
In accordance with the provision of SFAS No. 52, "FOREIGN CURRENCY
TRANSLATION," the company, whose functional currency is the Canadian dollar,
translates its balance sheet into U.S. dollars at the prevailing rate at the
balance sheet date and translates its revenues and expenses at the average rates
prevailing during each reporting period. Net gains or losses resulting from the
translation of financial statements are accumulated and charged directly to
accumulated comprehensive income or (loss), a component of stockholders' equity
or (deficit). Realized gains or losses resulting from foreign currency
transactions are included in operations for the period.
Comprehensive Income and Loss
The Company applies the provisions of SFAS No. 130, "REPORTING
COMPREHENSIVE INCOME." Unrealized gains and losses from foreign exchange
translation are reported in the accompanying statements as comprehensive income
or loss.
Earnings or loss per share
The Company accounts for earnings or loss per share pursuant to SFAS
No. 128, "EARNINGS PER SHARE," which requires disclosure on the financial
statements of "basic" and "diluted" earnings (loss) per share. Basic earnings
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the year. Diluted earnings
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding plus potentially dilutive securities
outstanding for each year. The computation of diluted earnings (loss) per share
has not been presented as its effect would be anti-dilutive.
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. These estimates are based on management's
best knowledge of current events and actions the company may undertake in the
future. Actual results may ultimately differ from those estimates. These
estimates are reviewed on an ongoing basis and as adjustments become necessary,
they are reported in earnings in the period in which they become known.
Financial instruments
Unless otherwise noted, it is management's opinion that the Company is
not exposed to significant interest, currency or credit risks arising from the
financial instruments. The fair value of the financial instruments approximates
their carrying values, unless otherwise noted.
17
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest risk or currency risk and are fully dependent upon the
volatility of these rates. The Company does not use derivative instruments to
moderate its exposure to financial risk, if any.
Concentration of credit risk
SFAS No. 105, "Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentration of
Credit Risk," requires disclosure of any significant off-balance-sheet risk and
credit risk concentration. The Company does not have significant
off-balance-sheet risk or credit concentration. The Company maintains cash with
major financial institutions. From time to time, the Company has funds on
deposit with commercial banks that exceed federally insured limits. Management
does not consider this to be a significant credit risk as these banks and
financial institutions are well-known.
Comparative financial information
Certain financial information for the year ended June 30, 2009, has
been reclassified to conform with the financial statement presentation adopted
in the current year.
Recent accounting pronouncements
In August 2009, the FASB issued Accounting Standards Update ("ASU")
2009-05, "Measuring Liabilities at Fair Value" ("ASU 2009-05"), which clarifies,
among other things, that when a quoted price in an active market for the
identical liability is not available, an entity must measure fair value using
one or more specified techniques. ASU 2009-05 was effective for the first
reporting period, including interim periods, beginning after issuance. The
Company adopted the update effective July 1, 2009, with no impact on its
financial statements.
In October 2009, the FASB issued ASU 2009-13, "Multiple-Deliverable
Revenue Arrangements" ("ASU 2009-13"). ASU 2009-13 applies to revenue
arrangements currently in the scope of FASB ASC Subtopic 605-25, "Multiple
Element Arrangements", and provides principles and application guidance on
whether arrangements with multiple deliverables exist, how the deliverables
should be separated, and the consideration allocated to the deliverables. ASU
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. The
Company is currently reviewing the effect, if any, the proposed guidance will
have on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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.
18
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 is not required to file the
auditor's attestation report on internal control over financial reporting until
it files an annual report for its first fiscal year ending on or after June 30,
2009.
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 4T. 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 September 30, 2009. 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, and we also do not have
any person with the qualifications to serve as an audit committee financial
expert.
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.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
The following risk factors apply to the company, its business, the
industry in which it operates and the common stock and market in which it
trades. They should be read carefully by anyone with an interest in the company
who should consider the information together with the other material in this
report. Some of the statements in "Risk Factors" are forward looking statements.
RISKS RELATED TO OUR BUSINESS OPERATIONS
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN
UNLESS WE RAISE SUBSTANTIAL AMOUNTS OF CAPITAL.
In its report dated September 29, 2009, the independent registered
public accounting firm for the company stated that the financial statements for
the years ended June 30, 2009 and 2008 and for the period of inception (November
7, 2005) to June 30, 2009, were prepared assuming that the company would
continue as a going concern. Our ability to continue as a going concern is an
issue raised as a result of cash flow constraints, an accumulated deficit of
$3,451,898 at September 30, 2009 and recurring losses from operations. We
continue to experience losses. Our ability to continue as a going concern is
subject to the ability to generate a profit from new activities and/or obtain
necessary funding from outside sources, including additional funds from the sale
of the company's securities or loans from financial institutions/individuals
where possible. The continued operating losses and stockholders' deficit
increases the difficulty in meeting such goals and there can be no assurances
that such methods will prove successful, or that these funds will be available
at the times or in the amounts required on terms acceptable to us.
WE HAVE A LIMITED OPERATING HISTORY
Although we were incorporated in 2006, we are a development stage
company. We have a limited operating history and will likely encounter the risks
and difficulties frequently encountered by early stage companies. Such risks
include, without limitation, the following:
o amount and timing of operating costs and capital expenditures
in relation to expansion of our business, operations, and
infrastructure;
o timeline to develop, test, coordinate, market and sell our
card programs and processing procedures;
o negotiation and implementation of strategic alliances or
similar arrangements with companies with sufficient resources
to support our programs and processing transactions;
o need for acceptance of products;
o ability to anticipate and adapt to a competitive market and
rapid technological developments; and
o dependence upon key personnel.
We cannot be certain our strategy will be successful or that we will
successfully address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition and results of
operations could be materially and adversely affected.
WE HAVE LIMITED SALES, MARKETING, AND DISTRIBUTION CAPABILITIES. WE
WILL BE REQUIRED TO EITHER DEVELOP SUCH CAPABILITIES OR TO OUTSOURCE THESE
ACTIVITIES TO THIRD PARTIES.
20
We currently have limited sales, marketing and distribution
capabilities. In order to succeed, we will be required to either develop such
capabilities or to outsource these activities to third parties. We can provide
no assurance that third parties will be interested in acting as our outsourced
sales, marketing, and distribution arms on a timely basis, on commercially
reasonable terms, or at all. If we are unable to establish sales, marketing, or
distribution capabilities either by developing our own organization or by
entering into agreements with others, we may be unable to successfully sell any
products that we are able to begin to commercialize, which would have a material
adverse effect upon our business, prospects, financial condition, and results of
operations. Further, in the event that we are required to outsource these
functions on disadvantageous terms, we may be required to pay a relatively large
portion of our net revenue to these organizations, which would have a material
adverse effect upon our business, prospects, financial condition, and results of
operations.
RISKS RELATING TO THE CREDIT CARD AND TRANSACTION PROCESSING INDUSTRY
THE LEVEL OF TRANSACTIONS GENERATED BY OUR DIFFERENT CARD PROGRAMS IS
SUBJECT TO SUBSTANTIAL SEASONAL VARIATION WHICH MAY CAUSE OUR QUARTERLY RESULTS
TO FLUCTUATE MATERIALLY.
Our experience is that the level of transactions is subject to seasonal
variation. Transaction levels have consistently been higher in the last quarter
of the year due to increased use of our prepaid credit card programs during the
holiday season. Transaction levels are greater for our loyalty and reward
programs during the second and third quarter of the year. The level of
transactions drops in the first quarter, during which transaction levels are
generally the lowest we experience during the year. As a result of these
seasonal variations, our quarterly operating results, which depend in part on
the number and value of the transactions processed, may fluctuate materially.
THE STABILITY AND GROWTH OF MULTIPLE TYPES OF CARD PROGRAMS DEPENDS ON
MAINTAINING AGREEMENTS WITH SPONSORSHIP BANKS, SOFTWARE PROVIDERS AND
PROCESSORS.
All of our supplier agreements such as those with banks, processing
companies and software companies, have expiration dates. Although our suppliers
are generally obligated to renew our agreements, they may have the option not to
do so. Therefore, one or more of our critical suppliers such as a bank or
processing company may terminate its contract at expiration. Although we would
have notice of any such decision, we may not be able to replace the relationship
in a timely manner or on favorable economic terms or at all. The requirement to
replace any critical supplier relationship would also generate additional costs
in the replacement process. The inability to maintain or replace these
agreements could have a material adverse effect on our business, and financial
condition or results of operations.
WE DO NOT CONTROL THE TRANSACTION FEES FOR SOME OF OUR PROGRAMS IN THE
MARKETS WHERE THEY OPERATE. THE INTERCHANGE FEES CHARGED AND SHARED ARE
ESTABLISHED BY THE SPONSORING PROCESSORS OR FINANCIAL INSTITUTIONS.
The amount of fees we receive per transaction is set in the markets in
which we do business. We have and will continue to have card acceptance
agreements with some banks under which fees are set. Also, we derive a portion
of our revenues from "interchange fees" that are set by processors, financial
institutions and the major card associations. We are not in a position to
influence these fees. A significant decrease in the interchange fee could
adversely affect our revenues.
21
WE ARE DEPENDENT UPON ELECTRONIC FINANCIAL TRANSACTION PROCESSORS OR
THE CARD ISSUING INSTITUTION TO PROVIDE ASSISTANCE IN OBTAINING SETTLEMENT OF
FUNDS RELATING TO INTERCHANGE REVENUE AS WELL AS OTHER TRANSACTIONS FEES AGREED
UPON.
We have agreements in place related to transaction based fee revenues
on credit and debit cards issued by banks. We also have in place arrangements
for the settlement of these types of transactions, but in some cases we do not
have a direct relationship with the card-issuing bank and we rely for settlement
on the regulation rules that are administered by card associations (such as Visa
or MasterCard and others). These contracts are typically terminable by a bank or
processing company on 90 days notice. We have arrangements in place with our
processing partners or card sponsoring institution to collect our fees via
revenue splits at point of origin. The termination of a contract with any one of
these parties could result in the loss of revenues.
A LACK OF BUSINESS OPPORTUNITIES OR FINANCIAL RESOURCES MAY IMPEDE OUR
ABILITY TO EXPAND AT DESIRED LEVELS, AND OUR FAILURE TO EXPAND OPERATIONS COULD
HAVE AN ADVERSE IMPACT ON ITS FINANCIAL CONDITION.
Our plans and opportunities will be focused on card issuing,
transaction processing and providing financial services to our varied client
base. The expansion and development of our business will depend on various
factors including the following:
o The demand for our card products, transaction processing and
financial services product by the current markets.
o The ability to form the appropriate relationships and obtain
necessary approvals for the installation of our card programs.
o The ability to install a transaction processing solution in an
efficient and timely manner.
o The ability to issue a sufficient numbers of cards which
relate to loyalty, rebate, reward, prepaid and other card
programs.
o The availability of financing for the expansion of our
business through partnerships, acquisition and hiring of
additional personnel.
o The increased acceptance of our card products in our target
markets.
o The increase of transaction fees revenue we receive.
o The deployment of larger numbers of the different card types
by us, and our different distribution channels
o The continued use of our card product by cardholders.
We expect that transaction levels on a newly created card program in a
developing market will not increase significantly. We will work to improve the
levels of usage of the card products by acquiring high-quality clients and
eliminating less-developed potential markets and adding new transactions types
that are compatible with our different products. However, we may not be
successful in materially increasing transaction levels through these measures.
OUR LOSS OF CURRENT RELATIONSHIPS WITH PROCESSORS, CARD PLANS AND
FINANCIAL INSTITUTIONS WILL HAVE A MATERIAL ADVERSE EFFECT ON FUTURE REVENUES
AND PROSPECTS.
Our revenue will be derived primarily from fees paid by users of our
card products, by fees shared between us and the processors and also by the
interchange revenues shared with the major card plan providers. Therefore, our
future success will be dependant on our ability to increase the transaction and
fee revenues that are created which are greater than our expenses. There can be
no assurances that our efforts to achieve this in the beginning will be
successful.
22
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH THE LEADING SERVICE
PROVIDERS WHO ARE MORE ESTABLISHED AND BETTER CAPITALIZED THAN US.
We experience significant competition from banks, non-bank providers of
card programs, major processors as well as multiple card program suppliers. Many
of our competitors have materially greater financial resources than us and can
therefore implement ever changing technological developments to meet the level
of convenience that consumers demand. No assurance can be given that we will be
able to compete successfully with our more established and better-capitalized
competitors.
RISKS RELATED TO OUR SHARES
IN RECENT YEARS, THE STOCK MARKET IN GENERAL HAS EXPERIENCED PERIODIC PRICE AND
VOLUME FLUCTUATIONS. THIS VOLATILITY HAS HAD A SIGNIFICANT EFFECT ON THE MARKET
PRICE OF SECURITIES ISSUED BY MANY COMPANIES FOR REASONS OFTEN UNRELATED TO
THEIR OPERATING PERFORMANCE. THESE BROAD MARKET FLUCTUATIONS MAY ADVERSELY
AFFECT OUR STOCK PRICE, REGARDLESS OF OUR OPERATING RESULTS. THE MARKET PRICE OF
OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.
The price of our common stock is quoted on the OTCBB and constantly changes. We
expect that the market price of the common stock will continue to fluctuate.
These fluctuations may result from a variety of factors, many of which are
beyond our control. These factors include:
o quarterly variations in our financial results;
o operating results that vary from the expectations of
management, securities analysts and investors;
o changes in expectations as to our business, prospects,
financial condition, and results of operations;
o announcements by us or our competitors of material
developments;
o the operating and securities price performance of other
companies that investors believe are comparable to us;
o future sales of our equity or equity-related securities;
o changes in general conditions in our industry and in the
economy, the financial markets and the domestic or
international political situation;
o departures of key personnel; and
o regulatory and intellectual property considerations.
FUTURE SALES OF COMMON STOCK OR THE ISSUANCE OF SECURITIES SENIOR TO OUR COMMON
STOCK OR CONVERTIBLE INTO, OR EXCHANGEABLE OR EXERCISABLE FOR, OUR COMMON STOCK
COULD MATERIALLY ADVERSELY AFFECT THE TRADING PRICE OF THE COMMON STOCK, AND OUR
ABILITY TO RAISE FUNDS IN NEW EQUITY OFFERINGS.
Future sales of substantial amounts of our common stock or other equity-related
securities in the public market or privately, or the perception that such sales
could occur, could adversely affect prevailing trading prices of our common
stock and could impair our ability to raise capital through future offerings of
equity or other equity-related securities. We can make no prediction as to the
effect, if any, that future sales of shares of common stock or equity-related
securities, or the availability of shares of common stock for future sale, will
have on the trading price of our common stock. There are currently 6,860,000
shares of our common stock available for sale.
23
OUR COMMON STOCK IS SUBJECT TO THE PENNY STOCK REGULATIONS THAT IMPOSE
RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON STOCK. AS A CONSEQUENCE, THE
ABILITY OF OUR STOCKHOLDERS TO SELL SHARES OF OUR COMMON STOCK COULD BE
IMPAIRED.
The Securities and Exchange Commission (the "Commission") has adopted
regulations that generally define a "penny stock" to be an equity security that
has a market price of less than $5.00 per share or an exercise price of less
than $5.00 per share subject to certain exceptions that are not applicable to
our company at present. Our common stock is subject to the penny stock rules
that impose additional sales practice requirements on broker-dealers who sell
these securities to persons other than established customers and accredited
investors. The regulations require that prior to any transaction involving a
penny stock, a risk disclosure schedule must be delivered to the buyer
explaining the penny stock market and its risks. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase, and must have received the purchaser's written consent to the
transaction prior to sale. As such the market liquidity for the common stock
will be limited to the ability of broker-dealers to sell it in compliance with
the above-mentioned disclosure requirements.
You should be aware that, according to the Commission, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:
o control of the market for the security by one or a few
broker-dealers;
o "boiler room" practices involving high-pressure sales tactics;
o manipulation of prices through prearranged matching of
purchases and sales;
o the release of misleading information;
o excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
o dumping of securities by broker-dealers after prices have been
manipulated to a desired level, which hurts the price of the
stock and causes investors to suffer loss.
We are aware of the abuses that have occurred in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, we will strive within
the confines of practical limitations to prevent such abuses with respect to our
common stock.
FAILURE TO REMAIN CURRENT IN REPORTING REQUIREMENTS COULD RESULT IN DELISTING
FROM THE OVER THE COUNTER BULLETIN BOARD.
Companies trading on the Over the Counter Bulletin Board ("OTCBB"),
such as the Company, must be reporting issuers under Section 12 of the Exchange
Act, and must be current in their reports under Section 13, in order to maintain
price quotation privileges on the OTCBB. If the Company fails to remain current
in its reporting requirements, the Company could be delisted from the Bulletin
Board.
In addition, the Financial Industry Regulatory Authority ("FINRA"),
which supervises the OTCBB, has adopted a change to its Eligibility Rule, in a
filing with the SEC. The change makes those OTCBB issuers that are cited for
filing delinquency in their Form 10-K/Form 10-Q three times in a 24-month period
and those OTCBB issuers removed for failure to file such reports two times in a
24-month period ineligible for quotation on the OTCBB for a period of one year.
Under this rule, a company filing with the extension time set forth in a Notice
of Late Filing (Form 12b-25) is not considered late. This rule does not apply to
a company's Current Reports on Form 8-K. We have one such filing delinquency in
connection with the late filing of this Report on Form 10-Q.
24
FAILURE TO MAINTAIN MARKET MAKERS MAY AFFECT VALUE OF OUR COMMON STOCK.
If the Company is unable to maintain FINRA member broker/dealers as market
makers, the liquidity of the common stock could be impaired, not only in the
number of shares of common stock which could be bought and sold, but also
through possible delays in the timing of transactions, and lower prices for the
common stock than might otherwise prevail. Furthermore, the lack of market
makers could result in persons being unable to buy or sell shares of the common
stock on any secondary market. There can be no assurance the Company will be
able to maintain such market makers.
SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE MAY AFFECT MARKET PRICE.
All the shares held by Consorteum Stockholders who received them in the Exchange
Agreement transaction were issued in reliance on the section 4(2) exemption
under the Securities Act of 1933. Such shares will not be available for sale in
the open market without separate registration except in reliance upon Rule 144
under the Securities Act of 1933. In general, under Rule 144 a person (or
persons whose shares are aggregated) who has beneficially owned shares acquired
in a non-public transaction for at least six months, including persons who may
be deemed affiliates of the Company (as that term is defined under that rule)
would be entitled to sell within any three-month period a number of shares that
does not exceed 1% of the then outstanding shares of common stock, provided that
certain current Company information is then publicly available. If a substantial
number of the shares owned by these stockholders were sold pursuant to Rule 144
or a registered offering, the market price of the common stock at that time
could be adversely affected.
WE HAVE NEVER PAID ANY CASH DIVIDENDS BECAUSE WE HAVE NEVER HAD ANY EARNINGS,
AND WE WILL NOT PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never paid any cash dividends on our common stock since we began our
business operations because we have never had earnings from which any such
dividends could be declared. Assuming we attain earnings in the future, we do
not intend to pay cash dividends. We intend to retain future earnings, if any,
for reinvestment in the development and expansion of our business. Any credit
agreements which we may enter into with institutional lenders or otherwise may
restrict our ability to pay dividends. Whether we pay cash dividends in the
future will be at the discretion of our board of directors and will be dependent
upon our financial condition, results of operations, capital requirements, and
any other factors that the board of directors decides is relevant. See "Dividend
Policy" and "Description of Securities - Common Stock".
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a)(1) Between July 6, 2009 and September 14, 2009 the Company issued 3,280,000
restricted shares of its common stock to five (5) consultants performing
investor relations and market awareness services for the Company. The shares
were issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933.
(a)(2) On July 13, 2009 the Company issued 300,000 restricted shares of its
common stock to three (3) investors for a total subscription price of $130,998.
The shares were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933.
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(a)(3) On September 19, 2009 the Company issued a total of 5,800,000 restricted
shares of its common stock to four directors and officers of the Company in
exchange for the release of an aggregate of $992,210 of accrued salary through
March 31, 2009. See the Company's Report on Form 10-K for the year ended June
30, 2009 filed with the Securities and Exchange Commission on October 13, 2009.
The shares were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
None.
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.
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Registrant
December 10, 2009 /s/ Craig A. Fielding
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Date Craig A. Fielding, CEO
December 10, 2009 /s/ Peter Simpson
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Date Peter Simpson, CFO
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