10-Q

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 DECEMBER 31, 2013

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 000-53153

Consorteum Holdings Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada	45-2671583
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

6 – 14845 Yonge Street, Suite #348, Aurora, Ontario, Canada, L4G 6H8

(Address of Principal Executive Offices)(Zip Code)

(775) 298-7001

(Registrant’s Telephone Number, including Area Code)
 

N/A

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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(check one):

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 February 18, 2014, the Company had 466,150,864 shares of common stock issued and outstanding.

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

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q including our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (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).

Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include the Company’s limited operating history; its limited financial resources; the Tarsin bankruptcy including the possible loss of the CAPSA platform; international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage or forecast growth; our failure to correctly anticipate market trends; our ability to successfully make and integrate acquisitions; raw material costs and availability; risks related to new product development and introduction; existing government regulations and changes in, or the failure to comply with, government laws and regulations; adverse publicity; competitionincluding the activities of competitors and the presence of new or additional competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy; or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission(the “SEC”).

Although the forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects. Reference is made to our discussion of Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013 on file with the SEC.

All 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.

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CONSORTEUM HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2013

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	Page
ITEM 1 – FINANCIAL STATEMENTS	4
Consolidated Balance Sheets (Unaudited)	4
Consolidated Statements of Operations and Comprehensive (Income) Loss (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4 – CONTROLS AND PROCEDURES	17
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS	19
ITEM 1A – RISK FACTORS	19
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	19
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES	19
ITEM 4 – MINE SAFETY DISCLOSURE	19
ITEM 5 – OTHER INFORMATION	19
ITEM 6 – EXHIBITS	19

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Part I - Financial Information

Item 1 - Financial Statements

Consorteum Holdings Inc.

(A Development Stage Company)

 CONSOLIDATED BALANCE SHEETS

(unaudited)

	December 31,			June 30,
ASSETS	2013			2013
Current Assets:
Cash	$	10,750		$	489
Note receivable		2,556			–
Other Current Assets		1,000			–
Total current assets		14,306			489
Property and equipment, net of accumulated depreciation		24,327			6,537
Total assets	$	38,633		$	7,026
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank overdraft	$	1,137		$	1,042
Accounts payable		797,411			687,337
Accrued expenses		383,362			495,366
Accrued expenses - officers		114,212			69,687
Accrued expenses – payroll taxes and related penalties and interest		211,930			99,921
Loans payable-short term, including accrued interest		3,827,623			3,109,931
Convertible promissory notes, including accrued interest		3,435,190			3,500,346
Due to stockholders		516,423			102,886
Total current liabilities		9,287,288			8,066,516
Stockholders' Deficit
Preferred stock, $0.001 par value, 100,000,000 shares authorized: zero issued and outstanding		–			–
Preferred A stock, $0.001 par value, 5,000,000 shares authorized: 5,000,000 issued and outstanding at December 31, 2013 and June 30, 2013, respectively		5,000			5,000
Preferred B stock, $0.001 par value, 15,000,000 shares authorized: 4,000,000 issued and outstanding at December 31, 2013 and June 30, 2013, respectively		4,000			4,000
Preferred C stock, $0.001 par value, 40,000,000 shares authorized: zero issued and outstanding as of December 31, 2013 and June 30, 2013, respectively		–			–
Common stock; $.001 par value; 500,000,000 shares authorized; 466,150,864 and 412,400,864 issued and outstanding at December 31, 2013 and June 30, 2013, respectively		466,151			412,401
Collateralized shares issued		(137,500	)		(137,500	)
Shares committed to be issued		35,000			35,000
Additional paid-in capital		6,433,421			5,781,221
Accumulated other comprehensive loss		(112,164	)		(112,954	)
Accumulated deficit during prior development activities		(7,617,031	)		(7,617,031	)
Deficit accumulated during the development stage		(8,325,532	)		(6,429,627	)
Total stockholders’ deficit		(9,248,655	)		(8,059,490	)
Total liabilities and stockholders’ deficit	$	38,633		$	7,026

 See Notes to Unaudited Consolidated Financial Statements. 

4

Consorteum Holdings Inc.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)

(Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,						Cumulative from Inception (July 1, 2011) Through December 31,
	2013			2012			2013			2012			2013
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:	$	–		$	–		$	–		$	–		$	–
Operating expenses:
Selling, General and administration expenses		882,925			260,807			1,431,769			458,269			6,232,775
Impairment of investment		–			–			–			–			180,432
Impairment of intangible assets		–			–			–			–			182,941
Total operating expenses		882,925			260,807			1,431,769			458,269			6,596,148
Operating loss		(882,925	)		(260,807	)		(1,431,769	)		(458,269	)		(6,596,148	)
Other income and (expense):
Gain on settlement of debt		16,825			–			119,086			–			187,899
Interest expense		(260,175	)		(96,531	)		(583,222	)		(194,740	)		(1,917,283	)
Total other expense, net		(243,350	)		(96,531	)		(464,136	)		(194,740	)		(1,729,384	)
Net loss		(1,126,275	)		(357,338	)		(1,895,905	)		(653,009	)		(8,325,532	)
Foreign currency translation adjustment		46,131			24,771			790			(45,630	)		59,345
Comprehensive loss	$	(1,080,144	)	$	(332,567	)	$	(1,895,115	)	$	(698,639	)	$	(8,266,187	)
Basic and diluted loss per common share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Basic and diluted weighted average common shares outstanding		463,976,951			309,216,464			445,471,516			309,216,464

See Notes to Unaudited Consolidated Financial Statements. 

5

Consorteum Holdings Inc.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

							For the period from entering into development state
							(July 1, 2011)
	Six Months Ended December 31,						Through
	2013			2012			December 31, 2013
Cash flows from operating activities:
Net loss	$	(1,895,905	)	$	(653,009	)	$	(8,325,532	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of investment		–			–			180,432
Impairment of intangible assets		–			–			182,941
Write-off of note receivable		–			–			423,100
Gain on forgiveness of restructuring of debt		(119,086	)		–			(187,899	)
Depreciation		5,230			604			7,579
Amortization of debt discount		35,000			1,665			38,192
Amortization of deferred finance charges		–			7,318			73,798
Amortization of intangible asset		–			17,000			51,000
Stock-based compensation		67,450			26,750			1,851,232
Changes in operating assets and liabilities:
Deposits		(1,000	)		–			(1,000	)
Accounts payable and accrued liabilities		289,094			75,754			1,171,610
Accrued interest		547,509			181,096			1,680,224
Net cash used in operating activities		(1,071,708	)		(342,822	)		(2,854,323	)
Cash flows from investing activities:
Purchase of license agreement		–			(88,941	)		(233,941	)
Purchase of investment		–			(30,390	)		(180,432	)
Capital expenditures		(22,089	)		–			(26,749	)
Note receivable		(2,556	)		–			(425,656	)
Net cash used in investing activities		(24,645	)		(119,331	)		(866,778	)
Cash flows from financing activities:
Proceeds from loans		395,000			–			2,026,482
Deferred finance costs		–			(16,803	)		(14,250	)
Repayment of bank indebtedness		–			–			(121,938	)
Proceeds from stockholders' advances		472,375			–			667,960
Repayment of stockholders’ advances		(58,105	)		(12,777	)		(145,541	)
Proceeds from the issuance of convertible promissory notes		250,000			533,520			1,328,264
Repayment of convertible promissory notes		–			–			(4,020	)
Proceeds from issuance of common stock		75,000			–			75,000
Net cash provided by financing activities		1,134,270			503,940			3,811,957
Effect of exchange rate on cash		(27,656	)		2,843			(83,747	)
Net increase in cash		10,261			44,630			7,109
Cash, beginning of period		489			9,371			3,641
Cash, end of period	$	10,750		$	54,001		$	10,750
Supplemental disclosures of cash flow information:
Cash paid for interest	$	–		$	–		$	9,212
Cash paid for income taxes	$	–		$	–		$	–
Non-cash investing and financing activities:
Debt discount related to convertible note	$	35,000		$	2,787		$	37,787
Fair value of convertible notes issued related to acquisition	$	–		$	–		$	2,078,646
Fair value of shares issued for convertible debt and accrued interest	$	528,500		$	–		$	1,255,935
Fair value of shares issued for accrued salaries	$	–		$	–		$	218,655

See Notes to Unaudited Consolidated Financial Statements.  

6

Consorteum Holdings Inc.

(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements

(Unaudited)

1.         Organization, Business 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. Due to our change in business; we determined that the Company had an inception date for financial reporting purposes of July 1, 2011.

The Company, through its subsidiaries aims at providing digital content across mobile devices as well as delivering diverse payment and other transactional platforms that are rapidly converging due to advances in smart phone mobile technology.

In July 2013 the Company made a decision to recast its business as a provider of digital content across mobile devices. To that end, we retained a senior level software development team. In conjunction therewith, the Company formed two Nevada subsidiaries: Bad Rabbit Inc. and ThreeFiftyNine Inc. Moving forward, ThreeFiftyNine sets out to be a highly differentiated business in the digital space, focusing on cloud infrastructure design, development and deployment, as well as on digital transaction management.

Combined with our experience in the payment processing and financial transaction markets, we believe that recent advances in technology have enabled smart phones to develop custom applications that will allow the phone to process payments, conduct banking transactions and emulate the traditional role that ATM machines now play. We intend to leverage our expertise in mobile applications development to target new opportunities to provide traditional banking and payment services to our customers.

In October 2012, we secured a license to market and license the CAPSA technology from Tarsin (Europe) Ltd. (“Tarsin”). The licensing agreement provides the Company with an exclusive right to license the CAPSA software platform in selected geographical markets throughout Canada, and Mexico, along with select customers within the United States and is capable of providing digital media to a wide range of mobile handsets, and provides for the ability to securely transmit financial information to individual handset owners. The Tarsin license provides us with capabilities in the mobile handset market, which we can use to ensure cross functionality of mobile applications across a wide variety of handsets. The ability to deliver next generation services to all customers depends on our ability to develop an application that is agnostic to the type of smart phone deployed. The CAPSA platform was developed with the specific purpose of deploying rich multimedia content across diverse handsets. We intend to leverage the license agreement with Tarsin in the mobile sports betting and casino gaming vertical to monetize its applications in branded partnership relationships. Tarsin Inc. filed a voluntary petition for bankruptcy protection in the U.S. Bankruptcy Court, Northern District of California. The Company is a creditor in this Case No. 13-53607. Until the outcome of this case is clear, the Company has elected to reserve receivables due us and impair any amounts advanced on the licensed technology as of June 30, 2013.

In July 2012, we entered into negotiations with Knockout Gaming Limited (“Knockout”), a corporation organized under the laws of the Isle of Man, to resell their online gaming licensed platform, Fireplay. We intend to enter into a licensing and reselling agreement once Knockout launches their platform. Since July 2012, we paid $180,432 to Knockout as an interim payment against a future equity position in Knockout. If the Company obtains funding, we intend to purchase up to a 10% equity position in Knockout pending further due diligence.

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GOING CONCERN

We have suffered losses since inception, and at December 31, 2013, we have a working capital deficit of approximately $9.3 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

We have secured net working capital of approximately $1,193,000 during the six months ended December 31, 2013 and an additional $180,000 subsequent to December 31, 2013. We require additional equity or debt financing to meet our obligations as they become due. In the event that such financing is not secured, the Company will not be able to satisfy its liabilities. Furthermore, certain debt is past due and is secured by all assets of the Company. We are attempting to restructure some of the debt and secure additional financing to satisfy our existing obligations and provide for sufficient working capital to meet the Company’s future obligations but there are no guarantees that we will be able to do so. As fully described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, in February 2013 the Company entered into a binding Term Sheet commitment for $30,000,000 in funding with AIC Group Holding Limited, a corporation organized under the laws of the British Virgin Islands. To date AIC has been unable to consummate the transaction.

There can be no assurance that we 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, we may be forced to sell or assign rights to our technologies. The accompanying 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.

2. Summary of Significant Accounting Policies

The accounting policies of the Company are in accordance with accounting principles generally accepted in the United States of America, and their basis of application is consistent with that of the previous year. Set forth below are the Company's significant accounting policies:

Basis of Presentation

The foregoing unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended June 30, 2013. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for all the interim periods presented. Operating results for the three and six-month period ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of Consorteum Holdings, Inc., Consorteum Inc., Bad Rabbit Inc., ThreeFiftyNine, Inc. and My Golf Rewards, Inc. All significant intercompany balances and transactions are eliminated on consolidation.

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. Significant areas requiring the use of estimates relate to the estimated useful lives of equipment, the utilization of future income tax assets, the potential impairments of long-lived assets and the valuation of stock-based compensation. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Actual results will ultimately differ from those estimates.

Earnings or loss per share

The Company accounts for earnings or loss per share pursuant to Accounting Standards Codification (“ASC”) 260, "Earnings per Share," which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are 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.

8

The Company excluded 20,000,000 and 10,000,000 options and 3,172,184 and 3,352,184 warrants from the calculation of earnings/loss per share for the three and six months ended December 31, 2013 and 2012, respectively, as the exercise prices were in excess of the average closing price of the Company’s common stock. In addition, all conversion prices of convertible debt were in excess of the average closing price of the Company’s common stock, and accordingly, excluded from dilutive share calculation.

Recent accounting pronouncements

The FASB issues Accounting Standards Updates (“ASUs”) to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. 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.

3. Note Receivable, License Agreement, and Fees Paid to Tarsin

On October 10, 2012, we entered into a licensing agreement with Tarsin for rights to the CAPSA technology; the agreement is for a term of three (3) years. In connection therewith, we acquired exclusive rights to market, sell and service CAPSA in Canada and Mexico, as well as select customers in the United States. Under said agreement, we must pay $100,000, annually, beginning in year two of the agreement. Under the license, we are subject to a royalty of 12.5% of revenues generated by the Company from the CAPSA technology. The Company also retains the “Right of First Negotiation” to enter into markets in the United States, which do not overlap with the existing contractual relationships that Tarsin has with Stations Casino in Nevada.

In July 2012, the Company entered into new negotiations with Tarsin in order to reach an agreement that would preserve the value of the CAPSA platform as developed by Tarsin and allow the Company to leverage its relationships with existing Canadian based casinos and resorts as customers that could utilize the CAPSA platform to provide mobile wagering and gaming to their customers. On October 10, 2012, the Company reached a new exclusive licensing agreement with Tarsin that allows the Company to license the CAPSA platform to sell mobile gaming and wagering programs throughout Canada and Mexico, as well as certain customers in the United States. We ultimately wish to expand in Latin America, China and Europe. Tarsin Inc. filed a voluntary petition for bankruptcy protection in the U.S. Bankruptcy Court in the Northern District of California. The Company is a creditor in this Case No. 13-53607. Until the outcome of this case is clear the Company will not know the status of its license. The Company has elected to reserve the entire amount of this receivable.

Since the date of the license agreement, we advanced Tarsin approximately $234,000 in licensing fees. Management determined that due to the financial difficulties of Tarsin and the Company’s inability to secure the necessary capital to exploit the technology, the ability of the Company to execute on the licensed technology was hindered. Accordingly, as of June 30, 2013, the capitalized license costs were deemed impaired in full and the associated costs and accumulated amortization was written down. There were no impairment or amortization charges during the six months ended December 31, 2013 and 2012. Impairment charges of $183,000 are included in the accompanying statement of operations from inception to December 31, 2013.

Along with the license agreement, we entered into a note agreement with Tarsin to be repaid by September 16, 2013, with interest at 0.25%, per annum. As of December 31, 2013 and June 30, 2013 we made aggregate advances of approximately $423,000. Management determined that due to the financial difficulties of Tarsin and their bankruptcy filing, there was substantial doubt about the ability to be repaid on the aggregate amount of the note receivable from Tarsin. Accordingly, management reserved the full amount of advances totaling $423,000 and charged operations as of June 30, 2013. The charge is included in the statement of operations for the period from Inception to December 31, 2013.

The Company paid consulting fees to Tarsin’s president of approximately $58,000, $0 and $192,000 during the six months ended December 31, 2013 and 2012, and for the period from Inception to December 31, 2013.

4. Investment, at cost and Deferred Financing Costs

Investment, at cost

During 2013, the Company made a partial payment of approximately $180,000 towards acquiring a 10% common equity investment in KO Gaming, Inc. and a 5% common equity investment in KO Entertainment, Inc., for an aggregate purchase price of $3.5 million. If the Company is successful in its financing endeavors it plans to conduct further due diligence to determine if the parties will move forward with this proposed investment transaction.

Management determined that since the initial investment was made, an impairment of the asset value had occurred due to the inability to secure sufficient financing to complete the investment. Management determined that the remaining value was minimal, if any, and fully impaired the investment as of June 30, 2013. 

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5. Loans Payable and Convertible Promissory Notes

Loans payable are as follows:

	December 31,			June 30,
	2013			2013
Loans payable, bearing interest at rates between 0% and 20% per annum. Interest payable monthly. These loans are past due. Unsecured and payable on demand. Accrued interest of $1,021,613 and $661,309 at December 31, 2013 and June 30, 2013, respectively. Certain of these notes totaling $1,990,000 incurred flat fees of 15% upon issuance.	$	3,827,623		$	3,109,931
Less: Current portion		(3,827,623	)		(3,109,931	)
Loans payable, non-current	$	–		$	–

Convertible Promissory Notes are as follows:

	December 31,		June  30,
	2013		2013
Convertible promissory notes assumed in accordance with asset purchase agreement with Media Exchange Group bearing interest between 5% to 8% per annum, convertible into shares of common stock at a rate ranging from $0.01 to $0.05, Accrued interest at December 31, 2013 and June 30, 2013 of $286,037 and $340,127, respectively. These notes were convertible upon the merger that occurred in July 2011.	$	1,326,372	$	1,685,779
Convertible promissory notes, bearing interest between 5% and 18% per annum, maturing between October 2010 and December 2012. Interest is payable at maturity. The promissory notes are convertible at any time at the option of the holder, into shares of common stock at a rate ranging from $0.008 to $0.05 or at 35% discount of market. Accrued interest of $90,498 and $48,322 at December 31, 2013 and June 30, 2013, respectively. The notes are substantially in default.		537,561		340,039
Convertible promissory notes, bearing interest at 5% per annum, maturing October 2012 to May 2013. Interest payable monthly. The notes are convertible at any time at the option of the holder, into shares of common stock at a rate from $0.02 to $0.05, each. Accrued interest of $36,787 and $62,836 at December 31, 2013 and June 30, 2013, respectively.		111,287		387,336
Convertible promissory notes, bearing interest at 8-12% per annum plus 2% default interest per month as applicable, maturing August 2012 to December 2013. Interest payable monthly. These notes are convertible at any time at the option of the holder, into shares of common stock at a rate of $0.02-0.03 each. Accrued interest of $302,219 and $179,441 at December 31, 2013 and June 30, 2013, respectively.		1,459,970		1,087,192
Convertible promissory notes	$	3,435,190	$	3,500,346

Loans Payable

In April 2012, the Company received $45,000 from an individual known to Mr. Cellura our former CEO which is reflected in the convertible notes balance. To date, we have been unable to obtain an agreement with this party; however, the proposed terms were that the amount was due April 23, 2013, interest at 8%, per annum and no conversion rights. In connection with our settlement agreement with Mr. Cellura as discussed in Note 7, Mr. Cellura is to assume the obligation and formalize an agreement for said amount. We have included such amount in our financial statements until such time the agreement is consummated and the Company is released from any obligation to repay the amount.

On May 15, 2012, the Company received $200,000 from a third party. Of the $200,000 initially received, $170,000 was immediately returned and directed to Tarsin per the instructions of the third party investor. The Company retained $30,000 as a loan payable. The Company has not yet negotiated final terms of the loan.

10

During fiscal 2013, the Company received approximately $2,000,000 in cash proceeds from an existing note holder with the intent to establish an all encompassed promissory note for the primary lender and provide for additional advances to the Company. On July 17, 2013, the Company memorialized the loans made by the primary lender to provide for repayments in an aggregate amount of approximately $3,557,000. These repayment amounts include interest of either 15% or 10% over the term of the note and a default rate of 2% per month. As of December 31, 2013, approximately $1,460,000 of the total outstanding was convertible debt, $250,000 of which is convertible into 1,000,000 shares of Series B Preferred stock. A portion of these repayments also include fixed fee charges in the amount of $135,000 payable upon issuance of the loan. The Company has been unable to satisfy the repayment obligation. As of December 31, 2013, the Company owes this individual approximately $2,968,000 pursuant to convertible notes and notes payable, along with approximately $900,000 accrued interest thereon.

During the six months ended December 31, 2013, the Company entered into a note payable with a third party for $60,000. Interest accrues at 20% per annum and is due November 30, 2013. Along with the note, the Company issued 5,000,000 shares of common stock valued at $35,000 based on the quoted market price of the common stock on the date of the note. The Company recorded the value of the shares as a discount, to be accreted up over the life of the note. During the three and six months ended December 31, 2013, the company amortized $29,250 and $35,000 of the discount. There is no remaining unamortized discount.

Convertible Promissory Notes

During the six months ended December 31, 2013, the holder of various notes agreed to modify the conversion price of certain of their notes from $0.05 to $0.02 per share. The adjustment to the conversion price was deemed a modification of debt as the change in fair value of the embedded conversion feature was not deemed substantial. The embedded conversion option upon modification had little to no fair value as the exercise price was well above the Company’s stock price on the modification date. Accordingly, the change in fair value of the modified debt was negligible. The holder of the debt immediately converted $180,000 of the total balance into 9,000,000 common shares. The interest accrued on the converted portion of the notes was forgiven and accounted for as gain on settlement of debt in the accompanying financial statements.

In connection with the assumption of convertible notes from MEXI in June 2011 of approximately $2.1 million, we required each holder to agree to certain terms and conditions. The holders agreed to accept shares of common stock at $0.01 or $0.05 per share, depending on the nature and terms of their then existing note. No holder may demand repayment under the terms of the assumption. Generally speaking, all notes will be converted into common stock based on the original principal of the note, exclusive of accrued interest. If all notes were converted at their respected principal amounts, we would issue approximately 139 million shares of our common stock. As of December 31, 2013, we have converted approximately $911,000 of these notes. During the six months ended December 31, 2013, $248,500 was converted through the issuance of 21,000,000 shares of common stock. We intend to satisfy the remaining notes with our common stock by fiscal year end 2014. The interest accrued on the converted portion of the note was forgiven and accounted for as gain on settlement of debt in the accompanying financial statements.

During the three months ended December 31, 2013, holders of certain of the above debts converted approximately $100,000 of principal into 10,000,000 shares of common stock.

The Company recognized interest expense of approximately $260,000, $97,000, $583,000, and $195,000 during the three and six months ended December 31, 2013 and 2012, respectively, in connection with all loans and convertible promissory notes.

6. Related Party Transactions

From time to time, the Company’s Chief Executive Officer and a stockholder of the Company has advanced monies to the Company for working capital. The amounts due to stockholders represent short-term advances which are non-interest bearing, unsecured and have no fixed terms of repayment. During the six months ended December 31, 2013, the Company received advances of approximately $473,000 and made repayments of $58,000.

7. Commitments and Contingencies

Threatened Litigation

The Company is not aware of any threatened litigation.

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Employment Agreements

The Company has entered in an employment agreement with Mr. Craig Fielding, as Chief Executive Officer of Consorteum Holdings Inc. Below is a summary of the terms of such agreement:

· Retroactive to September 1, 2012

· Base salary of $240,000

· Reimbursed office expense of $5,000 per month;

· 5,000,000 options to purchase common stock at $0.002 per share, which vest in equal installments from September 1, 2012 through December 31, 2016; provided, however, that all remaining options shall vest immediately upon the termination with cause of the agreement;

· 3,000,000 shares of Series A Preferred, fully vested on September 21, 2012

· 2,000,000 shares of Series B Preferred, fully vested on September 21, 2012

· Unspecified pension and compensation retirement plan; and

· Incentive compensation amounting to 5 to 50% of base salary with revenue targets ranging from $0- $2,000,000 and in excess of $10,000,000. Additionally, Mr. Fielding is entitled to a cash compensation amounting to 2% of the purchase price in the event of a sale of the Company and 3% of capital raised.

The Company has entered in an employment agreement with Mr. Patrick Shuster, as Chief Operating Officer of Consorteum Holdings, Inc. Below is a summary of the terms of such agreement:

· Retroactive to September 1, 2012

· Base salary of $240,000

· Reimbursed office expense of $5,000 per month.

· 5,000,000 options to purchase common stock at $0.002 per share which vest in equal installments from September 1, 2012 through December 31, 2016; provided, however, that all remaining options shall vest immediately upon the termination with cause of the agreement

· 2,000,000 shares of Series A Preferred, fully vested on September 21, 2012;

· 2,000,000 shares of Series B Preferred, fully vested on September 21, 2012

· Unspecified pension and compensation retirement plan; and

· Incentive compensation amounting to 5 to 50% of base salary with revenue targets ranging from $0- $2,000,000 and in excess of $10,000,000. Additionally, Mr. Shuster is entitled to a cash compensation amounting to 2% of the purchase price in the event of a sale of the Company and 3% of capital raised.

The Company has not reported officer wages subject to withholding of federal and state income taxes. The Company may be subject to taxes, penalties and interest if such wages are not properly reported. As a result, the Company has accrued penalties amounting to approximately $94,000 as of December 31, 2013.

Other Matters 

On June 27, 2012 plaintiffs Joseph R. Cellura as Chairman and CEO of Game2Mobile and Joseph R. Cellura individually filed a summons and complaint in the United States District Court for the Southern District of New York (the “Action”) against the Company, our COO Patrick Shuster (“Shuster”), our CEO Craig Fielding (“Fielding”) and certain other defendants not affiliated with the Company. The Company, Shuster and Fielding were never served with the summons and complaint, and, upon information and belief, neither have any of the remaining defendants. Plaintiffs alleged 12 different causes of action against various defendants, but only Count XI is alleged against the Company. In this count, plaintiff Cellura individually alleged that the Company (among other defendants) breached his employment agreement with the Company and sought damages in excess of $5,000,000. The complaint did not give any detail of the specific breaches by any of the defendants; nor did it describe how plaintiff had been damaged for a sum in excess of $5,000,000. The Company never entered into any employment agreement with Mr. Cellura. The Company also had various counterclaims against Mr. Cellura. The complaint also alleged certain securities law violations against all individual defendants. Lastly, the complaint alleged various causes of action against the individual defendants for intentional infliction of emotional distress, breach of fiduciary duty, defamation,interference with various business opportunities, prospective advantage, and negligent supervision.

In October 2012 the Company and Cellura as well as certain of the individual defendants named in the Action entered into a settlement agreement pursuant to which (among other matters) Cellura agreed to discontinue the Action against the Company and such individuals and file a stipulation of discontinuance with prejudice with the Court in which the Action was pending. The parties also agreed to exchange general releases with each other such that all claims by Cellura and his affiliates against the Company and such individuals were resolved.

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The Company is a creditor in two related bankruptcy cases in the U.S. Bankruptcy Court, Northern District of California. The Company has filed proof of claims in both In re Game2Mobile, Case No. 13-52062 and In re Tarsin Inc, Case No. 13-53607. The Company’s license agreement with Tarsin and its advancement of licensing fees is discussed in Note 3 above.

8. Stockholders’ Deficit

The Company is authorized to issue 500,000,000 shares of common stock and 100,000,000 shares of preferred stock. At the present time, assuming all of the rights and obligations to issue approximately 225,000,000 shares of our common stock under convertible notes, warrants and stock options became due as of December 31, 2013, we would not have sufficient authorized common shares to fulfill such obligations. However, our two officers, who are also directors, control sufficient votes through their holdings of Series A and B Preferred Stock to increase the authorized shares at any time, when deemed appropriate. We intend to increase our authorized common shares in the near future.

Common Stock

During the six months ended December 31, 2013, holders of $528,000 of the Company’s convertible notes, converted said notes into 40,000,000 shares of common stock. Conversion prices ranged from $0.01 and $0.02 per share. Of the total convertible notes converted, approximately $180,000 of the notes were modified prior to conversion whereby the holder was afforded a lower conversion price ($0.02) than was dictated by the original terms of the agreement ($0.05). The Company analyzed the intrinsic value of the modified conversion and determined that the additional value was negligible based on the assessed value of the conversion option using a Black-Scholes option pricing model due to the converted shares still being significantly out of the money. Thus, no additional interest expense was recorded. Upon conversion of the above notes, holders of said notes forgave accrued interest of approximately $119,000 which is included in the accompanying statements of operations.

During the six months ended December 31, 2013, the Company issued 5,000,000 fully vested shares of common stock to individuals for services and recorded $35,000 in stock based compensation. The shares were valued based on the quoted market price of our common shares on the date of grant.

During the six months ended December 31, 2013, the Company issued 5,000,000 fully vested shares of common stock to a third party in connection with a note payable. See Note 5 for additional information.

Warrants

There were no warrants issued to purchase common stock during the three months ended December 31, 2013. As of December 31, 2013, there were warrants exercisable for 3,172,184 shares of common stock.

Options

On September 1, 2011, the Company granted 20,000,000 stock options to directors and officers of the Company, pursuant to the stock option plan established by the Company. One fourth of the options vested immediately, with one quarter vesting on each anniversary thereafter. The options are exercisable at $0.007 per share and have a ten-year contractual life. The grant date fair value of these options was determined to be $140,000 at the date of grant.

At December 31, 2013, there is approximately $16,000 of unrecognized expense associated with the issuance of these stock options, of which $8,500 and $7,500 in expense is expected to be recognized in fiscal 2014 and 2015, respectively.

Stock option expense related to these options was $8,750 during the six months ended December 31, 2013. Stock option expense for all stock options during the six months ended December 31, 2013 and 2012 was approximately $32,450 and $26,750, respectively.

As of December 31, 2013, 20,000,000 options were outstanding with 11,250,000 exercisable.

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9. Subsequent Events

From January 1, 2014 until February 18, 2014 the Company received an advance from the CEO of the Company in the amount of $180,000.

We are proposing an increase in the authorized number of our shares of common stock available for future issuance in order to have shares available for a variety of corporate purposes including the conversion to common stock of outstanding convertible notes. Our Articles of Incorporation authorize us to issue up to 500,000,000 shares of common stock, par value $.001 per share, and 100,000,000 shares of preferred stock, par value $.001 per share, including 5,000,000 shares of Series A Preferred Stock and 15,000,000 shares of Series B Preferred Stock, and 40,000,000 shares of Series C Preferred Stock, and we are proposing to increase the authorized common stock to 750,000,000 shares. As of December 31, 2013, there were 466,150,864 shares of common stock outstanding, 23,372,184 shares reserved for issuance pursuant to outstanding options and warrants, 5,000,000 shares of Series A Preferred Stock and 4,000,000 shares of Series B Preferred Stock outstanding. No shares of Series C Preferred Stock are outstanding. We do not propose to increase our authorized preferred stock, which will remain unchanged. In August 2013, the Company filed a preliminary proxy statement with the SEC to increase the authorized shares of its common stock to 750 million. We will be finalizing and filing that document and then notifying shareholders as required and changing our Articles of Incorporation to reflect the additional shares. Once this process is complete we will have sufficient common shares to convert our existing note holders.

As fully described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, in February 2013 the Company entered into a binding Term Sheet commitment for $30,000,000 in funding with AIC Group Holding Limited, a corporation organized under the laws of the British Virgin Islands. To date AIC has been unable to consummate the transaction.

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

OVERVIEW

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. Due to our change in business; we determined that the Company had an inception date for financial reporting purposes of July 1, 2011.

The Company, through its subsidiaries aims at providing digital content across mobile devices as well as delivering diverse payment and other secure transactional platforms that are rapidly converging due to advances in smart phone mobile technology.

In July 2013 the Company made a decision to recast its business as a provider of digital content across mobile devices. To that end, we retained a senior level software development team. In conjunction therewith, the Company formed two Nevada subsidiaries: Bad Rabbit Inc. and ThreeFiftyNine Inc. Moving forward, ThreeFiftyNine sets out to be a highly differentiated business in the digital space, focusing on cloud infrastructure design, development and deployment, as well as in digital transaction management.

Combined with our experience in the payment processing and financial transaction markets, we believe that recent advances in technology have enabled smart phones to develop custom applications that will allow the phone to process payments, conduct banking transactions and emulate the traditional role that ATM machines now play. We intend to leverage our expertise in mobile applications development to target new opportunities to provide traditional banking and payment services to our customers.

In October 2012, we secured a license to market and license the CAPSA technology from Tarsin (Europe) Ltd. (“Tarsin”). The licensing agreement provides the Company with an exclusive right to license the CAPSA software platform in selected geographical markets throughout Canada, and Mexico, along with select customers within the United States and is capable of providing digital media to a wide range of mobile handsets, and provides for the ability to securely transmit financial information to individual handset owners. The Tarsin license provides us with capabilities in the mobile handset market, which we can use to ensure cross functionality of mobile applications across a wide variety of handsets. The ability to deliver next generation services to all customers depends on our ability to develop an application that is agnostic to the type of smart phone deployed. The CAPSA platform was developed with the specific purpose of deploying rich multimedia content across diverse handsets. We intend to leverage the license agreement with Tarsin in the mobile sports betting and casino gaming vertical to monetize its applications in branded partnership relationships. Tarsin Inc. filed a voluntary petition for bankruptcy protection in the U.S. Bankruptcy Court. Northern District of California. The Company is a creditor in this Case No. 13-53607. Until the outcome of this case is clear, the Company has elected to reserve receivables due us and impair any amounts advanced on the licensed technology as of December 31, 2013 and June 30, 2013.

In July 2012, we entered into negotiations with Knockout Gaming Limited (“Knockout”), a corporation organized under the laws of the Isle of Man, to resell their online gaming licensed platform, Fireplay. We intend to enter into a licensing and reselling agreement once Knockout launches their platform. Since July 2012, we paid $180,432 to Knockout as an interim payment against a future equity position in Knockout. If the Company obtains funding, we intend to purchase up to a 10% equity position in Knockout pending further due diligence.

We have continued to incur losses for the periods presented. Because we are a development-stage company, we expect to incur losses until the Company can generate revenues sufficient to cover its operating costs. The Company will need to continue to raise additional working capital to develop its business initiatives until they turn profitable.

We have significant liabilities which we acquired through the acquisition of MEXI and through the development of our business and the raising of working capital through loans and notes. We intend to work through reducing or eliminating our liabilities, and to continue to raise additional working capital to meet the demands of the Company’s new product offerings.

The Company’s funding commitments have not yet materialized and there can be no assurance that we will raise any of the financing we need. The financial results of for the quarters presented are reflective of an early stage company that has pilot projects only in place but no active programs. Results for the periods presented have been impacted by the limited financial resources available.

See “Forward Looking Statements” on the first page of this Report.

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LIQUIDITY AND CAPITAL RESOURCES

We had $10,750 in cash at December 31, 2013. Our working capital deficit amounted to approximately $9.3 million at December 31, 2013.

During the six-month period ended December 31, 2013, we used cash in our operating activities amounting to approximately $1,070,208. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $1,895,000 adjusted for stock compensation and other non-cash items of approximately ($9,795) and operating assets and liabilities of approximately $837,000.

During the six-month period ended December 31, 2012, we used cash in our operating activities amounting to approximately $343,000. Our cash used in operating activities was comprised of our net loss from continuing operations of approximately $653,000 adjusted for stock compensation and other non-cash items of approximately $19,000 and operating assets and liabilities of approximately $257,000.

During the six-month period ended December 31, 2013, the Company used cash from investing activities of approximately $26,000 for capital expenditures.

During the six-month period ended December 31, 2013, the Company had positive cash of approximately $1,134,270 from financing activities, of which $250,000 related to the issuance of convertible promissory notes, $75,000 related to the issuance of Common Stock and $867,000 is related to proceeds from loans and stockholder advances, net of repayments of $58,000.

There are no significant commitments for the purchase of capital assets or intangible assets, or for operating leases.

Going Concern

We have suffered losses since inception, and at December 31, 2013, we have a working capital deficit of approximately $9.3 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

We have secured net working capital of approximately $1,193,000 during the six months ended December 31, 2013. We require additional equity or debt financing to meet our obligations as they become due. In the event that such financing is not secured, the Company will not be able to satisfy its liabilities. Furthermore, certain debt is past due and is secured by all assets of the Company. We are attempting to restructure some of the debt and secure additional financing to satisfy our existing obligations and provide for sufficient working capital to meet the Company’s future obligations but there are no guarantees that we will be able to do so. As fully described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, in February 2013 the Company entered into a binding Term Sheet commitment for $30,000,000 in funding with AIC Group Holding Limited, a corporation organized under the laws of the British Virgin Islands. To date AIC has been unable to consummate the transaction.

There can be no assurance that we 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, we may be forced to sell or assign rights to our technologies. The accompanying 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.

Results of Operations

Three months ended December 31, 2013 versus three months ended December 31, 2012

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses primarily consist of salaries and wages for our employees, including stock based compensation of approximately $15,000, along with professional fees and service fees in connection with maintaining our status as a public company.

The increase in our selling, general, and administrative expenses during the three-month period ended December 31, 2013 when compared with the prior period is primarily attributable to an increase in full time employees that work on non-capitalizable software development and administrative operations.

Interest Expense

Interest consists of interest payable at stated rates on interest bearing indebtedness.

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The increase in interest expense during the three month period ended December 31, 2013 when compared with the prior period is primarily due to the issuance of new convertible notes and loans payable with higher interest rates than previous notes along with continuing interest accrual of previous notes in default and still outstanding.

Six months ended December 31, 2013 versus six months ended December 31, 2012

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses primarily consist of salaries and wages for our employees, including stock based compensation of approximately $67,000, along with professional fees and service fees in connection with maintaining our status as a public company.

The increase in our selling, general, and administrative expenses during the six-month period ended December 31, 2013 when compared with the prior period is primarily attributable to an increase in full time employees that work on non-capitalizable software development and administrative operations.

Interest Expense

Interest consists of interest payable at stated rates on interest bearing indebtedness.

The increase in interest expense during the six month period ended December 31, 2013 when compared with the prior period is primarily due to the issuance of new convertible notes and loans payable with higher interest rates than previous notes along with continuing interest accrual of previous notes in default and still outstanding.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information under this item.

Item 4. Controls and Procedures.

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act ) 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.

Evaluation of Disclosure Controls and Procedures.

As of December 31, 2013, the end of the period covered by this report, we conducted, under the supervision and with the participation of our management, including our Chief Executive and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act ) in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods. Based on the foregoing, the Chief Executive and Chief Financial Officer concluded that because of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2013.

17

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 December 31, 2013. We identified the following material weaknesses in our internal control over financial reporting:

· While there were internal controls and procedures in place that relate to financial reporting and the prevention and detection of material misstatements, these controls did not meet the required documentation and effectiveness requirements and therefore, management could not certify that these controls were correctly implemented. As a result, it was management’s opinion that the lack of documentation warranted a material weakness in the financial reporting process.

· There is lack of segregation of duties in financial reporting, as one consultant performs our financial reporting and all accounting functions. This weakness is due to our lack of working capital to hire additional staff during the period covered by this report.

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.

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PART II – OTHER INFORMATION

Item 1.         Legal Proceedings.

See Note 7 – Other Matters.

Item 1A.      Risk Factors.

See the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013.

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

During the six months ended December 31, 2013, the Company had no capital stock transactions.

Item 3.         Defaults upon Senior Securities.

None.

Item 4.         Mine Safety Disclosure

Not Applicable

Item 5.         Other Information.

None.

Item 6.         Exhibits.

See list below.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CONSORTEUM HOLDINGS, INC.
Dated: February 19, 2014	By:	/s/  Craig A. Fielding
		Craig A. Fielding
		Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Name	Position	Date
/s/ Craig A. Fielding	Chief Executive Officer and Chief Financial Officer	February 19, 2014
Craig A. Fielding	(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
/s/ Patrick Shuster	Director	February 19, 2014
Patrick Shuster

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EXHIBIT LIST

Exhibit No.	Description
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

* Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive Data Files with detailed footnote tagging as Exhibit 101 in an amendment to this Quarterly Report on Form 10-Q.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,

RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Craig A. Fielding, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 of Consorteum Holdings, Inc. (the “registrant”).

2. Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure control and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 19,2014

/s/ Craig A. Fielding

Craig A. Fielding

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,

RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Craig A. Fielding, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 of Consorteum Holdings, Inc. (the “registrant”).

2. Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure control and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 19, 2014

/s/Craig A. Fielding

Craig A. Fielding,

Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

and CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Consorteum Holdings, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig A. Fielding, Chief Executive Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Craig A. Fielding

Craig A. Fielding, President and Chief Executive Officer and Chief Financial Officer

February 19, 2014

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8. Stockholders Deficit (Narrative) (USD $)	6 Months Ended
	Dec. 31, 2013
Equity [Abstract]
Options outstanding	20,000,000
Options exercisable	1,062,500
Common stock issued for services, shares	5,000,000
Stock based compensation	$ 35,000
Common stock issued in connection with note payable, shares	5,000,000
Warrants exercisable	3,172,184
Warrants issued	0
Unrecognized expense of stock options	$ 16,000

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4. Investment, at cost and Deferred Financing Costs

6 Months Ended

Dec. 31, 2013

Investments, All Other Investments [Abstract]

4. Investment, at cost and Deferred Financing Costs

Investment, at cost

During 2013, the Company made a partial payment of approximately $180,000 towards acquiring a 10% common equity investment in KO Gaming, Inc. and a 5% common equity investment in KO Entertainment, Inc., for an aggregate purchase price of $3.5 million. If the Company is successful in its financing endeavors it plans to conduct further due diligence to determine if the parties will move forward with this proposed investment transaction.

Management determined that since the initial investment was made, an impairment of the asset value had occurred due to the inability to secure sufficient financing to complete the investment. Management determined that the remaining value was minimal, if any, and fully impaired the investment as of June 30, 2013. 

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3. Note Receivable, License Agreement, and Fees Paid to Tarsin

6 Months Ended

Dec. 31, 2013

Receivables [Abstract]

3. Note Receivable and License Agreement with Tarsin

On October 10, 2012, we entered into a licensing agreement with Tarsin for rights to the CAPSA technology; the agreement is for a term of three (3) years. In connection therewith, we acquired exclusive rights to market, sell and service CAPSA in Canada and Mexico, as well as select customers in the United States. Under said agreement, we must pay $100,000, annually, beginning in year two of the agreement. Under the license, we are subject to a royalty of 12.5% of revenues generated by the Company from the CAPSA technology. The Company also retains the “Right of First Negotiation” to enter into markets in the United States, which do not overlap with the existing contractual relationships that Tarsin has with Stations Casino in Nevada.

In July 2012, the Company entered into new negotiations with Tarsin in order to reach an agreement that would preserve the value of the CAPSA platform as developed by Tarsin and allow the Company to leverage its relationships with existing Canadian based casinos and resorts as customers that could utilize the CAPSA platform to provide mobile wagering and gaming to their customers. On October 10, 2012, the Company reached a new exclusive licensing agreement with Tarsin that allows the Company to license the CAPSA platform to sell mobile gaming and wagering programs throughout Canada and Mexico, as well as certain customers in the United States. We ultimately wish to expand in Latin America, China and Europe. Tarsin Inc. filed a voluntary petition for bankruptcy protection in the U.S. Bankruptcy Court in the Northern District of California. The Company is a creditor in this Case No. 13-53607. Until the outcome of this case is clear the Company will not know the status of its license. The Company has elected to reserve the entire amount of this receivable.

Since the date of the license agreement, we advanced Tarsin approximately $234,000 in licensing fees. Management determined that due to the financial difficulties of Tarsin and the Company’s inability to secure the necessary capital to exploit the technology, the ability of the Company to execute on the licensed technology was hindered. Accordingly, as of June 30, 2013, the capitalized license costs were deemed impaired in full and the associated costs and accumulated amortization was written down. There were no impairment or amortization charges during the six months ended December 31, 2013 and 2012. Impairment charges of $183,000 are included in the accompanying statement of operations from inception to December 31, 2013.

Along with the license agreement, we entered into a note agreement with Tarsin to be repaid by September 16, 2013, with interest at 0.25%, per annum. As of December 31, 2013 and June 30, 2013 we made aggregate advances of approximately $423,000. Management determined that due to the financial difficulties of Tarsin and their bankruptcy filing, there was substantial doubt about the ability to be repaid on the aggregate amount of the note receivable from Tarsin. Accordingly, management reserved the full amount of advances totaling $423,000 and charged operations as of June 30, 2013. The charge is included in the statement of operations for the period from Inception to December 31, 2013.

The Company paid consulting fees to Tarsin’s president of approximately $58,000, $0 and $192,000 during the six months ended December 31, 2013 and 2012, and for the period from Inception to December 31, 2013.

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CONSOLIDATED BALANCE SHEETS (USD $)	Dec. 31, 2013	Jun. 30, 2013
Assets:
Cash	$ 10,750	$ 489
Note receivable	2,556	0
Other current assets	1,000	0
Total current assets	14,306	489
Property and equipment, net of accumulated depreciation	24,327	6,537
Total assets	38,633	7,026
Liabilities and Shareholders' Deficit:
Bank overdraft	1,137	1,042
Accounts payable	797,411	687,337
Accrued expenses	383,362	495,366
Accrued expenses - officers	114,212	69,687
Accrued expenses - payroll taxes and related penalties and interest	211,930	99,921
Loans payable, short term, including accrued interest	3,827,623	3,109,931
Convertible promissory notes, including accrued interest	3,435,190	3,500,346
Due to stockholders	516,423	102,886
Total current liabilities	9,287,288	8,066,516
Stockholders' Deficit:
Preferred stock	0	0
Common stock; $0.001 par value; 500,000,000 shares authorized; 466,150,864 and 412,400,864 issued and outstanding at December 31, 2013 and June 30, 2013, respectively	466,151	412,401
Collateralized shares issued	(137,500)	(137,500)
Shares committed to be issued	35,000	35,000
Additional paid-in capital	6,433,421	5,781,221
Accumulated other comprehensive loss	(112,164)	(112,954)
Deficit accumulated during prior development activities	(7,617,031)	(7,617,031)
Deficit accumulated during the development stage	(8,325,532)	(6,429,627)
Total stockholders' deficit	(9,248,655)	(8,059,490)
Total liabilities and stockholders' deficit	38,633	7,026
Preferred A Stock
Stockholders' Deficit:
Preferred stock	5,000	5,000
Preferred B Stock
Stockholders' Deficit:
Preferred stock	4,000	4,000
Preferred C Stock
Stockholders' Deficit:
Preferred stock	$ 0	$ 0

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1. Organization, Business and Going Concern

6 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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. Due to our change in business; we determined that the Company had an inception date for financial reporting purposes of July 1, 2011.

The Company, through its subsidiaries aims at providing digital content across mobile devices as well as delivering diverse payment and other transactional platforms that are rapidly converging due to advances in smart phone mobile technology.

In July 2013 the Company made a decision to recast its business as a provider of digital content across mobile devices. To that end, we retained a senior level software development team. In conjunction therewith, the Company formed two Nevada subsidiaries: Bad Rabbit Inc. and ThreeFiftyNine Inc. Moving forward, ThreeFiftyNine sets out to be a highly differentiated business in the digital space, focusing on cloud infrastructure design, development and deployment, as well as on digital transaction management.

Combined with our experience in the payment processing and financial transaction markets, we believe that recent advances in technology have enabled smart phones to develop custom applications that will allow the phone to process payments, conduct banking transactions and emulate the traditional role that ATM machines now play. We intend to leverage our expertise in mobile applications development to target new opportunities to provide traditional banking and payment services to our customers.

In October 2012, we secured a license to market and license the CAPSA technology from Tarsin (Europe) Ltd. (“Tarsin”). The licensing agreement provides the Company with an exclusive right to license the CAPSA software platform in selected geographical markets throughout Canada, and Mexico, along with select customers within the United States and is capable of providing digital media to a wide range of mobile handsets, and provides for the ability to securely transmit financial information to individual handset owners. The Tarsin license provides us with capabilities in the mobile handset market, which we can use to ensure cross functionality of mobile applications across a wide variety of handsets. The ability to deliver next generation services to all customers depends on our ability to develop an application that is agnostic to the type of smart phone deployed. The CAPSA platform was developed with the specific purpose of deploying rich multimedia content across diverse handsets. We intend to leverage the license agreement with Tarsin in the mobile sports betting and casino gaming vertical to monetize its applications in branded partnership relationships. Tarsin Inc. filed a voluntary petition for bankruptcy protection in the U.S. Bankruptcy Court, Northern District of California. The Company is a creditor in this Case No. 13-53607. Until the outcome of this case is clear, the Company has elected to reserve receivables due us and impair any amounts advanced on the licensed technology as of June 30, 2013.

In July 2012, we entered into negotiations with Knockout Gaming Limited (“Knockout”), a corporation organized under the laws of the Isle of Man, to resell their online gaming licensed platform, Fireplay. We intend to enter into a licensing and reselling agreement once Knockout launches their platform. Since July 2012, we paid $180,432 to Knockout as an interim payment against a future equity position in Knockout. If the Company obtains funding, we intend to purchase up to a 10% equity position in Knockout pending further due diligence.

GOING CONCERN

We have suffered losses since inception, and at December 31, 2013, we have a working capital deficit of approximately $9.3 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

We have secured net working capital of approximately $1,193,000 during the six months ended December 31, 2013 and an additional $180,000 subsequent to December 31, 2013.. We require additional equity or debt financing to meet our obligations as they become due. In the event that such financing is not secured, the Company will not be able to satisfy its liabilities. Furthermore, certain debt is past due and is secured by all assets of the Company. We are attempting to restructure some of the debt and secure additional financing to satisfy our existing obligations and provide for sufficient working capital to meet the Company’s future obligations but there are no guarantees that we will be able to do so. As fully described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, in February 2013 the Company entered into a binding Term Sheet commitment for $30,000,000 in funding with AIC Group Holding Limited, a corporation organized under the laws of the British Virgin Islands. To date AIC has been unable to consummate the transaction. The Company is closely monitoring AIC’s progress as it relates to this transaction.

There can be no assurance that we 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, we may be forced to sell or assign rights to our technologies. The accompanying 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.

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5. Loans Payable and Convertible Promissory Notes (Narrative) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Debt Disclosure [Abstract]
Interest expense	$ 29,250		$ 35,000
Interest expense on loans and convertible promissory notes	$ 260,000	$ 195,000	$ 97,000	$ 583,000

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7. Commitments and Contingencies (Narrative) (USD $)	Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
Accrued penalties	$ 94,000

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2. Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

2. Summary of Significant Accounting Policies

The accounting policies of the Company are in accordance with accounting principles generally accepted in the United States of America, and their basis of application is consistent with that of the previous year. Set forth below are the Company's significant accounting policies:

Basis of Presentation

The foregoing unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended June 30, 2013. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for all the interim periods presented. Operating results for the three and six-month period ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of Consorteum Holdings, Inc., Consorteum Inc., Bad Rabbit Inc, ThreeFiftyNine, Inc. and My Golf Rewards, Inc. All significant intercompany balances and transactions are eliminated on consolidation.

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. Significant areas requiring the use of estimates relate to the estimated useful lives of equipment, the utilization of future income tax assets, the potential impairments of long-lived assets and the valuation of stock-based compensation. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Actual results will ultimately differ from those estimates.

Earnings or loss per share

The Company accounts for earnings or loss per share pursuant to Accounting Standards Codification (“ASC”) 260, "Earnings per Share," which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are 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.

The Company excluded 20,000,000 and 10,000,000 options and 3,172,184 and 3,352,184 warrants from the calculation of earnings/loss per share for the three and six months ended December 31, 2013 and 2012, respectively, as the exercise prices were in excess of the average closing price of the Company’s common stock. In addition, all conversion prices of convertible debt were in excess of the average closing price of the Company’s common stock, and accordingly, excluded from dilutive share calculation.

Recent accounting pronouncements

The FASB issues Accounting Standards Updates (“ASUs”) to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. 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.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock shares authorized	100,000,000	100,000,000
Preferred Stock shares issued	0	0
Preferred stock shares outstanding	0	0
Common stock par value	$ 0.001	$ 0.001
Common stock shares authorized	500,000,000	500,000,000
Common stock shares issued	466,150,864	412,400,864
Common stock outstanding	466,150,864	412,400,864
Preferred A Stock
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock shares authorized	5,000,000	5,000,000
Preferred Stock shares issued	5,000,000	5,000,000
Preferred stock shares outstanding	5,000,000	5,000,000
Preferred B Stock
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock shares authorized	15,000,000	15,000,000
Preferred Stock shares issued	4,000,000	4,000,000
Preferred stock shares outstanding	4,000,000	4,000,000
Preferred C Stock
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock shares authorized	40,000,000	40,000,000
Preferred Stock shares issued	0	0
Preferred stock shares outstanding	0	0

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1. Organization, Business and Going Concern (Narrative) (USD $)	Dec. 31, 2013
Organization Business And Going Concern Narrative
Working capital deficit	$ (9,300,000)

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Document and Entity Information	6 Months Ended
	Dec. 31, 2013	Feb. 18, 2014
Document And Entity Information
Entity Registrant Name	Consorteum Holdings, Inc.
Entity Central Index Key	0001387976
Document Type	10-Q
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		466,150,864
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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2. Summary of Significant Accounting Policies (Narrative)	3 Months Ended		6 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Options
Number of Shares excluded from EPS calculation	10,000,000	10,000,000	20,000,000	20,000,000
Warrants
Number of Shares excluded from EPS calculation	3,352,184	3,352,184	3,172,184	3,172,184

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS) (USD $)	3 Months Ended		6 Months Ended		30 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Consolidated Statements Of Operations And Comprehensive Incomeloss
Revenues	$ 0	$ 0	$ 0	$ 0	$ 0
Operating expenses
Selling, general and administrative expenses	882,925	260,807	1,431,769	458,269	6,232,775
Impairment of investment	0	0	0	0	180,432
Impairment of intangible assets	0	0	0	0	182,941
Total operating expenses	882,925	260,807	1,431,769	458,269	6,596,148
Operating loss	(882,925)	(260,807)	(1,431,769)	(458,269)	(6,596,148)
Other income and (expense):
Gain on settlement of debt	16,825	0	119,086	0	187,899
Interest expense	(260,175)	(96,531)	(583,222)	(194,740)	(1,917,283)
Total other expense, net	(243,350)	(96,531)	(464,136)	(194,740)	(1,729,384)
Net loss	(1,126,275)	(357,338)	(1,895,905)	(653,009)	(8,325,532)
Foreign currency translation adjustment	46,131	24,771	790	(45,630)	59,345
Comprehensive loss	$ (1,080,144)	$ (332,567)	$ (1,895,115)	$ (698,639)	$ (8,266,187)
Basic and diluted loss per common share	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Basic and diluted weighted average common shares outstanding	463,796,951	309,216,464	445,471,516	309,216,464

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7. Commitments and Contingencies

6 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

7. Commitments and Contingencies

Threatened Litigation

The Company is not aware of any threatened litigation.

Employment Agreements

The Company has entered in an employment agreement with Mr. Craig Fielding, as Chief Executive Officer of Consorteum Holdings Inc. Below is a summary of the terms of such agreement:

· Retroactive to September 1, 2012

· Base salary of $240,000

· Reimbursed office expense of $5,000 per month;

· 5,000,000 options to purchase common stock at $0.002 per share, which vest in equal installments from September 1, 2012 through December 31, 2016; provided, however, that all remaining options shall vest immediately upon the termination with cause of the agreement;

· 3,000,000 shares of Series A Preferred, fully vested on September 21, 2012

· 2,000,000 shares of Series B Preferred, fully vested on September 21, 2012

· Unspecified pension and compensation retirement plan; and

· Incentive compensation amounting to 5 to 50% of base salary with revenue targets ranging from $0- $2,000,000 and in excess of $10,000,000. Additionally, Mr. Fielding is entitled to a cash compensation amounting to 2% of the purchase price in the event of a sale of the Company and 3% of capital raised.

The Company has entered in an employment agreement with Mr. Patrick Shuster, as Chief Operating Officer of Consorteum Holdings , Inc. Below is a summary of the terms of such agreement:

· Retroactive to September 1, 2012

· Base salary of $240,000

· Reimbursed office expense of $5,000 per month.

· 5,000,000 options to purchase common stock at $0.002 per share which vest in equal installments from September 1, 2012 through December 31, 2016; provided, however, that all remaining options shall vest immediately upon the termination with cause of the agreement

· 2,000,000 shares of Series A Preferred, fully vested on September 21, 2012;

· 2,000,000 shares of Series B Preferred, fully vested on September 21, 2012

· Unspecified pension and compensation retirement plan; and

· Incentive compensation amounting to 5 to 50% of base salary with revenue targets ranging from $0- $2,000,000 and in excess of $10,000,000. Additionally, Mr. Shuster is entitled to a cash compensation amounting to 2% of the purchase price in the event of a sale of the Company and 3% of capital raised.

The Company has not reported officer wages subject to withholding of federal and state income taxes. The Company may be subject to taxes, penalties and interest if such wages are not properly reported. As a result, the Company has accrued penalties amounting to approximately $94,000 as of December 31, 2013.

Other Matters 

On June 27, 2012 plaintiffs Joseph R. Cellura as Chairman and CEO of Game2Mobile and Joseph R. Cellura individually filed a summons and complaint in the United States District Court for the Southern District of New York (the “Action”) against the Company, our COO Patrick Shuster (“Shuster”), our CEO Craig Fielding (“Fielding”) and certain other defendants not affiliated with the Company. The Company, Shuster and Fielding were never served with the summons and complaint, and, upon information and belief, neither have any of the remaining defendants. Plaintiffs alleged 12 different causes of action against various defendants, but only Count XI is alleged against the Company. In this count, plaintiff Cellura individually alleged that the Company (among other defendants) breached his employment agreement with the Company and sought damages in excess of $5,000,000. The complaint did not give any detail of the specific breaches by any of the defendants; nor did it describe how plaintiff had been damaged for a sum in excess of $5,000,000. The Company never entered into any employment agreement with Mr. Cellura. The Company also had various counterclaims against Mr. Cellura. The complaint also alleged certain securities law violations against all individual defendants. Lastly, the complaint alleged various causes of action against the individual defendants for intentional infliction of emotional distress, breach of fiduciary duty, defamation,interference with various business opportunities, prospective advantage, and negligent supervision.

In October 2012 the Company and Cellura as well as certain of the individual defendants named in the Action entered into a settlement agreement pursuant to which (among other matters) Cellura agreed to discontinue the Action against the Company and such individuals and file a stipulation of discontinuance with prejudice with the Court in which the Action was pending. The parties also agreed to exchange general releases with each other such that all claims by Cellura and his affiliates against the Company and such individuals were resolved.

The Company is a creditor in two related bankruptcy cases in the U.S. Bankruptcy Court, Northern District of California. The Company has filed proof of claims in both In re Game2Mobile, Case No. 13-52062 and In re Tarsin Inc, Case No. 13-53607. The Company’s license agreement with Tarsin and its advancement of licensing fees is discussed in Note 3 above.

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6. Related Party Transactions

6 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

6. Related Party Transactions

From time to time, the Company’s Chief Executive Officer and a stockholder of the Company has advanced monies to the Company for working capital. The amounts due to stockholders represent short-term advances which are non-interest bearing, unsecured and have no fixed terms of repayment. During the six months ended December 31, 2013, the Company received advances of approximately $473,000 and made repayments of $58,000.

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6. Related Party Transactions (Narrative) (USD $)	6 Months Ended		30 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Related Party Transactions [Abstract]
Advances from related parties	$ 472,375	$ 0	$ 667,960
Repayments to related parties	$ 58,105	$ 12,777	$ 145,541

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3. Note Receivable and License Agreement with Tarsin (Details Narrative) (USD $)	6 Months Ended		30 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Impairment of license			$ 182,941
Tarsin
Impairment of license	0	0	182,941
Consulting fee paid to Tarsin's president	$ 58,000	$ 0	$ 192,000

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2. Summary of Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The foregoing unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended June 30, 2013. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for all the interim periods presented. Operating results for the three and six-month period ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Consorteum Holdings, Inc., Consorteum Inc., Bad Rabbit Inc, ThreeFiftyNine, Inc. and My Golf Rewards, Inc. All significant intercompany balances and transactions are eliminated on consolidation.

Use of estimates

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. Significant areas requiring the use of estimates relate to the estimated useful lives of equipment, the utilization of future income tax assets, the potential impairments of long-lived assets and the valuation of stock-based compensation. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Actual results will ultimately differ from those estimates.

Earnings or loss per share

Earnings or loss per share

The Company accounts for earnings or loss per share pursuant to Accounting Standards Codification (“ASC”) 260, "Earnings per Share," which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are 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.

The Company excluded 20,000,000 and 10,000,000 options and 3,172,184 and 3,352,184 warrants from the calculation of earnings/loss per share for the three and six months ended December 31, 2013 and 2012, respectively, as the exercise prices were in excess of the average closing price of the Company’s common stock. In addition, all conversion prices of convertible debt were in excess of the average closing price of the Company’s common stock, and accordingly, excluded from dilutive share calculation.

Recent accounting pronouncements

Recent accounting pronouncements

The FASB issues Accounting Standards Updates (“ASUs”) to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. 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.

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8. Stockholders Deficit

6 Months Ended

Dec. 31, 2013

Equity [Abstract]

8. Stockholders Deficit

The Company is authorized to issue 500,000,000 shares of common stock and 100,000,000 shares of preferred stock. At the present time, assuming all of the rights and obligations to issue approximately 225,000,000 shares of our common stock under convertible notes, warrants and stock options became due as of December 31, 2013, we would not have sufficient authorized common shares to fulfill such obligations. However, our two officers, who are also directors, control sufficient votes through their holdings of Series A and B Preferred Stock to increase the authorized shares at any time, when deemed appropriate. We intend to increase our authorized common shares in the near future.

Common Stock

During the six months ended December 31, 2013, holders of $528,000 of the Company’s convertible notes, converted said notes into 40,000,000 shares of common stock. Conversion prices ranged from $0.01 and $0.02 per share. Of the total convertible notes converted, approximately $180,000 of the notes were modified prior to conversion whereby the holder was afforded a lower conversion price ($0.02) than was dictated by the original terms of the agreement ($0.05). The Company analyzed the intrinsic value of the modified conversion and determined that the additional value was negligible based on the assessed value of the conversion option using a Black-Scholes option pricing model due to the converted shares still being significantly out of the money. Thus, no additional interest expense was recorded. Upon conversion of the above notes, holders of said notes forgave accrued interest of approximately $119,000 which is included in the accompanying statements of operations.

During the six months ended December 31, 2013, the Company issued 5,000,000 fully vested shares of common stock to individuals for services and recorded $35,000 in stock based compensation. The shares were valued based on the quoted market price of our common shares on the date of grant.

During the six months ended December 31, 2013, the Company issued 5,000,000 fully vested shares of common stock to a third party in connection with a note payable. See Note 5 for additional information.

Warrants

There were no warrants issued to purchase common stock during the three months ended December 31, 2013. As of December 31, 2013, there were warrants exercisable for 3,172,184 shares of common stock.

Options

On September 1, 2011, the Company granted 20,000,000 stock options to directors and officers of the Company, pursuant to the stock option plan established by the Company. One fourth of the options vested immediately, with one quarter vesting on each anniversary thereafter. The options are exercisable at $0.007 per share and have a ten-year contractual life. The grant date fair value of these options was determined to be $140,000 at the date of grant.

At December 31, 2013, there is approximately $16,000 of unrecognized expense associated with the issuance of these stock options, of which $8,500 and $7,500 in expense is expected to be recognized in fiscal 2014 and 2015, respectively.

Stock option expense related to these options was $8,750 during the six months ended December 31, 2013. Stock option expense for all stock options during the six months ended December 31, 2013 and 2012 was approximately $32,450 and $26,750, respectively.

As of December 31, 2013, 20,000,000 options were outstanding with 11,250,000 exercisable.

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9. Subsequent Events

6 Months Ended

Dec. 31, 2013

Subsequent Events [Abstract]

9. Subsequent Events

From January 1, 2014 until February 18, 2014 the Company received an advance from the CEO of the Company in the amount of $180,000.

We are proposing an increase in the authorized number of our shares of common stock available for future issuance in order to have shares available for a variety of corporate purposes including the conversion to common stock of outstanding convertible notes. Our Articles of Incorporation authorize us to issue up to 500,000,000 shares of common stock, par value $.001 per share, and 100,000,000 shares of preferred stock, par value $.001 per share, including 5,000,000 shares of Series A Preferred Stock and 15,000,000 shares of Series B Preferred Stock, and 40,000,000 shares of Series C Preferred Stock, and we are proposing to increase the authorized common stock to 750,000,000 shares. As of December 31, 2013, there were 466,150,864 shares of common stock outstanding, 23,372,184 shares reserved for issuance pursuant to outstanding options and warrants, 5,000,000 shares of Series A Preferred Stock and 4,000,000 shares of Series B Preferred Stock outstanding. No shares of Series C Preferred Stock are outstanding. We do not propose to increase our authorized preferred stock, which will remain unchanged. In August 2013, the Company filed a preliminary proxy statement with the SEC to increase the authorized shares of its common stock to 750 million. We will be finalizing and filing that document and then notifying shareholders as required and changing our Articles of Incorporation to reflect the additional shares. Once this process is complete we will have sufficient common shares to convert our existing note holders.

As fully described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, in February 2013 the Company entered into a binding Term Sheet commitment for $30,000,000 in funding with AIC Group Holding Limited, a corporation organized under the laws of the British Virgin Islands. To date AIC has been unable to consummate the transaction. The Company is closely monitoring AIC’s progress as it relates to this transaction.

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5. Loans Payable and Convertible Promissory Notes (Tables)

6 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Loans payable

	December 31,			June 30,
	2013			2013
Loans payable, bearing interest at rates between 0% and 20% per annum. Interest payable monthly. These loans are past due. Unsecured and payable on demand. Accrued interest of $1,021,613 and $661,309 at December 31, 2013 and June 30, 2013, respectively. Certain of these notes totaling $1,990,000 incurred flat fees of 15% upon issuance.	$	3,827,623		$	3,109,931
Less: Current portion		(3,827,623	)		(3,109,931	)
Loans payable, non-current	$	–		$	–

Convertible Promissory Notes

	December 31,		June  30,
	2013		2013
Convertible promissory notes assumed in accordance with asset purchase agreement with Media Exchange Group bearing interest between 5% to 8% per annum, convertible into shares of common stock at a rate ranging from $0.01 to $0.05, Accrued interest at December 31, 2013 and June 30, 2013 of $286,037 and $340,127, respectively. These notes were convertible upon the merger that occurred in July 2011.	$	1,326,372	$	1,685,779
Convertible promissory notes, bearing interest between 5% and 18% per annum, maturing between October 2010 and December 2012. Interest is payable at maturity. The promissory notes are convertible at any time at the option of the holder, into shares of common stock at a rate ranging from $0.008 to $0.05 or at 35% discount of market. Accrued interest of $90,498 and $48,322 at December 31, 2013 and June 30, 2013, respectively. The notes are substantially in default.		537,561		340,039
Convertible promissory notes, bearing interest at 5% per annum, maturing October 2012 to May 2013. Interest payable monthly. The notes are convertible at any time at the option of the holder, into shares of common stock at a rate from $0.02 to $0.05, each. Accrued interest of $36,787 and $62,836 at December 31, 2013 and June 30, 2013, respectively.		111,287		387,336
Convertible promissory notes, bearing interest at 8-12% per annum plus 2% default interest per month as applicable, maturing August 2012 to December 2013. Interest payable monthly. These notes are convertible at any time at the option of the holder, into shares of common stock at a rate of $0.02-0.03 each. Accrued interest of $302,219 and $179,441 at December 31, 2013 and June 30, 2013, respectively.		1,459,970		1,087,192
Convertible promissory notes	$	3,435,190	$	3,500,346

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5. Convertible Promissory Notes (Detail) (USD $)	Dec. 31, 2013	Jun. 30, 2013
Convertible promissory notes	$ 3,435,190	$ 3,500,346
Convertible Promissory Note 1
Convertible promissory notes	1,326,372	1,685,779
Accrued interest	286,037	340,127
Convertible Promissory Note 2
Convertible promissory notes	537,561	340,039
Accrued interest	90,498	48,322
Convertible Promissory Note 3
Convertible promissory notes	111,287	387,336
Accrued interest	36,787	62,836
Convertible Promissory Note 4
Convertible promissory notes	1,459,970	1,087,192
Accrued interest	$ 302,219	$ 179,441

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended		30 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Cash flows from operating activities:
Net loss	$ (1,895,905)	$ (653,009)	$ (8,325,532)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of investment	0	0	180,432
Impairment of intangible assets	0	0	182,941
Write-off of note receivable	0	0	423,100
Gain on forgiveness of restructuring of debt	(119,086)	0	(187,899)
Depreciation	5,230	604	7,579
Amortization of debt discount	35,000	1,665	38,192
Amortization of deferred finance charges	0	7,318	73,798
Amortization of intangible asset	0	17,000	51,000
Stock-based compensation	67,450	26,750	1,851,232
Changes in operating assets and liabilities:
Deposits	(1,000)	0	(1,000)
Accounts payable and accrued liabilities	289,094	75,754	1,171,610
Accrued interest	547,509	181,096	1,680,224
Net cash used in operating activities	(1,071,708)	(342,822)	(2,854,323)
Cash flows from investing activities:
Purchase of license agreement	0	(88,941)	(233,941)
Purchase of investment	0	(30,390)	(180,432)
Capital expenditures	(22,089)	0	(26,749)
Note receivable	(2,556)	0	(425,656)
Net cash used in investing activities	(24,645)	(119,331)	(866,778)
Cash flows from financing activities:
Proceeds from loans	395,000	0	2,026,482
Deferred finance costs	0	(16,803)	(14,250)
Repayment of bank indebtedness	0	0	(121,938)
Proceeds from stockholders' advances	472,375	0	667,960
Repayment of stockholders' advances	(58,105)	(12,777)	(145,541)
Proceeds from the issuance of convertible promissory notes	250,000	533,520	1,328,264
Repayment of convertible promissory notes	0	0	(4,020)
Proceeds from issuance of common stock	75,000	0	75,000
Net cash provided by financing activities	1,134,270	503,940	3,811,957
Effect of exchange rate on cash	(27,656)	2,843	(83,747)
Net increase in cash	10,261	44,630	7,109
Cash, beginning of period	489	9,371	3,641
Cash, end of period	10,750	54,001	10,750
Supplemental disclosures of cash flow information:
Cash paid for interest	0	0	9,212
Cash paid for income taxes	0	0	0
Non-cash investing and financing activities:
Debt discount related to convertible note	35,000	2,787	37,787
Fair value of convertible notes issued related to acquisition	0	0	2,078,646
Fair value of shares issued for convertible debt and accrued interest	528,500	0	1,255,935
Fair value of shares issued for accrued salaries	$ 0	$ 0	$ 218,655

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5. Loans Payable and Convertible Promissory Notes

6 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

5. Loans Payable and Convertible Promissory Notes

Loans payable are as follows:

	December 31,			June 30,
	2013			2013
Loans payable, bearing interest at rates between 0% and 20% per annum. Interest payable monthly. These loans are past due. Unsecured and payable on demand. Accrued interest of $1,021,613 and $661,309 at December 31, 2013 and June 30, 2013, respectively. Certain of these notes totaling $1,990,000 incurred flat fees of 15% upon issuance.	$	3,827,623		$	3,109,931
Less: Current portion		(3,827,623	)		(3,109,931	)
Loans payable, non-current	$	–		$	–

Convertible Promissory Notes are as follows:

	December 31,		June  30,
	2013		2013
Convertible promissory notes assumed in accordance with asset purchase agreement with Media Exchange Group bearing interest between 5% to 8% per annum, convertible into shares of common stock at a rate ranging from $0.01 to $0.05, Accrued interest at December 31, 2013 and June 30, 2013 of $286,037 and $340,127, respectively. These notes were convertible upon the merger that occurred in July 2011.	$	1,326,372	$	1,685,779
Convertible promissory notes, bearing interest between 5% and 18% per annum, maturing between October 2010 and December 2012. Interest is payable at maturity. The promissory notes are convertible at any time at the option of the holder, into shares of common stock at a rate ranging from $0.008 to $0.05 or at 35% discount of market. Accrued interest of $90,498 and $48,322 at December 31, 2013 and June 30, 2013, respectively. The notes are substantially in default.		537,561		340,039
Convertible promissory notes, bearing interest at 5% per annum, maturing October 2012 to May 2013. Interest payable monthly. The notes are convertible at any time at the option of the holder, into shares of common stock at a rate from $0.02 to $0.05, each. Accrued interest of $36,787 and $62,836 at December 31, 2013 and June 30, 2013, respectively.		111,287		387,336
Convertible promissory notes, bearing interest at 8-12% per annum plus 2% default interest per month as applicable, maturing August 2012 to December 2013. Interest payable monthly. These notes are convertible at any time at the option of the holder, into shares of common stock at a rate of $0.02-0.03 each. Accrued interest of $302,219 and $179,441 at December 31, 2013 and June 30, 2013, respectively.		1,459,970		1,087,192
Convertible promissory notes	$	3,435,190	$	3,500,346

Loans Payable

In April 2012, the Company received $45,000 from an individual known to Mr. Cellura our former CEO which is reflected in the convertible notes balance. To date, we have been unable to obtain an agreement with this party; however, the proposed terms were that the amount was due April 23, 2013, interest at 8%, per annum and no conversion rights. In connection with our settlement agreement with Mr. Cellura as discussed in Note 7, Mr. Cellura is to assume the obligation and formalize an agreement for said amount. We have included such amount in our financial statements until such time the agreement is consummated and the Company is released from any obligation to repay the amount.

On May 15, 2012, the Company received $200,000 from a third party. Of the $200,000 initially received, $170,000 was immediately returned and directed to Tarsin per the instructions of the third party investor. The Company retained $30,000 as a loan payable. The Company has not yet negotiated final terms of the loan.

During fiscal 2013, the Company received approximately $2,000,000 in cash proceeds from an existing note holder with the intent to establish an all encompassed promissory note for the primary lender and provide for additional advances to the Company. On July 17, 2013, the Company memorialized the loans made by the primary lender to provide for repayments in an aggregate amount of approximately $3,557,000. These repayment amounts include interest of either 15% or 10% over the term of the note and a default rate of 2% per month. As of December 31, 2013, approximately $1,460,000 of the total outstanding was convertible debt, $250,000 of which is convertible into 1,000,000 shares of Series B Preferred stock. A portion of these repayments also include fixed fee charges in the amount of $135,000 payable upon issuance of the loan. The Company has been unable to satisfy the repayment obligation. As of December 31, 2013, the Company owes this individual approximately $2,968,000 pursuant to convertible notes and notes payable, along with approximately $900,000 accrued interest thereon.

During the six months ended December 31, 2013, the Company entered into a note payable with a third party for $60,000. Interest accrues at 20% per annum and is due November 30, 2013. Along with the note, the Company issued 5,000,000 shares of common stock valued at $35,000 based on the quoted market price of the common stock on the date of the note. The Company recorded the value of the shares as a discount, to be accreted up over the life of the note. During the three and six months ended December 31, 2013, the company amortized $29,250 and $35,000 of the discount. There is no remaining unamortized discount.

Convertible Promissory Notes

During the six months ended December 31, 2013, the holder of various notes agreed to modify the conversion price of certain of their notes from $0.05 to $0.02 per share. The adjustment to the conversion price was deemed a modification of debt as the change in fair value of the embedded conversion feature was not deemed substantial. The embedded conversion option upon modification had little to no fair value as the exercise price was well above the Company’s stock price on the modification date. Accordingly, the change in fair value of the modified debt was negligible. The holder of the debt immediately converted $180,000 of the total balance into 9,000,000 common shares. The interest accrued on the converted portion of the notes was forgiven and accounted for as gain on settlement of debt in the accompanying financial statements.

In connection with the assumption of convertible notes from MEXI in June 2011 of approximately $2.1 million, we required each holder to agree to certain terms and conditions. The holders agreed to accept shares of common stock at $0.01 or $0.05 per share, depending on the nature and terms of their then existing note. No holder may demand repayment under the terms of the assumption. Generally speaking, all notes will be converted into common stock based on the original principal of the note, exclusive of accrued interest. If all notes were converted at their respected principal amounts, we would issue approximately 139 million shares of our common stock. As of December 31, 2013, we have converted approximately $911,000 of these notes. During the six months ended December 31, 2013, $248,500 was converted through the issuance of 21,000,000 shares of common stock. We intend to satisfy the remaining notes with our common stock by fiscal year end 2014. The interest accrued on the converted portion of the note was forgiven and accounted for as gain on settlement of debt in the accompanying financial statements.

During the three months ended December 31, 2013, holders of certain of the above debts converted approximately $100,000 of principal into 10,000,000 shares of common stock.

The Company recognized interest expense of approximately $260,000, $ 97,000, $583,000, and $195,000 during the three and six months ended December 31, 2013 and 2012, respectively, in connection with all loans and convertible promissory notes.

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5. Loans Payable (Detail) (Loans Payable [Member], USD $)	Dec. 31, 2013	Jun. 30, 2013
Loans Payable [Member]
Loans payable	$ 3,827,623	$ 3,109,931
Less: Current portion	(3,827,623)	(3,109,931)
Loans payable, non-current	0	0
Accrued interest	$ 1,021,613	$ 661,309