Threatened Litigation

In July 2011, the board of directors approved the acquisition of MEXI and the appointment of Joe Cellura as the CEO of the Company. At that time, we intended approve and file designations with the Nevada Secretary of State for Series A Preferred Stock, as well as Series B Preferred and to enter into an employment agreement as compensation to Mr. Cellura with expectation that Mr. Cellura could raise the funds necessary to exploit technologies. Once the Series A & B Preferred Stock designations were to be filed, the Board was obligated to issue 55% of the 5,000,000 shares of Series A Preferred Stock in connection with the acquisition of MEXI and 4,000,000 shares of Series B Preferred Stock in connection with the proposed employment agreement with Joe Cellura. However, Mr. Cellura elected to not submit an Employment contract for Board approval due to lack of funding.

Mr. Cellura, during his position as CEO, raised capital for his compensation and to provide working capital to Tarsin in an effort to complete the acquisition of Tarsin. Insufficient funds were raised and ultimately the acquisition of Tarsin was suspended and disagreements occurred among management and the board of directors. On May 18, 2012, Mr. Joseph A. Cellura was removed from his position as a CEO, director and Chairman of the board of directors of Consorteum. Mr. Cellura’s removal was accomplished through a written consent dated as of May 18, 2012 in lieu of a meeting. In the same Written Consent Mr. Craig A. Fielding, the sole remaining director of the Company was appointed Chief Executive Officer (CEO), President, Chief Financial Officer and Secretary of the Company effective May 18, 2012. Ultimately after the removal of Mr. Cellura, the board of directors elected not to issue the Series A & B Preferred Stock because of the removal of Mr. Cellura due to his failure to meet shareholder expectations concerning the direction of the Company, specifically but not limited to, his failure to source and secure critical funding for the Company in the amounts and at the times required to further the Company’s development.

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. As of the date hereof defendants CHI, Shuster and Fielding have not been served with the summons and complaint, and, upon information and belief, neither have any of the remaining defendants. Plaintiffs allege 12 different causes of action against various defendants, but only Count XI is alleged against the Company. In this count, plaintiff Cellura individually alleges that the Company (among other defendants) breached his employment agreement with the Company and seeks damages in excess of $5,000,000. The complaint does not give any detail of the specific breaches by any of the defendants; nor does it describe how plaintiff has been damaged for a sum in excess of $5,000,000.

In October 2012 the Company and Cellura as well as certain of the individual defendants named in the Action entered into a settlement agreement (“Settlement Agreement”) pursuant to which (among other matters) Cellura agreed to discontinue the Action against the Company 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 will be resolved. In connection therewith, the Company will pay Mr. Cellura approximately $46,000.

Employment Agreements

As discussed above, on September 21, 2012, the Company’s board of directors approved two new employment contracts with its CEO and Chief Operating Officer through December 31, 2016. Such contracts provide for annual salaries, bonuses, stock-based compensation and other benefits. See Note 13.

Other Matter 

During the fourth quarter of fiscal 2012, the Company received $200,000 from an unrelated party known to Mr. Cellura. Of such funds, $170,000 was advanced to Tarsin to provide working capital in an effort to consummate our acquisition agreement. The balance of $30,000 was used to compensate Mr. Cellura. The Company’s board of directors did not approve the transactions. As a result, we requested Tarsin management to assume the investment and satisfy the investor with an interest in Tarsin. We received confirmation that $170,000 was received and that the entire $200,000 obligation was assumed by Tarsin. No obligation remains as of June 30, 2012.