NOTE 9 Contingencies and Commitments Legal Proceedings
On February 10, 2011, the U.S. Securities
and Exchange Commission amended its complaint in SEC v. Greenstone Holdings, Inc., et al., 10 civ. 1302 (S.D.N.Y.), to add as a
defendant Virginia K. Sourlis, our Principal Executive and Principal Financial and Accounting Officer. The amended complaint alleged
that Ms. Sourlis violated Sections 5 of the Securities Act of 1933, as amended (the Securities Act) and Section 10(b)
of the Securities Exchange Act of 1934, as amended (Exchange Act) and Rule 10b-5 thereunder and aided and abetted
defendant Greenstones violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking injunctive
relief and financial penalties, disgorgement, and a penny stock bar from Ms. Sourlis.
On November 20, 2012, the Court granted
partial summary judgment (on liability only) against Ms. Sourlis for aiding and abetting the defendants 10b violation; however,
Ms. Sourlis intends to file an appeal at the conclusion of the case. At the hearing, the Court also denied the SECs motion
for summary judgment regarding its 10b primary liability claim against Ms. Sourlis. The Court also reserved decision on the SECs
non-fraud claim that Ms. Sourlis violated Section 5 of the Securities Act; but rather asked for further briefing regarding the
SECs aiding and abetting claim under Section 5.
On the basis of the Courts November
20 liability holding, the SEC intends to seek from the Court against Ms. Sourlis injunctive relief, financial penalties, disgorgement,
and a penny stock bar. In the event the Commission prevails in its charges against Ms. Sourlis and successfully prevents Ms. Sourlis
from deriving income from practicing securities law for a given period of time, our Companys operations and financial position
would be adversely affected due to the fact that Ms. Sourlis currently has a verbal non-binding agreement with the Company to
fund its operations for an indefinite period of time. Also, if the SEC prevails, it would be more difficult for the Company to
attract investors and/or business partners, which would have a material adverse effect on the Companys business and operations,
due to the fact that Ms. Sourlis is the sole director and officer (President, Chief Executive Officer) of the Company and the
very nature of the Companys business is to provide consulting services to start-up companies and public companies on various
matters, from entity formation and financing structures to support for filing FINRAs Form 211 and complying with SEC regulations.
If the SEC prevails and prevent Ms. Sourlis from practicing securities law for a significant amount of time, it would in effect
put the Company out of business unless the Company can retain new qualified employees, of which there can be no assurances that
it will be able to do so.