Note 4. Issuance of the Option and Stock-Based Compensation

Issuance of the Option to Financial Partners Funding, LLC

On March 3, 2011 (the “Effective Date”), GEM entered into a Commitment Letter (the “Commitment Letter”) with Financial Partners Funding, LLC, a Florida limited liability company (“FPF”). Pursuant to the Commitment Letter, FPF agreed to commit up to $200,000,000 in equipment leases to finance third-party purchases of GEM's lighting and Airlock products, subject to certain funding conditions, including FPF's due diligence and approval of the third party lessees. FPF has an exclusive right to finance such third-party purchases of GEM's products, however, GEM has the right to hold discussions with third-party financing entities. In the event that GEM is offered financing on terms more beneficial than those offered by FPF, FPF has the right of first refusal to offer financing on similar terms. FPF has no obligation to finance any particular transaction or proposed lease. GEM also agreed to reimburse FPF $50,000 in costs and expenses incurred by FPF in connection with its due diligence review of GEM's products, which amount will be paid from the proceeds of the first lease financed by FPF. The Commitment Letter will remain in effect for 48 months from the Effective Date, unless terminated earlier pursuant to its terms.

As required under the Commitment Letter, on June 27, 2011, the Company issued to FPF an option, dated as of March 3, 2011, which upon exercise, entitles FPF to purchase up to 15% of the then outstanding common stock of the Company (the “Option”) at an aggregate exercise price of $10,949,490 (the “Option Price”). The Option may be exercised in part or in full at any time during the 48-month period commencing on the Effective Date and the Option Price will be adjusted proportionately for any partial exercise of the Option. The Option may also be exercised on a cashless basis. Pursuant to the terms of the Commitment Letter, in the event that the Commitment Letter is terminated or GEM meets the funding threshold described in the Commitment Letter and FPF does not fund the qualified projects, FPF agreed to return all or a portion of the Option that FPF would not be entitled to exercise as a result of such termination or failure to fund. The Option does not grant FPF any voting rights or other rights as a stockholder of the Company until the Option is exercised, and upon exercise, only for such exercised portion of the Option. The Option vested immediately as of the Effective Date.

Pursuant to the Commitment Letter and the Option, the Company also agreed to (x) file a registration statement to register the shares underlying the Option (the “Option Shares”) for resale under the Securities Act of 1933, as amended (the “Securities Act”), within six months of the Effective Date (the “Resale Registration Statement”), and (y) keep such Resale Registration Statement effective until the Option Shares may be sold without limitation under the Securities Act. FPF agreed to waive the provision in the Commitment Letter which required the Company to increase the number of its authorized shares of common stock to 1 billion. FPF agreed not to sell, transfer, convey or pledge the Option Shares for a period of 12 months from March 2, 2011, without the prior written consent of the Company.

As of September 30, 2011, FPF had the right to exercise the Option to purchase 78,348,958 shares of the Company's common stock, assuming 100% of the Option was exercised. We reported $0 in Option-based compensation expenses for consultants for the three months ended September 30, 2011 and 2010, respectively, and $11,719,170 and $90,000 for the nine months ended September 30, 2011 and 2010, respectively.

Because the Option was fully vested and non-forfeitable at the time of grant, the fair value of the Option was measured and expensed on the date of grant pursuant to ASC Topic 505, subtopic 50, Equity-Based Payments to Non-Employees (formerly Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services).

All charges for the Option have been determined under the fair value method using the Black-Scholes option-pricing model with the assumptions set forth below. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Option. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the holder of the Option.

	For the nine months ended
	September 30, 2011

Expected dividend yields	Zero
Expected volatility		299	%
Risk-free interest rate		1.67	%
Expected term	4 years

	Number of Shares Underlying Option		Weighted Average Exercise price

Balance at January 1, 2011		0	NA
Deemed Granted		78,348,958	$	0.14
Balance at September 30, 2011		78,348,958	$	0.14

Other Issuances of Common Stock

On March 2, 2011, we issued 1,373,796 restricted shares of our common stock pursuant to our obligation under an employment agreement with our former Senior Vice President, Strategic and Business Development. The shares were valued at $206,069 based upon the value per share of our common stock on the date of grant.

On April 6, 2011, we issued 200,000 restricted shares of our common stock to a member of our Board of Directors in accordance with our directors' compensation policy. The shares were valued at $18,000 based upon the value per share of our common stock on the date of grant.