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 better terms 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 Price of $0.165 per share was equal to 110% of the closing price of our common stock on the OTCBB on March 2, 2011 (notwithstanding the language of the Agreement, the parties agreed to use the closing price on such date). 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.

As of September 30, 2012, FPF had the right to exercise the Option to purchase 7,834,895 shares of the Company's common stock, assuming 100% of the Option was exercised. We reported $0 and $11,719,170 in Option-based compensation expenses for consultants for the nine months ended September 30, 2012 and for the fiscal year ended December 31, 2011, respectively. Although we determined that the Company did not have a sufficient number of authorized shares to issue to FPF, assuming it had exercised the Option in full on September 30, 2012, under derivative accounting principles the Option was not considered a derivative security since we have the authority to complete the reverse stock split previously approved by our stockholders, which would provide a sufficient number of authorized shares to exercise the Option.

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.

The following information is for the nine months ended September 30, 2012.

	Number of Shares Underlying Option		Weighted Average Exercise price
Balance at January 1, 2012		7,834,895	0.14
Deemed Granted		0	$	NA
Balance at September 30, 2012		7,834,895	$	0.14

Issuance of Shares to Directors

In February 2012 the Company's Board of Directors adopted a resolution that it would issue $2,000 worth of shares of the Company's common stock to each board member in order to compensate such board members for attending board meetings, which issuance will be accrued. The Company held one board meeting in February 2012. Accordingly, 18,750 shares of the Company's common stock, valued at $6,000, were accrued and recorded as stock compensation expense for the nine-months ended September 30, 2012 and will be issued by the end of November 2012.