Note 14. Commitments and Contingencies

Legal Matters

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. Other than as set forth below, no legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve us which, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business or financial condition.

On October 28, 2011, Mr. Robert Weinstein, our former Chief Financial Officer, filed a Demand for Arbitration with the New York office of the American Arbitration Association against GEM seeking unpaid wages and benefits that Mr. Weinstein claimed he was owed under the terms of his employment agreement with GEM. In February 2012, Mr. Weinstein was awarded a judgment totaling $391,914 and on October 5, 2012, Mr. Weinstein obtained a judgment against GEM for the sum of $414,235 in the Supreme Court of the State of New York, New York Count. During the first quarter of 2013, we settled this litigation and obtained a full mutual release with Mr. Weinstein in consideration of us paying Mr. Weinstein an aggregate amount of $150,000. During the fourth quarter of 2012, Mr. Weinstein agreed in principle to a settlement of $150,000 which is recorded as a liability at December 31, 2012.During the first quarter of 2013, we formally settled the litigation with Mr. Weinstein and obtained a full mutual release from Mr. Weinstein in consideration of us paying Mr. Weinstein an aggregate amount of $150,000. A gain on the settlement of these liabilities of $243,953 is recorded in our statement of income for the year ended December 31, 2012.

On September 8, 2011, an action entitled Cooper Electric Supply Co. v. Southside Electric, Inc. was filed in the Superior Court of New Jersey. GEM succeeded to the business of Southside Electric, Inc. ("Southside") pursuant to a share exchange between Southside and the Company in May of 2010. We were served in October 2011. The plaintiff asserts damages in the amount of approximately $23,700 for non-payment for goods supplied by the plaintiff to Southside. Our management believes the resolution of this matter will not materially affect our financial position, results of operations or liquidity. As of December 31, 2012, this amount is reflected in accounts payable.

On September 26, 2011, the landlord for our former Teaneck, New Jersey office filed a complaint for unpaid rent and legal fees of $15,179 in Superior Court of New Jersey. A judgment was granted in his favor in such amount. This amount was accrued at December 31, 2011 and December 31, 2012.

The PMP Agreement

On September 29, 2010, GEM entered into the PMP Agreement with PMP and Juan Carlos Bocos, the inventor of the Technology. Effective as of February 23, 2012, we modified the PMP Agreement, including having the Technology assigned to the Company. Pursuant to the PMP Agreement, commencing on September 15, 2010, GEM agreed to pay Mr. Bocos a monthly consulting fee of $8,000.

Operating leases

In 2011, the Company leased office space in Teaneck, New Jersey and in Sunshine and Midtown Miami, Florida. At December 31, 2011, all office space leases were terminated. In October 2011, the Company moved its corporate office to Baton Rouge, Louisiana. The company is utilizing office space, at no charge, from its CFO. Rent expense for 2011 totaled $90,437. Of that amount, $54,875 is included in accrued expenses at December 31, 2012.

Titan Consulting Agreement

Effective as of February 1, 2011, we entered into a (i) Consulting Services Agreement (the "Titan Consulting Agreement") with Titan Management and Consulting LLC ("Titan"), pursuant to which Titan agreed to advise us with respect to business development, marketing, investor relations, financial matters and other related business matters, and (ii) Sales Agency Agreement (the "Titan Sales Agreement") with Titan, pursuant to which Titan agreed to, on a non-exclusive basis, market and sell our entire line of energy-efficient products and services in the United States, Canada, Mexico and the Caribbean. On March 26, 2011, we entered into a Settlement Agreement with Titan pursuant to which the parties mutually agreed to terminate all of their obligations and duties under the Titan Consulting Agreement and the Titan Sales Agreement, and release each other from any and all claims, rights and liabilities there under, in consideration for the payment of $26,000 by us to Titan.

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, we issued to FPF an option, dated as of March 3, 2011, which upon exercise, entitles FPF to purchase up to 15% of our then outstanding common stock (the "Option") at an aggregate exercise price of $10,949,490 (the "Option Price"). The Option Price of $0.165 per share is 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.

Pursuant to the Commitment Letter and the Option, we 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 us to increase the number of our authorized shares of common stock to 1 billion.

As of December 31, 2012, FPF had the right to exercise the Option to purchase 7,834,896 shares of the Company's common stock, assuming 100% of the Option was exercised. We reported $11,719,170 in Option-based compensation expenses for consultants for the years ended December 31, 2011.

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. We believe 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.

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

SEM Consulting Agreement

Effective as of March 3, 2011, GEM entered into a Consulting Services Agreement (the "Consulting Agreement") with SE Management Consultants, Inc., a Florida corporation ("SEM"). Pursuant to the Consulting Agreement, SEM will advise GEM with respect to GEM's business development, marketing, investor relations, financial matters and other related business matters. The Consulting Agreement is for a term of four years, unless earlier terminated pursuant to its terms. As compensation for services to be provided, GEM agreed to pay SEM a monthly management fee (the "Management Fee") of (i) $15,000 per month from March 1, 2011 to August 31, 2011, (ii) $25,000 per month from September 1, 2011 to February 29, 2012, and (iii) an amount equal to 1/1000 of GEM's gross sales for the previous 12 months from March 1, 2012. The Management Fee cannot be less than $15,000 per month and is capped at $75,000 per month at any time during the term of the Consulting Agreement. GEM will also reimburse SEM for all of its reasonable business expenses incurred directly on behalf of GEM. GEM and SEM can each terminate the Consulting Agreement immediately for "cause" (as defined in the Consulting Agreement); upon termination for "cause," by SEM, GEM must pay SEM (x) any portion of the Management Fee it is due through the date of termination, (y) any unreimbursed expenses and (z) a termination fee equal to six months of the then-existing Management Fee.

In addition, in connection with the Consulting Agreement, effective as of March 3, 2011, GEM entered into a Sales Agency Agreement (the "Sales Agreement") with Energy Sales Solutions, LLC, a Florida limited liability company ("ESS") and an affiliate of FPF. Pursuant to the Sales Agreement, ESS agreed to serve, on a non-exclusive basis, as GEM's sales representative for the solicitation and acceptance of orders for GEM's entire line of energy-efficient, lighting products and other products and services offered by GEM (the "Products"), in the United States, Canada, and the Caribbean. The Sales Agreement will continue to be in effect as long as the Consulting Agreement remains in effect. GEM agreed to pay ESS a commission of 10% of the gross sales of the Products generated by or on behalf of ESS. GEM and ESS can each terminate the Sales Agreement immediately for "cause" (as defined in the Sales Agreement).

Watz Consulting Agreement

On April 26, 2011, we entered into a one-year consulting agreement with Watz Enterprises LLC ("Watz")(the "Watz Agreement"). Watz is a greater than 5% stockholder of our Company. Under the Watz Agreement, Watz agreed to advise us on business development and marketing matters in exchange for (i) a one-time payment of $65,000 and (ii) a monthly management fee of $25,000 payable from June 16, 2011 to May 15, 2012. Included in accrued expenses as of December 31, 2012 are 14 payments of $25,000, totaling $350,000. Included in accrued expenses as of December 31, 2011 are 8 payments of $25,000, totaling $200,000. Included in accrued expenses as of December 31, 2012 are 14 payments of $25,000 each, totaling $350,000. In April 2012 the Company gave notice of termination of the Watz Agreement effective as of May 15, 2012. The managing member of Watz is the brother-in-law of Michael Samuel, our former Chairman, President, CEO and director.