7. COMMITMENTS AND CONTINGENCIES Inventory Purchase Commitments On July 20, 2011, the Company initiated a purchase order to manufacture the first 10,000 PocketFinder® devices. As of August 31, 2011, the Company recognized losses and a related liability from inventory purchase commitments totaling $685,500. The liability from inventory purchase commitments is relieved as the related inventory is sold. As of November 30, 2011, the balance of the liability from inventory purchase commitments amounted to $652,596. Operating Leases On November 11, 2009, the Company entered into a sublease agreement to lease approximately 10,600 square feet of general office space in Irvine, California, for base rent ranging from $7,986 to $15,440 per month over the lease term. The lease term is from December 1, 2009 through June 30, 2011. On May 11, 2011, the Company entered into a lease agreement to lease approximately 4,700 square feet of general office space in Irvine, California, for base rent ranging from $6,199 to $7,193 per month over the 48 month lease term. The lease term is from July 1, 2011 through June 30, 2015. Total rental expense on operating leases for the three months ended November 30, 2011 and 2010 was $19,203 and $42,804, respectively. As of November 30, 2011, the future minimum lease payments are as follows: For the Years Ending November 30, 2012 $ 76,043 2013 79,780 2014 83,663 2015 50,351 Total $ 289,837 Contingencies In 2007, the Company sold convertible notes to accredited investors in reliance on an exemption from registration provided by Section 4(2) of the Securities Act and similar state exemptions. Management has been advised by counsel that the availability of those exemptions cannot be determined with legal certainty due to the fact that the Company or its predecessors may not have complied with all of the provisions of exemption safe-harbors for such sales offered by rules promulgated under the Securities Act by the SEC. Thus, it is possible that a right of rescission may exist for shares underlying th