NOTE 9 - COMMITMENTS AND CONTINGENCIES Operating Leases In October 2010, the Company negotiated a 64 month lease agreement for a 14,833 square foot facility in San Antonio, Texas. The lease contains real estate tax and operating escalations and a termination option after the third year. Monthly rental payments start five months after completion of leasehold improvements to the facility and receipt of a certificate of occupancy. In June 2011, the landlord informed the Company of an approximately $100,000 increase in anticipated costs to build the manufacturing facility. The Company rejected the landlord s revised plans and does not plan to go forward with the lease on the present terms. The landlord objects to the Company s rejection of the new lease terms and seeks to go forward with the lease. The Company is currently reviewing other options on how to proceed with growing the GEM products business. Rent expense for the years ended October 31, 2011 and 2010 was $0. Payroll Taxes At October 31, 2011 and 2010, the Company is delinquent with remitting payroll taxes of $70,182, including estimated penalties and interest. The Company has recorded the delinquent payroll taxes, which are included in accrued expenses on the balance sheet. Although the Company has not entered into any formal repayment agreements with the respective tax authorities, management plans to make payment as funds become available. Penalties and interest amounts are subject to increase based on a number of factors that can cause the estimated liability to increase further. Employment agreements On October 30, 2007, the Company entered into employment agreements with David Bennett and Patricia Spreitzer, the Company s President and Chief Financial Officer. Each agreement was for an initial term of three years and provided for an annual base salary during the term of the agreement of $75,000 and $54,000, respectively, provided, however, that the base salary be increased to $150,000 and $100,000 per annum, respectively, upon closing of a private pla