Arista Power, Inc. - FORM 10-K/A

Attached files

file	filename
EX-32.1 - CERTIFICATION OF WILLIAM SCHMITZ PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Arista Power, Inc.	f10k2010a2ex32i_windtamer.htm
EX-23.1 - CONSENT OF EFP ROTENBERG, LLP - Arista Power, Inc.	f10k2010a2ex23i_windtamer.htm
EX-32.2 - CERTIFICATION OF MOLLY HEDGES PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Arista Power, Inc.	f10k2010a2ex32ii_windtamer.htm
EX-31.2 - CERTIFICATION OF MOLLY HEDGES PURSUANT TO RULE 13A-14(A) AND 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Arista Power, Inc.	f10k2010a2ex31ii_windtamer.htm
EX-31.1 - CERTIFICATION OF WILLIAM SCHMITZ PURSUANT TO RULE 13A-14(A) AND 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Arista Power, Inc.	f10k2010a2ex31i_windtamer.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2009

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number: 001-53510

WindTamer Corporation

(Exact Name of Registrant as Specified in its Charter)

New York		16-1610794
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1999 Mount Read Blvd
Rochester, NY		14615
(Address of Principal Executive Offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code)

(585) 243-4040

(Former name, former address and former fiscal year, if changed since last report)

156 Court Street

Suite # 7

Geneseo, New York14454

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes oNo x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

* Registrant is not yet required to submit Interactive data files pursuant to Rule 405 of Regulation S-T.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of June 30, 2009, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $28,622,000, based on the closing sale price of $1.00 per share as of the end of the last business day of the registrant's most recently completed second fiscal quarter. No public market for the registrant's stock existed as of June 30, 2009. The aggregate market value reported herein is based upon the sale of 636,000 shares of common stock of the Company between the dates of February 2, 2009 and June 30, 2009, at a price of $1.00 per share, pursuant to a private placement conducted by registrant in reliance upon an exemption from registration under Section 3(b) of the Securities Act of 1933 and Rule 505 of Regulation D thereunder.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at September 21, 2010
Common Stock, $.0001 par value per share		106,407,848 shares

WindTamer Corporation (the “Company”) is amending its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 in order to include an opinion of an Independent Registered Public Accountant which covers the period beginning with the Company’s inception and concluding on December 31, 2009. The Company is also including an updated consent of EFP Rotenberg LLP, the Company's auditors, to the inclusion of their report in the filing, as Exhibit 23.1 hereto. While the Company is refiling its financial statements referenced in the opinion, the amendment contains no other changes.

PART IV

Item 15.

Exhibits, Financial Statements Schedules

(a)

The following documents are filed as part of this report:

(1)

The following financial statements beginning at page F-1:

Reports of Independent Registered Public Accounting Firm — EFP Rotenberg LLP

Balance Sheets

Statements of Operations

Statements of Stockholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

(2)

Exhibits.

Exhibit Description

Number

23.1	Consent of EFP Rotenberg, LLP

31.1	Certification of William Schmitz pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Molly Hedges pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of William Schmitz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Molly Hedges pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WINDTAMER CORPORATION

Date: October 5 , 2010	By:	/s/ WILLIAM A. SCHMITZ
		William A. Schmitz
		Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature	Title	Date

/s/ WILLIAM A. SCHMITZ	Chief Executive Officer and Director	October 5 , 2010
William A. Schmitz	(Principal Executive Officer)

/s/ MOLLY HEDGES	Acting Chief Financial Officer, Controller and Treasurer	October 5 , 2010
Molly Hedges	(Principal Financial and Accounting Officer)

	Director	October 5 , 2010
John Blake

/s/ GERALD BROCK	Director	October 5 , 2010
Gerald Brock

/s/ STEVEN DINUNZIO	Director	October 5 , 2010
Steven DiNunzio

/s/ PIERRE LEIGNADIER	Director	October 5 , 2010
Pierre Leignadier

/s/ GEORGE NASELARIS	Director
George Naselaris		October 5 , 2010

/s/ DOV SCHWELL	Director	October 5 , 2010
Dov Schwell

WINDTAMER CORPORATION

Index to Financial Statements

Financial Statements


Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets as of December 31, 2009 and 2008		F-3
Statements of Operations for the years ended December 31, 2009 and 2008 and for the period from inception		F-4
Statements of Cash Flows for the years ended December 31, 2009 and 2008 and for the period from inception		F-5
Statement of Stockholders’ Equity since inception through December 31, 2009		F-6
Notes to Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of WindTamer Corporation

156 Court Street

Geneseo, NY 14454

As successor by merger, effective October 1, 2009, to the registered public accounting firm Rotenberg & Co., LLP, we have audited the accompanying balance sheets of WindTamer Corporation as of December 31, 2009 and 2008, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2009 and for the period from date of inception (March 30, 2001) through December 31, 2009. WindTamer Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WindTamer Corporation as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 and for the period from date of inception (March 30, 2001) through December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ EFP Rotenberg, LLP

EFP Rotenberg, LLP

Rochester, New York

March 11, 2010

F-2

WINDTAMER CORPORATION (A Development Stage Company) Balance Sheets

	December 31,			December 31,
	2009			2008

ASSETS
Current assets
Cash	$	1,027,977		$	204,771
Prepaid expenses and other current assets		37,448			8,739
Inventory		94,601			0
Total current assets		1,160,026			213,510

Intangible assets, net		37,277			20,987

Property and equipment, net		175,109			14,689

Total assets	$	1,372,412		$	249,186

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	322,062		$	42,472
Customer deposits		95,000			0
Total current liabilities		417,062			42,472



Stockholders' equity
Preferred stock, 5,000,000 shares authorized, $.0001 par value;
none issued or outstanding		0			0
Common stock, 500,000,000 shares authorized, $0.0001 par value;
115,297,000 and 80,640,000 shares issued and outstanding
respectively		11,530			8,064
Additional paid-in capital		4,998,421			1,430,199
Deficit accumulated during development stage		(4,054,601	)		(1,231,549	)
Total stockholders' equity		955,350			206,714

Total liabilities and stockholders' equity	$	1,372,412		$	249,186

The accompanying notes are an integral part of the financial statements.

F-3

WINDTAMER CORPORATION (A Development Stage Company) Statements of Operations
	Year Ended December 31, 2009			Year Ended December 31, 2008			Period from Date of Inception (March 30, 2001) through December 31, 2009

Research and development expenses	$	828,724		$	249,171		$	1,124,177

Selling, general and administrative expenses		1,995,716			890,635			2,932,004

Total expenses		2,824,440			1,139,806			4,056,181

Loss from operations		(2,824,440	)		(1,139,806	)		(4,056,181	)

Non-operating revenue
Interest income		1,388			0			1,580

Net loss before income taxes		(2,823,052	)		(1,139,806	)		(4,054,601	)

Income taxes		0			0			0

Net loss	$	(2,823,052	)	$	(1,139,806	)	$	(4,054,601	)

Net loss per common share - basic and diluted	$	(0.03	)	$	(0.02	)	$	(0.06	)

Weighted average number of common shares outstanding - basic and diluted
		93,393,000			73,206,667			65,347,008

The accompanying notes are an integral part of the financial statements.

F-4

WINDTAMER CORPORATION (A Development Stage Company) Statements of Cash Flows
	Year Ended December 31, 2009			Year Ended December 31, 2008			Period from Date of Inception (March 30, 2001) through December 31, 2009
Operating activities
Net loss	$	(2,823,052	)	$	(1,139,806	)	$	(4,054,601	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization and depreciation expense		15,133			2,473			18,318
Stock-based compensation		1,011,030			407,752			1,421,785
Stock issued for services		91,000						91,000
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets		(28,709	)		(8,739	)		(37,448	)
Increase in inventory		(94,601	)		0			(94,601	)
Increase in trade accounts payable and accrued expenses		279,590			38,600			322,062
Increase in customer deposits		95,000			0			95,000
Net cash used in operating activities		(1,454,609	)		(699,720	)		(2,238,485	)

Investing Activities
Acquisition of property and equipment		(174,849	)		(16,220	)		(191,317	)
Acquisition of intangible assets		(16,994	)		(10,441	)		(39,387	)
Net cash used in investing activities		(191,843	)		(26,661	)		(230,704	)

Financing activities
Proceeds from issuance of common stock		816,002			907,000			1,866,510
Stock offering expenses paid		(16,344	)		(26,258	)		(59,344	)
Proceeds from exercise of stock options		1,670,000			20,000			1,690,000
Net cash provided by financing activities		2,469,658			900,742			3,497,166

Increase (decrease) in cash		823,206			174,361			1,027,977

Cash - beginning		204,771			30,410			0

Cash - ending	$	1,027,977		$	204,771		$	1,027,977

Supplemental Information:

Income Taxes Paid	$	0		$	0		$	0
Interest Paid	$	1,120		$	975		$	2,095

F-5

WINDTAMER CORPORATION (A Development Stage Company) Statements of Stockholders' Equity From Inception through December 31, 2009

	Treasury Stock					Common Stock									Deficit Accumulated
	Number of Shares			Par Value		Number of Shares			Par Value			Additional Paid-In Capital			During the Development Stage			Total Stockholders' Equity

Issuanceof common stock in exchangefor services				$	-		60,000,000		$	6,000		$	(3,000	)	$	-		$	3,000
Net loss for the period from March 30 through December 31, 2001																(3,100	)		(3,100	)
Balance, December 31, 2001		0			0		60,000,000			6,000			(3,000	)		(3,100	)		(100	)

Expenses paid by shareholder													20,000						20,000
Issuance of common stock for cash							93,320			9			49,991						50,000
Net loss for 2002																(61,348	)		(61,348	)
Balance, December 31, 2002		0			0		60,093,320			6,009			66,991			(64,448	)		8,552

Expenses paid by shareholder													3,510						3,510
Treasury stock received at no cost		93,320																	0
Retirement of treasury stock		(93,320	)				(93,320	)		(9	)		9						0
Net loss for 2003																(428	)		(428	)
Balance, December 31, 2003		0			0		60,000,000			6,000			70,510			(64,876	)		11,634

Net loss for 2004																(140	)		(140	)
Balance, December 31, 2004		0			0		60,000,000			6,000			70,510			(65,016	)		11,494

Net loss for 2005																(130	)		(130	)
Balance, December 31, 2005		0			0		60,000,000			6,000			70,510			(65,146	)		11,364

Net loss for 2006																(130	)		(130	)
Balance, December 31, 2006		0			0		60,000,000			6,000			70,510			(65,276	)		11,234

Issuance of common stock for cash							1,400,000			140			69,860						70,000
Offering costs													(16,741	)					(16,741	)
Net loss for 2007																(26,467	)		(26,467	)
Balance, December 31, 2007		0			0		61,400,000			6,140			123,629			(91,743	)		38,026

Issuance of common stock for cash							18,140,000			1,814			905,186						907,000
Issuance of common stock under stock award agreement							700,000			70			34,930						35,000
Offering costs													(26,258	)					(26,258	)
Stock option expense													372,752						372,752
Issuance of stock under stock options							400,000			40			19,960						20,000
Net loss for 2008																(1,139,806	)		(1,139,806	)
Balance, December 31, 2008		0			0		80,640,000			8,064			1,430,199			(1,231,549	)		206,714

F-6

Issuance of common stock for services				91,000		9		90,991						91,000
Issuance of common stock for cash				866,000		87		815,915						816,002
Offering costs								(16,344	)					(16,344	)
Stock option expense								702,280						702,280
Issuance of common stock under stock award agreement				300,000		30		308,720						308,750
Stock options exercised				33,400,000		3,340		1,666,660						1,670,000
Net loss for 2009											(2,823,052	)		(2,823,052	)
Balance, December 31, 2009	0	$	-	115,297,000	$	11,530	$	4,998,421		$	(4,054,601	)	$	955,350

The accompanying notes are an integral part of the financial statements.

F-7

Note 1 – Description of the Business and Summary of Significant Accounting Policies

Description of Business

WindTamer Corporation (the Company) was incorporated on March 30, 2001 in the State of New York as Future Energy Solutions, Inc. and in November 2008 changed its name to WindTamer Corporation. The Company is an independent developer of wind turbine technology to harness wind as a source of power generation.

Method of Accounting

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). WindTamer Corporation maintains its books and prepares its financial statements on the accrual basis of accounting.

The Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to planning, raising capital, research and development, and developing markets for its products. Accordingly, the financial statements of the Company have been prepared in accordance with the accounting and reporting principles prescribed by Accounting Standards Codification (ASC) 915, “Development Stage Entities”.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For financial statement presentation purposes, the Company considers all short-term, highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Company maintains its cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk as a result of any non-performance by the financial institutions.

Inventory

Inventory consists primarily of parts and subassemblies for wind turbines and is stated at the lower of cost or market value. The Company capitalizes applicable direct and indirect costs incurred in the Company’s manufacturing operations to bring its products to a sellable state. As of December 31, 2009, inventory consists of raw materials amounting to $21,594 and work-in-process amounting to $73,007.

Fixed Assets

Fixed assets are recorded at cost. Depreciation is computed using accelerated methods over the shorter of the estimated useful lives or the related lease for leasehold improvements. Leasehold improvements for space leased on a month-to-month basis are expensed when incurred. For the year ended December 31, 2009, approximately $37,000 of leasehold improvements are included in operating expenses costs incurred prior to the execution of a signed lease. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.

Intangible Assets

F-8

Intangible assets consist of costs associated with the application and acquisition of the Company’s patents and trademarks. Patent application costs are capitalized and amortized over the estimated useful life of the patent, which generally approximates its legal life.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset, including its ultimate disposition. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. During the years ended December 31, 2009 and 2008, no impairment was considered necessary.

Fair Value of Financial Instruments

The carrying amount of cash, accounts payable and accrued expenses are reasonable estimates of their fair value due to their short maturity.

Revenue Recognition

Revenue is recognized when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service or product has been provided to the customer; (3) the sale price to be paid by the customer is fixed or determinable; and (4) the collection of the sale price is reasonably assured. Amounts billed and/or collected prior to satisfying our revenue recognition policy are reflected as customer deposits.

Research and Development Costs

All costs related to research and development are expensed when incurred. Research and development costs consist of expenses to develop prototypes. Specifically, these costs consist of engineering fees, labor and manufacturing, materials, and generators.

Stock-Based Compensation

The Company accounts for stock option awards granted under the Company’s Equity Incentive Plans in accordance with ASC 718. Under ASC 718, compensation expense related to stock-based payments are recorded over the requisite service period based on the grant date fair value of the awards. Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50. Accordingly, the measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. Deferred assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carry forwards. Deferred income tax expense represents the change in net deferred assets and liability balances.

F-9

Basic and Diluted Loss Per Share

Basic earnings per share reflects the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.

As of December 31, 2009, there were 4,661,667 stock options outstanding that could dilute future earnings.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Pronouncements

In June 2009, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 168, The FASB Accounting Standard Codification and the Hierarchy of the Generally Accepted Accounting Principles — a replacement of SFAS No. 162 (SFAS 168) , now Accounting Standards Codification (ASC) 105, to become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and first adopted in the quarterly financial statements for the period ended September 30, 2009. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Financial Statements.

In May 2009, the FASB issued Statement No. 165, Subsequent Events (“FAS 165”), now ASC 855. The provisions of ASC 855 set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may have occurred for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The provisions of ASC 855 became effective for the Company on April 1, 2009, are being applied prospectively beginning in the second quarter of 2009 and did not have a material impact on the Company’s consolidated financial statements.

Note 2 - Going Concern

The financial statements have been prepared assuming that the Company will continue as a going concern. The Company is in a development stage and has recognized no revenue as of December 31, 2009. The lack of sales and recurring losses from operations raise substantial doubt about the Company’s ability to continue as a going concern. Continuation of the Company is dependent on achieving sufficiently profitable operations and additional financing. The Company completed a private placement of its common stock in July 2008, that began in 2007, in which it raised gross proceeds of $977,000 and during 2009 the Company conducted a private placement, which resulted in proceeds of $816,000 as of December 31, 2009. Exercises of stock option awards resulted in additional proceeds of $1,670,000 for the year ended December 31, 2009. The Company plans to continue the launch of the commercialization of its products utilizing its current working capital and future financing proceeds, if necessary, and by outsourcing the manufacturing function and working with regional distributors during 2010. There can be no assurance that any revenue from operations will be sufficient. In the event it is not sufficient, the Company will need to raise additional capital. There can be no assurance that the Company will be successful in raising additional capital.

F-10

Note 3 – Long-lived Assets

The following table summarizes the Company’s long-lived assets as of December 31:

	2009			2008
Property and equipment
Equipment		44,360			10,268
Leasehold Improvements		76,213			0
Furniture and fixtures		30,436			6,200
Software		40,308			0
Total property and equipment before accumulated depreciation		191,317			16,468

Less accumulated depreciation		(16,208	)		(1,779	)
Total property and equipment		175,109			14,689

Intangible assets
Patents		34,862			17,868
Trademark		4,525			4,525
Total intangible assets before accumulated amortization		39,387			22,393

Less accumulated amortization		(2,110	)		(1,406	)
Total intangible assets		37,277			20,987

Amortization of intangible assets is expected to amount to less than $1,000 per year for each of the next five years.

Note 4 – Stockholders’ Equity

On December 7, 2007, the Company effected a 428.57-to-1 stock split. On that date, the Company reduced the par value of common stock from $.01 to $.001 per share. As a result of the stock split and change in par value, common stock increased and additional paid-in capital decreased by $2,930. On November 25, 2008, the Company effected a 20-for-1 split of its outstanding shares of common stock, resulting in there then being approximately 79,640,000 common shares outstanding, and reduced the par value of its stock from $.001 to $.0001 per share. In addition, the Company’s authorized shares were increased to 500 million common shares and 5 million preferred shares. The shares of preferred stock are undesignated “blank check” shares. References to share amounts in these financial statements and notes have been adjusted to reflect these stock splits.

During the year ended December 31, 2007, the Company sold 1,400,000 shares of common stock for a price of $0.05, resulting in net proceeds of $53,259 after $16,741 of related costs associated with the private placement that were treated as a reduction to Additional Paid-In Capital.

During the year ended December 31, 2008, the Company sold 18,140,000 shares of common stock for a price of $0.05, resulting in net proceeds of $880,742 after $26,258 of related costs associated with the private placement that were treated as a reduction to Additional Paid-In Capital. During 2008 the Company issued 400,000 shares of common stock in connection with stock option awards exercised for a price of $0.05 per share that resulted in proceeds of $20,000. In addition, during 2008 the Company issued 1,000,000 shares of restricted common stock under a consulting agreement with the Company and under the 2008 Equity Incentive Plan, of which 700,000 vested in 2008 and 300,000 vested in 2009 (see Note 6).

F-11

During the year ended December 31, 2009, the Company sold 741,000 shares of common stock for a price of $1.00 per share and 125,000 shares for a price of $0.60, resulting in net proceeds of $799,658 after $16,344 of related costs associated with the private placement that were treated as a reduction to Additional Paid-In Capital. In addition, 33,400,000 stock option awards were exercised for a price of $0.05 per share that resulted in proceeds of $1,670,000 during the year ended December 31, 2009 and 91,000 shares were issued in exchange for services provided by a vendor amounting to $91,000.

Note 5 – Stock Based Compensation

The Company has established the “2008 Equity Incentive Plan” which is a shareholder approved plan that permits the granting of share options and shares to employees, directors and consultants. The 2008 Equity Incentive Plan provides for the issuance of up to 8,000,000 shares of common stock of which 1,000,000 shares are available for grant as Incentive Stock Options. The exercise price for options awarded is 100% of the fair market value of the common stock on the day of grant. The options generally vest either immediately on the date of grant or 1 to 3 years from the date of grant. On December 30, 2009, the Board of Directors approved an amendment to increase the number of shares available for award under the plan from 8,000,000 to 16,000,000. The Company plans to present the amendment for shareholder approval at its Annual Meeting of Shareholders in April 2010.

For the year ended December 31, 2009, the Company recorded compensation costs for options and shares granted under the plan amounting to $1,011,031 ($407,753 – 2008). The impact of this expense was to increase basic and diluted net loss per share from $.02 to $.03 for the year ended December 31, 2009 ($.01 to $.02 - 2008). A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. Accordingly, there is a deferred tax asset recorded for the tax effect of the financial statement expense recorded. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital. No tax deduction is allowed for incentive stock options (ISO). Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

Management has valued the options at their date of grant utilizing the Black Scholes Option Pricing Model. Prior to the fourth quarter of 2009, there was not a public market for the Company shares. Accordingly, the fair value of the underlying shares was determined based on recent transactions by the Company to sell shares to third parties and other factors determined by management to be relevant to the valuation of such shares. Beginning in the fourth quarter of 2009, the Company’s quoted price on the OTCBB was used to value the underlying shares. The excepted volatility was calculated using the historical volatility of a similar public entity in the alternative electricity industry in accordance with Question 6 of SAB Topic 14.D.1. In making this determination and finding another similar company, the Company considered the industry, stage of life cycle, size and financial leverage of such other entities. Based on the development stage of the Company, similar companies with enough historical data are not available. The Company was able to find one entity that met the industry criterion and as a result has based its expected volatility off this Company’s historical stock prices for a period similar to the expected term of the option. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of options used was based on the contractual life of the option granted. The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future. The following weighted-average assumptions were utilized in the fair value calculations for options granted:

	Year Ended	Year Ended
	December 31, 2009	December 31, 2008

Expected dividend yield	0%	0%
Expected stock price volatility	40 - 50%	35.21%
Risk-free interest rate	1.14 – 3.85%	1.1%
Expected life of options	3 - 10 Years	2.4 Years

F-12

The following table summarizes the status of the Company’s aggregate stock options granted:

	Number of Shares Remaining Options			Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2009		34,200,000		$	.05
Options granted		5,086,667		$	.89
Options exercised during 2009		(33,400,000	)	$	.05
Options forfeited during 2009		(1,225,000	)	$	1.00
Outstanding at December 31, 2009		4,661,667		$	.72		7.8 years	$	557,333
Exercisable at December 31, 2009		1,550,000		$	.49		5.6 years	$	496,000

The weighted average fair value of options granted during the year ended December 31, 2009 was approximately $.46 ($0.01- 2008). The total fair value of shares that vested during the year ended December 31, 2009 was $554,320 ($370,860 - 2008).

The following table summarizes the status of the Company’s aggregate non-vested shares granted:

Non-vested Shares	Number of Non-vested Shares			Weighted Average Fair Value at Grant Date
Non-vested at December 31, 2008		300,000		$	0.05
Non-vested granted – year ended December 31, 2009		25,000		$	0.45
Vested		(300,000	)	$	0.05
Non-vested at December 31, 2009		25,000		$	0.45

As of December 31, 2009, the unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan was approximately $1,258,593. These costs are expected to be recognized over a weighted average period of 1.26 years.

Note 6 – Consulting Agreement

In October 2008, the Company entered into an agreement with an individual to provide management consulting services through September 30, 2009. As compensation, the Company paid $1,000 for each full week during the term. The Company also entered into a Stock Award Agreement with this individual on the same date. The consultant received one million shares of common stock, vesting according to a schedule. The Company valued the stock on each vesting date using the fair market value of the common stock. The fair value of the equity instrument is recognized as an expense over the period the related service is performed. The Company issued 100,000 shares of common stock to the consultant upon signing the consulting agreement and 600,000 shares vested from the date of the agreement to December 31, 2008 upon the satisfaction of other performance criteria. During the year ended December 31, 2008, the Company recognized $35,000 of stock based compensation related to this award. The Company issued the final 300,000 shares of common stock to the consultant upon meeting performance criteria in the first quarter of 2009 and recognized $300,000 of stock based compensation during the year ended December 31, 2009. Based on information received after the purported vesting dates of the award, the Company does not believe that the individual has satisfied the vesting criteria for the issuance of said shares.

During 2009, this individual was appointed the Chief Operating Officer and awarded an option to purchase 1,000,000 shares of common stock at $1.00 per share under the 2008 Equity Incentive Plan. These options are included in the Stock Based Compensation footnote above. Later in 2009, this individual resigned from his position and as an employee of the Company. He was vested in 50% of the stock option award. Under the terms of the stock option award agreement all vested stock options were forfeited since he did not exercise those stock options within 120 days from the effective date of his resignation. The unvested stock options under the stock option award were forfeited due to his resignation. As a result, $164,400 of previously recorded stock based compensation related to the stock options was reversed.

F-13

Note 7 – Related Party Transactions

Certain services were provided to the Company by immediate family members of an officer / shareholder of the Company. These services relate to inventory production, leasehold improvements, research and development efforts and administrative wages and amounted to $238,095 for the year ended December 31, 2009, $95,546 for the year ended December 31, 2008, and $333,641 since inception. As of December 31, 2009 $60,496 ($0-2008) was owed to these related parties and included in accounts payable.

Note 8 – Commitments and Contingencies

Employment agreements

As of December 31, 2009, the Company has entered into employment agreements with various members of management. These employment agreements have three year terms with the option to extend employment for a fourth year, expiring at various dates from July 14, 2012 to December 28, 2012. Annual compensation required under these agreements include base salary aggregating approximately $800,000, as well as annual bonuses based on achieving certain performance milestones. All of these agreements contain severance provisions in the event of termination of the employee without cause that require continued payment of the annual salary through the term of the agreement but for a minimum period of at least two years.

Operating lease

On August 20, 2009, the Company entered into a lease for its current office space in Geneseo, New York requiring monthly rental payment of $1,400, which commenced on November 1, 2009 and expire October 31, 2011 with a two year renewal option. Future commitments by year under this lease are as follows:

Year	Rental Commitment
2010	$16,800
2011	$14,000

Warranty

During the year ended December 31, 2009, the Company entered into a number of sales orders for wind turbine units. These sales orders required certain deposits of the agreed-upon purchase price upon acceptance of the sales order. The advance payments received as of December 31, 2009 total $95,000 and have been included in customer deposits. The sales orders included product warranties; however, based on the lack of operating history, the Company is unable to reasonably determine an estimate of this liability.

State refundable credit

The Company filed its 2008 New York State corporate income tax return during July 2009, and anticipates a refund upon approval by state tax authorities in the amount of $31,217, related to tax credits for being a Qualified Emerging Technology Company (QETC). The Company expects to claim approximately $132,000 in tax credits with its 2009 New York State corporate income tax return to be filed in 2010. Such refunds will be recognized when received by the Company.

Other matters

The Company entered into an agreement with Alternative Wind Resources, LLC ("AWR") to produce a 15kWh prototype wind turbine unit by May 30, 2009, in which AWR agreed to reimburse the Company for engineering and materials costs for development of this larger prototype unit. The Company has demanded $77,413.30 as reimbursement for engineering and materials costs, which has not been paid to date. AWR also agreed to provide the Company

F-14

with a purchase order for one thousand (1,000) 15kWh units within one year after delivery of the prototype. As of December 31, 2009 the prototype has not been completed or delivered to AWR. AWR provided a $50,000 deposit for the orders, but never provided the purchase order. The agreement also granted AWR the exclusive right to purchase all 15kWh and larger wind turbine units for wind farm and industrial uses and development. On April 29, 2009 the Company also granted AWR an option for 60 days to enter into an exclusive license agreement with the Company for 50 years for the sale of the Company’s 15kWh wind turbines and larger upon the payment of a $6.0 million license fee. The option was subject to extension if the due diligence provided to AWR by the Company was not reasonably acceptable. AWR paid a $10,000 fee for the option. The payments from AWR, aggregating $60,000 are included in accounts payable and accrued expenses in the accompanying balance sheet. On September 10, 2009, the Company received a letter from counsel to AWR terminating the March 2009 agreement and the April 2009 option described above and demanding the return of $60,000 provided to the Company.

Note 9 - Income Taxes

Following is a summary of the components giving rise to the income tax provision (benefit) for the periods ended December 31:

	Year ended 2009			Year ended 2008			Period from Inception through 12/31/2009

Current	$	-		$	-		$	-

Deferred		(822,792	)		(438,907	)		(1,298,396	)
Less increase in allowance		822,792			438,907			1,298,396
Net deferred		-			-			-
Total income tax provisions (benefit)	$	-		$	-		$	-

Individual components of the deferred tax asset are as follows as of December 31,:

	Year ended 2009			Year ended 2008

Net operating loss carryforwards	$	734,185		$	287,512
Stock based compensation		278,969			147,021
Depreciation and amortization		284,421			41,071
Other		820			-
Total		1,298,396			475,604
Less valuation allowance		(1,298,396	)		(475,604	)
Net deferred tax assets	$	-		$	-

The Company has approximately $2,235,000 of net operating loss carryforwards (“NOLs”) available to reduce future taxable income. These carryforwards expire at various dates through 2029. A portion of the net operating loss carryforward amounting to approximately $335,000, relates to tax deductions for stock awards vested, which are not included in the determination of the deferred tax assets above and will be recognized in accordance with ASC 718 when realized for tax purposes. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the future and utilize the NOLs before they expire, the Company has recorded a valuation allowance to offset the deferred tax assets.

F-15

Internal Revenue Code Section 382 (“Section 382”) imposes limitations on the availability of a company’s net operating losses and other corporate tax attributes as ownership changes occur. As a result of the transactions discussed in Note 4, a Section 382 ownership change is expected and a study will be required to determine the date of the ownership change. The amount of the Company’s net operating losses and other tax attributes incurred prior to the ownership change may be limited based on the value of ownership change. A full valuation allowance has been established for the gross deferred tax asset related to the net operating losses and other corporate tax attributes available. Accordingly, any limitation resulting from Section 382 application is not expected to have a material effect on the balance sheet or statements of operations of the Company.

The differences between the United States statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:

					Period from Inception
	Year ended 2009		Year ended 2008		through 12/31/2009

Statutory United States federal rate		(34)%		(34)%		(34)%
State income taxes net of federal benefit		(5)		(6)		(6)
Permanent differences		-		-		-
Change in valuation reserves		39		40		40

Effective tax rate		-%		-%		-%

In July 2006, the FASB released Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109” (“FIN48”), now ASC 740. Effective for fiscal years beginning after December 15, 2006, FIN48 provides guidance on the financial statement recognition and measurement for income tax positions that we have taken or expect to take in our income tax returns. It also provides related guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN48 on January 1, 2007. The adoption did not have a material impact on the Company’s consolidated results of operations and financial position, and therefore, the Company did not have any adjustment to the January 1, 2007 beginning balance of retained earnings. In addition, the Company did not have any material unrecognized tax benefits at December 31, 2008 or 2009.

The Company recognizes interest and penalties related to unrecognized tax benefits in general and administrative expense. During the year ended December 31, 2009 the Company recognized no material interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction and applicable states. The tax years 2006 -2009 remain open to examination by major taxing jurisdictions to which the Company is subject.

Note 10 – Subsequent Events –

In January 2010 the Company issued 135,849 shares as satisfaction of liabilities, amounting to $98,086 of which 50,620 shares were issued to a related party as satisfaction of $40,496 of liabilities.

In December 2009 the Company issued 25,000 restricted shares of common stock under a Stock Award Agreement to an employee of the Company. In January 2010 the restrictions were satisfied according to the terms of the Agreement.

F-16

EXHIBIT INDEX

Exhibit Description

Number

23.1	Consent of EFP Rotenberg, LLP

31.1	Certification of William Schmitz pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Molly Hedges pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of William Schmitz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Molly Hedges pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Attached files

Arista Power, Inc. Reports

Also read