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EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 BY THE CHIEF EXECUTIVE OFFICER, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Arista Power, Inc.f10q0912ex32i_aristapower.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Arista Power, Inc.f10q0912ex31ii_aristapower.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 BY THE CHIEF FINANCIAL OFFICER, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Arista Power, Inc.f10q0912ex32ii_aristapower.htm
EX-10.25 - REVOLVING CREDIT NOTE - Arista Power, Inc.f10q0912ex10xxv_aristapower.htm
EX-10.24 - LOAN AGREEMENT - Arista Power, Inc.f10q0912ex10xxiv_aristapower.htm
EX-10.26 - WARRANT PURCHASE AGREEMENT - Arista Power, Inc.f10q0912ex10xxvi_aristapower.htm
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EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Arista Power, Inc.f10q0912ex31i_aristapower.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-53510
 
 ARISTA POWER, INC.
(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, New York
 
14615
(Address of principal executive offices)
 
(Zip Code)
 
(585) 243-4040
(Registrant's telephone number, including area code)

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  o

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 has been required to submit and post such files). Yes  x  No  o

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      ¨ (Do not check if a smaller reporting company)
Smaller reporting company     x

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 November 5, 2012 the Registrant had outstanding 12,386,633 shares common stock, $0.002 par value.
 


 
 
 
 
 
ARISTA POWER, INC.
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements
1
     
 
Unaudited Condensed Balance Sheets as of  September 30, 2012  and December 31, 2011
1
     
 
Unaudited Condensed Statements of Operations for the Three Months and Nine Months Ended September 30 , 2012 and 2011
2
     
 
Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011
3
     
 
Unaudited Statement of Stockholders' Equity through September 30, 2012
4
     
 
Notes to Unaudited Condensed Financial Statements
5
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
     
Item 4. 
Controls and Procedures
21
     
PART II. OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
21
     
Item 1A.
Risk Factors
22
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22
     
Item 3.
Defaults Upon Senior Securities
23
     
Item 4.
Mine Safety Disclosures
23
     
Item 5.
Other Information
23
     
Item 6.
Exhibits
23
     
Signatures
24
     
Exhibits
 
 
 
 

 
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements and Notes
 
ARISTA POWER, INC.
 Condensed Balance Sheets (Unaudited)
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
ASSETS
 
Current assets
           
Cash
 
$
55,533
   
$
371,132
 
Accounts Receivable (less allowance for doubtful accounts of $0 at September  30, 2012 and December 31, 2011)
   
226,629
     
73,312
 
Prepaid expenses and other current assets
   
379,200
     
346,787
 
Deferred Debt Discount
   
500,000
     
0
 
Inventory
   
448,795
     
539,124
 
Total current assets
   
1,610,157
     
1,330,355
 
                 
Intangible assets, net
   
31,291
     
33,025
 
                 
Property and equipment, net
   
179,324
     
247,858
 
                 
Total assets
 
 $
1,820,772
   
$
1,611,238
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
 
 
Current liabilities
               
Accounts payable
 
$
932,873
   
$
889,481
 
Borrowings under line of credit, net of unamortized discount
   
15,688
     
0
 
Customer deposits
   
198,757
     
112,218
 
Accrued payroll
   
125,995
     
51,635
 
Accrued warranty costs
   
140,074
     
135,606
 
Accrued liabilities
   
397,763
     
211,986
 
Current portion of long term debt
   
11,530
     
11,072
 
Total current liabilities
   
1,822,680
     
1,411,998
 
                 
Long term liabilities
               
Long term debt
   
30,933
     
39,638
 
Total long term liabilities
   
30,933
     
39,638
 
                 
Total liabilities
   
1,853,613
     
1,451,636
 
                 
Stockholders' equity/(deficit)
               
Preferred stock, 5,000,000 shares authorized, $0.0001 par value; none issued or outstanding at September 30, 2012
or December 31, 2011
   
0
     
0
 
Common stock, 500,000,000 shares authorized, $0.002 par value;12,376,633  and 11,854,644 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively
   
24,753
     
23,709
 
Additional paid-in capital
   
22,872,445
     
20,407,748
 
Deficit accumulated
   
(22,930,039)
     
(20,271,855
)
Total stockholders' equity/(deficit)
   
(32,841)
     
159,602
 
                 
Total liabilities and stockholders' equity/(deficit)
 
$
1,820,772
   
$
1,611,238
 
 
Shares outstanding and per share data have been adjusted to give effect to the one-for-twenty reverse stock split in December 2011, as
described in Note 5 to these unaudited financial statements.
 
The accompanying notes are an integral part of the financial statements.
 
 
1

 
 
ARISTA POWER, INC.
Statements of Operations (Unaudited)
 
   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Sales
 
$
376,766
   
$
254,369
   
$
1,327,750
   
$
454,347
 
Cost of Goods Sold
   
466,765
     
410,560
     
1,729,493
     
1,059,772
 
Gross Loss
   
(89,999
)
   
(156,191
)
   
(401,743
)
   
(605,425
)
Operating Expenses/(Income):
                               
Research and development expenses
 
$
147,490
   
$
270,593
   
$
406,049
   
$
889,498
 
Selling, general and administrative expenses
   
561,182
     
686,751
     
1,989,915
     
2,295,548
 
Gain arising from debt extinguishment
   
0
     
0
     
0
     
(1,000,000
)
Total expenses
   
708,672
     
957,344
     
2,395,964
     
2,185,046
 
Loss from operations
   
(798,671
)
   
(1,113,535
)
   
(2,797,707
)
   
(2,790,471
)
Non-operating revenue/(expense)
                               
Interest income/(expense)
   
(18,677
)
   
759
     
(19,372
)
   
(7,595
)
Net loss before income taxes
   
(817,348
)
   
(1,112,776
)
   
(2,817,079
)
   
(2,798,066
)
Income taxes
   
0
     
0
     
158,895
     
0
 
Net loss
 
$
(817,348
)
 
$
(1,112,776
)
 
$
(2,658,184
)
 
$
(2,798,066
)
Net loss per common share - basic and diluted
 
$
(.07
)
 
$
(.10
)
 
$
(.22
)
 
$
(.30
)
Weighted average number of common shares outstanding - basic and diluted
   
12,375,206
     
11,189,190
     
12,174,029
     
9,251,570
 
 
The accompanying notes are an integral part of the financial statements.

Shares outstanding and per share data have been adjusted to give effect to the one-for-twenty reverse stock split in December, 2011, as
described in Note 5 to these unaudited financial statements.
 
 
2

 
 
ARISTA POWER, INC.
Statements of Cash Flows (Unaudited)
 
   
Nine Months
Ended
September 30, 2012
   
Nine Months
Ended
September 30, 2011
 
             
Operating activities
           
Net loss
 
$
(2,658,184
)
 
$
(2,798,066
)
Adjustments to reconcile net loss to net cash used in operating activities:  
               
Amortization and depreciation expense
   
90,969
     
73,581
 
Stock-based compensation
   
495,518
     
1,039,737
 
Financing fees- issuance of warrants, non-cash
   
116,207
     
353,132
 
Stock issued for services and rent
   
259,014
     
168,120
 
Extinguishment of line of credit debt
   
0
     
(1,000,000
)
Impairment of assets
   
2,077
     
3,876
 
Amortization of debt discount
   
 15,688
     
0
 
Changes in operating assets and liabilities:
               
(Increase)  in trade accounts receivable
   
(153,316
)
   
(105,420
)
(Increase)  in prepaid expenses and other current assets
   
(32,413
   
(110,262
)
Decrease in inventory
   
90,329
     
121,474
 
Increase/(decrease)  in customer deposits
   
86,539
     
(133,812
)
Increase in accrued warranty costs
   
4,468
     
69,403
 
Increase/(decrease) in trade accounts payable and accrued liabilities
   
303,988
     
(173,900
)
Net cash provided by/(used in) operating activities
   
(1,379,116
)
   
(2,492,137
)
                 
Investing Activities
               
Acquisition of fixed assets
   
(22,778
)
   
(117,630
)
Net cash used in investing activities                                                                        
   
(22,778
)
   
(117,630
)
                 
Financing activities
               
Proceeds from issuance of common stock
   
795,000
     
2,852,500
 
Borrowings on line of credit and long term debt, net of repayments
   
291,295
     
44,090
 
Net cash provided by financing activities                                                                        
   
1,086,295
     
2,896,590
 
                 
(Decrease)/increase in cash                                                                                   
   
(315,599
   
286,823
 
                 
Cash – beginning of period                                                                                   
   
371,132
     
584,085
 
                 
Cash – end of period                                                                                   
 
$
55,533
   
$
870,908
 
                 
Supplemental Information:
               
Income Taxes Paid/(Tax credits received)
 
$
325
   
$
0
 
Interest Paid
 
$
2,139
   
$
8,962
 
 
The accompanying notes are an integral part of the financial statements.
 
 
3

 
 
ARISTA POWER, INC.
Statement of Stockholders’ Equity
(Unaudited)
 
   
Number of
Shares
   
Par Value
   
Additional
Paid-In Capital
   
Accumulated
Deficit
   
Total
Stockholders'
Equity/(Deficit)
 
                                         
Balance, December 31, 2011
   
  11,854,644
   
 $
  23,709
   
$
 20,407,748
   
$
 (20,271,855
 
$
  159,602
 
Issuance of common stock
   
120,000
     
240
     
239,760
             
240,000
 
Issuance of common stock for goods and services
   
119,191
     
238
     
251,616
             
251,854
 
Issuance of warrants with private placements
                   
36,662
             
36,662
 
Stock options and stock compensation
   
380
     
1
     
153,969
             
153,970
 
Share rounding for reverse stock split
   
272
                             
0
 
Net loss for quarter
                           
(831,394
   
(831,394
)
Balance, March 31, 2012
   
12,094,487
     
24,188
   
$
21,089,755
   
$
(21,103,249
)
 
$
10,694
 
Issuance of common stock
   
240,000
     
480
     
479,520
             
480,000
 
Issuance of warrants with private placements
                   
71,470
             
71,470
 
Stock options and stock compensation
   
 366
     
 1
     
274,855
             
274,856
 
Net loss for quarter
                           
(1,009,442
   
(1,009,442
Balance, June 30, 2012
   
12,334,853
   
$
24,669
   
$
21,915,600
   
$
(22,112,691
)
 
$
(172,422
Issuance of common stock
   
37,500
     
75
     
74,925
             
75,000
 
Issuance of common stock for goods and services
   
3,768
     
8
     
7,152
             
7,160
 
Issuance of warrants with private placements
                   
8,075
             
8,075
 
Issuance of warrants with revolving line of credit facility
                   
800,000
             
800,000
 
Stock options and stock compensation
   
512
     
1
     
66,693
             
66,694
 
Net loss for quarter
                           
   (817,348)
     
(817,348
Balance, September 30, 2012
   
12,376,633
     
24,753
     
22,872,445
     
(22,930,039
)
   
(32,841
 
All share and per share data have been adjusted to give effect to the one-for-twenty reverse stock split in December 2011, as
described in Note 5 to these unaudited financial statements.

The accompanying notes are an integral part of the financial statements.
 
 
4

 
 
ARISTA POWER, INC.

Notes to the Financial Statements
Nine-Month Period ended September 30, 2012
(Unaudited)

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

Description of Business

Arista Power, Inc. (the “Company” or “Arista Power”) 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. In May 2011, the Company changed its name to Arista Power, Inc. to reflect the broadening of the Company’s focus beyond the WindTamer® brand.  The Company is a developer, manufacturer, and supplier of custom-designed power management systems, renewable energy storage systems, WindTamer wind turbines, and a supplier and designer of solar energy systems.

Basis of Preparation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation.

In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying unaudited condensed financial statements.  Operating results for the three and nine-month periods ended September 30, 2012 are not necessarily indicative of the results to be expected for other interim periods or the full fiscal year.  These financial statements should be read in conjunction with the financial statements and accompanying notes contained in the Arista Power Form 10-K for the fiscal year ended December 31, 2011.

Method of Accounting

The accompanying financial statements have been prepared in accordance with GAAP.  Arista Power maintains its books and prepares its financial statements on the accrual basis of accounting.

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.
 
 
5

 
 
Accounts Receivable

Accounts receivable represents amounts due from customers in the ordinary course of business, based upon invoiced amounts, net of any allowance for doubtful accounts.  We evaluate accounts receivable quarterly on a specific account basis to determine the need for an allowance for doubtful account reserve.  As of September 30, 2012 and December 31, 2011, no such reserve is deemed necessary.

Inventory

Inventory consists primarily of parts and subassemblies for Power on Demand systems, solar photovoltaic (“PV”) systems, and 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.  The inventory as of September 30, 2012 consisted of raw materials amounting to $142,699 and work-in-process amounting to $306,096.  Inventory is reviewed quarterly to determine the need for an excess and obsolete inventory reserve.  As of September 30, 2012 and December 31, 2011, the reserve amounted to $63,004 and $47,171, respectively.

Fixed Assets

Fixed assets are recorded at cost.  Depreciation is on a straight line basis 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.  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

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.   For the nine months ended September 30, 2012 assets totaling $2,077 were impaired. For the nine months ended September 30, 2011, the Company impaired assets totaling $3,876.
 
Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value due to their short maturity.
 
 
6

 
 
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.

For research and development contracts, we recognize revenue using the proportional effort method based upon the relationship of cost incurred to date to the total estimated cost to complete the contract.  Cost elements include direct labor, materials, overhead, and outside contractor costs. The excess of amounts billed on a milestone basis versus the amounts recorded as revenue on a proportional effort basis is classified as deferred revenue. We provide for any loss that we expect to incur on these agreements when the loss is probable.

The Company’s top customer accounted for approximately 83% and 69% of revenues, respectively for the three and nine months ended September 30, 2012, and this customer’s accounts receivable balance amounted to 73% of the total accounts receivable as of September 30, 2012.

Research and Development Costs

All costs related to research and development are expensed when incurred, unless these costs have an alternative future value to research and development, in which case they are capitalized.  Research and development costs consist of expenses to enhance the WindTamer® wind turbine design, and costs associated with the development of the Company’s Power on Demand system and the Mobile Renewable Power Station.  Specifically, these costs consist of labor, materials, and consulting.

Warranty Costs

The Company’s standard warranty on each Power on Demand system, wind turbine, and solar system sold protects against defects in design, material, and workmanship under normal use for varying periods, based upon the product sold.  Several warranties have specific additional terms and conditions.  The Company provides for estimated cost of warranties at the time the revenue is recognized.  Factors that affect the warranty reserve are projected cost of repair and/or replacement, component life cycles, manufacturer’s warranty on component parts, and limited historical data. These estimates are reviewed quarterly and are updated as new information becomes available. The impact of any change in estimates will be taken into account when analyzing future warranty reserve requirements.
 
Stock-Based Compensation

The Company accounts for stock option awards granted under the Company’s Equity Incentive Plan in accordance with ASC 718. Under ASC 718, compensation expense related to stock-based payments is 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’s 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.
 
 
7

 
 
Basic and Diluted Loss Per Share

Basic earnings per share reflect 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 potentially issued common shares would be anti-dilutive.

As of September 30, 2012, there were 519,400 stock options and 2,204,250 warrants outstanding which, upon exercise, could dilute future earnings.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.
 
Note 2 - Going Concern

The financial statements have been prepared assuming that the Company will continue as a going concern.  Since its formation, the Company has generated minimal sales volumes and has incurred a cumulative net loss of ($22,930,039).  The minimal sales volumes to date 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 obtaining additional financing.

From 2007 through 2010, the Company raised approximately $4.1 million through multiple private placement offerings at varying prices.  The Company yielded $1.67 million from the exercise of 1.67 million stock options for the year ended December 31, 2009.  The Company established a $1.0 million line of credit with First Niagara Bank on April 26, 2010. On March 17, 2011, the Company received written notice from the Guarantors of the loan agreement (two Company officers and one shareholder) that the Guarantors were required by First Niagara Bank to repay the $1.0 million principal balance of the Company’s line of credit.  The Company has no liability to the Guarantors as a result of the repayment by the Guarantors of the line of credit.  Other than accrued interest and applicable fees, which have been fully repaid, the Company had no liability to the Lender under the line of credit. As a result of this debt extinguishment, the Company recorded a $1.0 million non-cash gain during the three months ended March 31, 2011.
 
During 2011, the Company raised $3.2 million through private placement sales of “units” that included shares of common stock and a warrant to purchase common stock. For the first six months of 2012, the Company sold 48 units which generated $720,000 and in July 2012, the Company sold an additional 5 units to raise $75,000. On September 4, 2012, the Company entered into a loan agreement with TMK-ENT, Inc., providing for a $500,000 working capital revolving line of credit. The note bears interest at 10% and matures on September 4, 2013. This working capital is not expected to be sufficient to fund operational growth, and the Company expects to need to raise additional capital.  There can be no assurance that the Company will continue to be able to raise sufficient capital, at terms that are favorable to the Company or at all, to fund operations.

Note 3 – Long-lived Assets

The following table summarizes the Company’s long-lived assets as of:
 
   
September 30, 2012
   
December 31, 2011
 
Property and equipment
           
     Equipment
 
$
261,232
   
$
244,799
 
     Furniture and fixtures
   
38,950
     
38,950
 
     Software
   
71,625
     
71,625
 
     Product Tooling
   
51,373
     
51,373
 
Total property and equipment before accumulated depreciation
   
423,180
     
406,747
 
                 
     Less accumulated depreciation
   
(243,856
)
   
(158,889
)
Total property and equipment
 
$
179,324
   
$
247,858
 

Intangible assets
               
     Patents
 
$
34,862
   
$
34,862
 
     Trademark
   
4,525
     
4,525
 
Total intangible assets before accumulated amortization
   
39,387
     
39,387
 
                 
     Less accumulated amortization
   
(8,096
)
   
(6,362
)
Total intangible assets
 
$
31,291
   
$
33,025
 
 
 
8

 
 
Note 4 – Debt

In April 2010, the Company established a $1.0 million line of credit with First Niagara Bank to provide the Company with liquidity.  The facility was secured by the guarantees of two officers of the Company and one shareholder of the Company. The line of credit interest rate was at prime rate, plus 0%, but at no time would the applicable interest rate be less than 3.25%.

The borrowings under the loan agreement were secured by limited guarantees provided by two of our officers, William Schmitz and Molly Hedges, and one of our shareholders, Michael Hughes.  The guarantees were supported by cash collateral accounts maintained by the individuals at First Niagara Bank. Additionally, Gerald Brock, a former director of the Company, granted the guarantors the right to sell 1,000,000 of his shares of our common stock in the event they were required to pay under the guarantees.  Mr. Brock pledged his 1,000,000 shares of the Company’s common stock owned by him as security for his obligations to the guarantors.

In connection with the guarantees, the Company issued to Mr. Brock and the guarantors warrants to purchase an aggregate of 1,450,000 shares of our common stock at $5.00 per share.  The warrants have a term of 10 years, with a six-month incremental vesting schedule in tranches of 25% of the shares under each warrant from the date of issue. As of September 30, 2012, all of these warrants have vested.

On February 26, 2011, the Company received a notice of potential opportunity to cure default from First Niagara Bank, which included a demand payment for interest due of $10,976 as of February 23, 2011 under the Company’s loan agreement.  The notice provided that if the events of default were not cured by March 4, 2011, First Niagara Bank, at its sole discretion, could accelerate or demand payment in full of the obligations and take all enforcement actions or otherwise implement remedies under the applicable loan agreements.  The default was not cured by the Company by March 4, 2011.  Pursuant to the loan agreement, the interest rate under the line of credit had increased by 6% to 9.25% as of the date of the notice.  On March 12, 2011, the Company received a demand notice from First Niagara Bank, demanding payment for full indebtedness to the bank including line of credit principal and interest of $1,012,421, and credit card debt of $25,351 by no later than March 17, 2011.  On March 17, 2011, the Company received written notification from the guarantors of the loan agreement that the guarantors were required by the lender, and did, on March 17, 2011, repay the $1.0 million principal balance of the Company’s working capital revolving line of credit with the Lender.  The Company has no liability to the guarantors as a result of the repayment by the guarantors of the line of credit, and accordingly, the Company recorded a $1.0 million gain on the extinguishment of the line of credit debt during the three months ending March 31, 2011.  Other than accrued interest and applicable fees, which have been fully repaid, the Company had no liability under the line of credit.

On August 24, 2011, the Company purchased equipment for $44,748, financed with a loan from Canandaigua National Bank.  The loan is guaranteed by William Schmitz, our CEO, has a 60-month term, and carries a 4.99% annual interest rate.  Monthly payments are $844. On October 14, 2011, the Company leased office equipment for $9,068, financed with a loan from Canon Financial Services, Inc.  The loan, with monthly payments of $279, has a 6.76% annual interest rate and a 36 month term.  The end of term purchase option calls for a payment of the equipment’s fair market value.

On September 4, 2012, the Company entered into a loan agreement with TMK-ENT, Inc. that provided for a $500,000 working capital revolving line of credit.  Advances under the line of credit bear interest at 10% per year, payable annually.  The note matures on September 4, 2013. Borrowings under the line of credit amount to $300,000 as of September 30, 2012. In connection with the line of credit facility, the Company issued 500,000 warrants to purchase the Company’s common stock at $1.60 per share. The warrants vest immediately and have a ten year term. The fair market value of the warrants at grant date was determined utilizing the Black Scholes option pricing model. Debt discount costs will be recognized as the Company draws down the available line of credit, and will be amortized over the remaining term of the loan. As a result of the amortization of the debt discount, the Company expensed $15,688 for the three months and nine months ended September 30, 2012.

Annual maturities of debt are as follows:
 
2012
(10/1/2012-12/31/2012) 
 
$
2,815
 
2013
   
$
311,688
 
2014
   
$
11,782
 
2015
   
$
9,540
 
2016
   
$
6,629
 
 
 
9

 
 
Note 5 – Stockholders’ Equity

On March 7, 2012, our Board of Directors approved a private placement for the sale of up to 100 units, with each unit costing no less than $15,000 and consisting of 7,500 shares of the Company’s common stock and a warrant to purchase 1,000 shares of the Company’s common stock at $10.00 per share.  Each warrant vests two years from the date of purchase of the applicable unit and has a ten-year life.  Each purchaser of the units has agreed not to sell any shares of common stock purchased in the private placement for at least one year.  In 2012, through June 30, 2012, the Company sold 48 units, which yielded $720,000 and in July 2012, the Company sold 5 units for $75,000.

In March 2012, we issued 119,191 shares of our common stock to strategic vendor-investors in lieu of cash for goods and services totaling $251,854.  In August 2012, 3,768 shares of our common stock were issued to a strategic vendor for services totaling $7,160. On November 1, 2012, the Company issued 10,000 shares of common stock for professional services.

On October 18, 2011, the Company’s Board of Directors approved, authorized, and recommended to the Company’s shareholders to file a Restated Certificate to effect a one for twenty reverse stock split. As of November 17, 2011, the holders of approximately 74% of the aggregate voting power of Common Stock delivered to the Registrant written consents approving the adoption of the Restated Certificate.  On December 21, 2011, the Company filed its Restated Certificate of Incorporation with the Secretary of the State of New York, and on December 27, 2011 the one for twenty reverse stock split became effective.  All stock related disclosures, including number of shares of common stock, stock options, warrants, and loss per share calculations have been restated retrospectively to reflect the one for twenty reverse stock split for all periods presented.

During 2011, the Company raised $3.2 million in multiple private placement sales of “units”, $2.9 million of which was raised during the nine months ended September 30, 2011.  Each unit cost $17,500 and consisted of 25,000 shares of common stock and a warrant to purchase 875 shares of common stock at $10.00 per share. The warrants fully vest two years from the date of the unit purchase, and have a ten-year term.

In 2011, the Company issued 46,500 shares of common stock to vendors for services totaling approximately $174,000, which included approximately 19,400 shares issued to the Company’s landlord of its Rochester, New York headquarters for base rent payments. Of this amount, approximately 44,000 shares, totaling $168,000 were issued during the nine months ended September, 2011.
 
Note 6 – Stock Based Compensation

The Company has established the 2008 Equity Incentive Plan, which is a shareholder-approved plan that permits the granting of stock options and restricted stock to employees, directors and consultants. The 2008 Equity Incentive Plan provides for the issuance of up to 800,000 shares of common stock of which 50,000 shares are available for grant as Incentive Stock Options.  The exercise price for options awarded is no less than 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. In March 2012, the Board of Directors approved an amendment to increase the number of shares available for award under the plan to 1,550,000.  This amendment was approved by shareholders at the Annual Meeting of Shareholders held on May 9, 2012.
 
For the nine months ended September 30, 2012, the Company recorded compensation costs for options and restricted shares granted under the plan of $495,518, as compared to $1,039,737 for the nine months ended September 30, 2011.
 
 
10

 
 
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 quoted price for the Company’s shares on the OTCBB was used to value the underlying shares.  Expected volatility is based upon a weighted average historical volatility of peer companies operating in a similar industry.  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:
 
   
Nine Months Ended
   
Nine Months Ended
 
   
September 30,
2012
   
September 30,
2011
 
             
Expected dividend yield
   
0
%
   
0
%
Expected stock price volatility
   
96-97
%
   
95-98
%
Risk-free interest rate
   
2.37-2.70
%
   
2.9-4.19
%
Expected life of options
 
1.8-9.8 Years
   
2.8-10 Years
 
 
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, 2012
   
364,400
   
$
5.20
             
Options granted during 2012
   
178,000
   
$
2.05
             
Options cancelled/expired during 2012
   
(23,000
   
5.74
                 
Outstanding at September 30, 2012
   
519,400
   
$
4.10
     
8.08
   
$
126,478
 
Exercisable at September 30, 2012
   
378,500
   
$
4.18
     
8.05
   
$
82,728
 

All share and per share data have been adjusted to give effect to the one-for-twenty reverse stock split in December 2011,
as described in Note 5 to these unaudited financial statements.
   
For the nine months ended September 30, 2012, the Company recorded compensation costs for options granted under the plan of $492,466 as compared to $512,987 for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, stock option grants totaled 178,000 (80,400 for the nine months ended September 30, 2011), 150,900 options vested and 23,000 options were cancelled or terminated (20,250 options were cancelled for the nine months ended September 30, 2011). No options were exercised for the nine months ended September 30, 2012 or 2011.

The weighted average fair value of options granted during the nine months ended September 30, 2012 was approximately $2.05 ($4.00 for the nine months ended September 30, 2011). 

On December 13, 2010, the Board of Directors approved a restricted stock grant award to certain employees in lieu of future salary cash payments.  The employees forfeited salary over a twelve-week period to purchase common shares, which were valued at fair market value as of the date of grant.  The Compensation Committee of the Company’s Board of Directors approved a change in the vesting date for restricted stock held by certain employees from April 1, 2011 to August 1, 2011, and then to November 15, 2012. The Compensation Committee of the Company’s Board of Directors subsequently approved amendments to change the vesting date of these restricted shares to August 20, 2013.  A total of 55,969 shares vested on April 1, 2011, and the remaining 169,368 shares are scheduled to vest on August 20, 2013.

On November 9, 2011, the Compensation Committee approved the payment of one employee’s commission of up to 50% in restricted stock at the employee’s discretion. For the nine months ended September 30, 2012, the Company expensed $3,052 for costs related to this restricted stock grant. No costs related to this restricted stock grant were expensed for the nine months ending September 30, 2011.
.
 
 
11

 
 
The following table summarizes the status of the Company’s restricted share awards:
 
 
Restricted Shares
 
Number of
Restricted Shares
   
Weighted Average
Fair Value at
Grant Date
 
Non-vested at  September 30, 2012
   
169,368
   
$
2.80
 
 
All share and per share data have been adjusted to give effect to the one-for-twenty reverse stock split in December 2011,
as described in Note 5 to these financial statements.

For the nine months ended September 30, 2012 and 2011, the aggregate expense associated with the restricted stock awards is $3,052 and $526,750, respectively.

Note 7 – Warrants
 
Management has valued warrants at their date of issue utilizing the Black-Scholes option pricing model.  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 warrants depending on the date of the issue and their expected life.  The expected life of warrants used was based on the term of the warrant.  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 warrants granted:
 
   
Nine Months Ended
   
Nine Months Ended
 
   
September 30, 2012
   
September 30, 2011
 
Expected dividend yield
   
0
%
   
0
%
Expected stock price volatility
   
97-98
%
   
95-98
%
Risk-free interest rate
   
2.06-3.03
%
   
2.91-4.24
%
Expected life of warrants
 
7.6-9.9 years
   
8.8-9.9 years
 

The following table summarizes the status of the Company’s warrants granted:
 
   
Number of Shares
Remaining
Warrants
   
Weighted
Average
Exercise Price
   
Weighted-Average
Remaining
Contractual Term
   
Aggregate
Intrinsic Value
 
Outstanding at January 1, 2012
   
1,651,250
   
$
5.61
             
Warrants granted during 2012
   
553,000
   
$
2.59
             
Warrants expired/cancelled during 2012
   
0
                     
Outstanding at September 30,2012
   
2,204,250
   
$
4.85
     
8.47
   
$
0
 
Exercisable at September 30, 2012
   
1,950,500
   
$
4.18
     
8.37
   
$
0
 

All share and per share data have been adjusted to give effect to the one-for-twenty reverse stock split in December 2011,
as described in Note 5 to these unaudited financial statements.

The weighted average fair value of warrants issued during nine months ended September 30, 2012 and 2011, respectively was $2.59 and $10.00.  During the nine months ended September 30, 2012 and 2011, no warrants vested, none expired or were cancelled.   No warrants have been exercised for the nine months ended September 30, 2012 and 2011.
 
 
12

 
Note 8 – Consulting Agreements

On May 24, 2010, the Company entered into an agreement with an individual to become a technical consultant, and to assist in further optimization of the Company’s ducted wind turbines. This individual is currently a professor of senior aircraft design and performance courses at the Clarkson University, in Potsdam, New York, the location of one of the Company’ s wind turbine test sites.  Payment for services is on an hourly basis at an agreed upon rate for work performed for the Company.  In conjunction with the agreement, the individual received 10,000 stock options, vesting over a one-year period.  For the nine months ended September 30, 2011, the Company expensed $6,746 relating to these options. As of December 31, 2011, all expenses associated with this stock option grant had been recognized.

On October 11, 2010, the Company entered into an agreement with an individual to become a technical consultant, and to assist further in the development of the Company’s ducted wind turbines. This individual is currently an associate professor of architectural engineering and an adjunct professor of mechanical and nuclear engineering at the Pennsylvania State University in University Park, Pennsylvania. Payment for services is on an hourly basis at an agreed upon rate for work performed for the Company. In conjunction with the agreement, the individual received 5,500 stock options vesting over a three-year period. The Company expensed $9,632 relating to these options for the nine months ended September 30, 2012, as compared to $11,733 for the nine months ended September 30, 2011.
 
On July 30, 2012, the Company entered into an agreement with an individual to become a technical consultant and to assist in the further development of the Company’s intelligent micro-grid system. The individual is currently a professor of electrical engineering at Rochester Institute of Technology in Rochester, New York.  Payment for services is on an hourly basis at an agreed upon rate for work performed for the Company. In conjunction with the agreement, the individual is eligible to receive up to 20,000 shares of restricted stock based upon the completion of certain performance milestones. The Company expensed $30,459 for work performed during the nine months ended September 30, 2012.  No restricted shares were issued to this consultant for the nine months ended September 30, 2012.

Note 9 – Commitments and Contingencies

Employment Agreements
 
As of September 30, 2012, the Company has employment agreements in place with five members of senior management.  The terms of the agreements are for three years, with the Company’s option to extend employment for a fourth year.  Annual compensation required under the agreements includes base salary aggregating $872,000, as well as annual bonuses based upon 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.  The agreements expire at varying times over the period from February 11, 2014 through December 28, 2014.

Operating Lease

On August 20, 2009, the Company entered into a lease for office space in Geneseo, New York requiring a monthly rental payment of $1,400, which commenced on November 1, 2009 and expired October 31, 2011 with a two year renewal option.  In June 2010, the Company relocated its headquarters from Geneseo, New York to Rochester, New York into a larger location.  Inventory, warehousing, and assembly space at the Geneseo facility was neither large enough, nor flexible enough, to allow for continued growth, and therefore management determined that it was prudent to move to a location that could accommodate both manufacturing and assembly growth, as well as to house research and development activities and administrative office space.  On January 27, 2011, the Company signed an agreement and mutual release with the landlord of the Geneseo facility, which provided for the issuance of 1,500 shares of the Company’s common stock as settlement for the early termination of the lease.

In October 2010, we executed a lease for the Rochester facility.  The lease term is from August 2010 through July 2015.  The first year of the lease term required monthly base rent payments of $5,396, payable in cash or in the Company’s common stock. The base rent increases by 3% on August 1st of the each year of the lease.  The Company also is required to pay its proportionate share of real estate taxes and common area maintenance costs for the Rochester facility. Our landlord entered into a lease with a third party that will occupy certain of the space at our existing Rochester facility, and as a result, we are negotiating with our landlord for suitable alternative space.
 
Annual commitments by year under the Company’s lease agreements are as follows:
 
Rental Commitment
 
2012
 
$
67,528
 
2013
 
$
69,554
 
2014
 
$
71,641
 
2015
 
$
42,513
 
 
 
13

 
 
Warranty

The Company entered into a number of sales orders for Power on Demand systems, solar installations, and wind turbine units.  Certain of these sales orders required deposits of the agreed-upon portion of the purchase price upon acceptance of the sales order.  The advance payments received as of September 30, 2012 amounted to $198,757 (the December 31, 2011 total was $112,218) and have been included in customer deposits.  We expect to install the systems and units associated with these deposits during the next two quarters, as we obtain permits and zoning approvals from customers’ town officials, obtain New York State Energy Research Development Authority (“NYSERDA”) approvals, complete site assessments, and continue product evaluation. The sales orders included product warranties of varying periods, depending on the product sold, against defects in materials and workmanship. The Company provides for estimated cost of warranties at the time the revenue is recognized and has established a corresponding warranty reserve.  Factors that affect the balance required in the warranty reserve are projected cost of repair and/or replacement, component life cycles, manufacturer’s warranty on parts and components, and limited historical data. These estimates are reviewed quarterly and are updated as new information becomes available. The impact of any change in warranty cost estimates will be taken into account when analyzing future warranty reserve requirements. As of September 30, 2012 and December 31, 2011, the warranty reserve totals $140,074 and $135,606 respectively. The following table summarizes the activity in the accrued warranty account:
 
   
September 30, 2012
   
December 31, 2011
 
Balance as of beginning of year
 
$
135,606
   
$
50,690
 
Warranty costs accrued
   
32,816
     
118,935
 
Settlements made
   
(28,348
)
   
(34,019
)
Total accrued warranty costs
 
$
140,074
   
$
135,606
 
 
Note 10 –Income Taxes

The Company filed its 2010 New York State corporate income tax return during March 2011, which generated a tax credit for being a Qualified Emerging Technology Company. In January of 2012, the Company received payment for this tax credit, which is reflected in results for the nine months ended September 30, 2012.

Note 11- Subsequent Events

On October 24, 2012, the Company entered into a contract for $909,000 with General Technical Services, LLC to be the prime contractor to complete Phase Two activities for the development of a new Intelligent Scalable Micro-grid for the U.S. Army.  The contract duration is from four to eight months and is under the guidance of the U.S. Army Communications Electronics Research Development and Engineering Center (“CERDEC”).

On November 1, 2012, the Company issued 10,000 shares of common stock for professional services.
 
Note 12- Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”.  ASU No. 2011-05 requires entities to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements of net income and other comprehensive income.  ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity.  ASU No. 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  Furthermore, in December 2011, the FASB issued ASU No. 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update defers the effective date of ASU No. 2011-05’s requirement to present on the face of the financial statements reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income so that the FASB can reconsider those requirements during calendar 2012. These standards were effective retrospectively for annual and interim reporting periods beginning after December 15, 2011, with early adoption permitted. Our adoption of these standards during the  2012 did not have a significant impact on our financial statements, as we currently do not have any adjustments to net income in the determination of such comprehensive income.
 
 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited historical financial statements and the related notes and the other financial information included elsewhere in this report and in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2012. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of any number of factors, including those set forth under “Information Concerning Forward-Looking Statements” and under other captions contained elsewhere in this report.

Company Overview

We are a developer, manufacturer, and supplier of custom-designed power management systems, renewable energy storage systems, WindTamer wind turbines, and a supplier and designer of solar energy systems.  Our patent-pending Power on Demand system utilizes inputs from multiple energy sources including wind, solar, fuel cells, and the electric grid, in conjunction with a custom-designed battery storage system and a proprietary smart monitoring technology, that releases energy at optimal times to reduce peak power demand, thereby lowering electricity costs for large energy users who are subject to peak usage pricing.  We also sell a Mobile Renewable Energy Station that generates wind and solar energy to an onboard storage unit for military and other applications, and a Renewable Power Station that is a scalable system that can be containerized and drop-shipped to the end-user and assembled onsite at off-grid locations to be used as a “micro-grid”.  Our diffuser-augmented WindTamer® wind turbine utilizes a patented technology for the production of electrical power.   

We were incorporated in New York on March 30, 2001, under the name Future Energy Solutions, Inc.  In November 2008, we changed our name to WindTamer Corporation.  On May 18, 2011, we changed our name to Arista Power, Inc.  Our name change reflected management’s decision to broaden our focus beyond wind turbines.   Our corporate headquarters is located at 1999 Mt. Read Boulevard, Rochester, New York.  Our website address is www.aristapower.com.
  
The WindTamer® wind turbine was invented in 2002, and in 2003 a patent was issued for the WindTamer® wind turbine technology.  From 2002 until the fourth quarter of 2009, we focused primarily on research and development of our technology and production and testing of WindTamer® wind turbine prototypes.  In the fourth quarter of 2009, we began selling our wind turbines.
 
 
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In 2010, we continued selling and installing our wind turbines in a variety of grid-tied and off-grid applications.  Throughout 2010, we also continued research and development efforts on our WindTamer® wind turbine in order to increase the power production of the wind turbine and to decrease its installation and manufacturing costs.  In the first half of 2010, we developed and sold our first Mobile Renewable Power Station for testing and use by the U.S. Army, and operated as a development stage company.  During the second half of 2010, we exited reporting as a development stage company, as a result of increased customer order bookings and sales. We also developed and sold our Power on Demand energy management system, the first of which was commissioned in the first quarter of 2011.  In the fourth quarter of 2010, we began selling solar PV, and installed our first solar PV system in the first quarter of 2011.

During 2011, we continued the research and development of all of our products, with most efforts directed on our Power on Demand system and Mobile Renewable Power Station.  The development of our Power on Demand system and our Mobile Renewable Power Station progressed to where we were able to increase our sales and marketing efforts of such products late in 2011.  
 
Thus far, in 2012, we have continued our research and development efforts of these products to increase the operational sizes and scalability of Mobile Renewable Power Station and Power on Demand system to address a larger customer base.  In addition and have enhanced our product marketing efforts  through relationships with our strategic partners, participation in trade organizations, and speaking at numerous commercial, military and sustainability events. Much of the sales and marketing focus thus far in 2012 has been to address geographic locations with the highest demand/electricity charges such as New York City where the value proposition and the need for our Power on Demand system is optimal.
 
As of November 7, 2012, the Company’s current order backlog is approximately $3.2 million which consists of orders for several Power on Demand systems, solar PV systems, and development contracts. Approximately $1.6 million of the total backlog is for orders booked in 2012. Total orders booked to date in 2012 amount to $2.8 million.
 
Financial Operations

From 2002 until the fourth quarter of 2009, we focused primarily on research and development of our technology and production and testing of WindTamer® wind turbine prototypes.  In the fourth quarter of 2009, we began hiring our management, sales and engineering teams and selling our turbines.  In 2010, we continued selling and installing our wind turbines in a variety of grid-tied and off grid applications.  Other than the Mobile Renewable Power Station that we sold for use by the U.S. Army, substantially all of our revenue generated in 2010 was attributable to the sales of WindTamer® wind turbines.  In 2011, we generated revenues from the sales of not only the WindTamer® turbine and Mobile Renewable Power Station, but also our patent-pending Power on Demand system and numerous solar PV installations. In 2012, we have expanded our revenue base to include technology contracts, whereby we are developing an intelligent micro-grid for Renewable Energy for Distribution in undersupplied Command Environments (“REDUCE”) under the guidance of the U.S.Army Communications-Electronics Research, Development and Engineering.  During September 2012, we completed Phase One of the REDUCE program, and in October 2012, we were awarded the Phase Two contract for $909,000. Additionally, we have seen increased demand in solar “PV” installations.
 
The Company expects to incur substantial additional costs, including costs related to continued product development and expansion. We have utilized the proceeds raised from our private placements to develop and commercialize our Power on Demand system, our Mobile Renewable Power Station, our Renewable Power Station, and our WindTamer® wind turbines, as well as to sustain our operations.  Our future cash requirements will depend on many factors, including the volume and the timing of future orders and sales, continued progress in our product development and cost effectiveness programs, costs to continue to develop both domestic and international sales and distribution channels, and competing technological and market developments. The timing of our ability to generate a positive cash flow will be directly dependent on the way we are able to succeed in managing these factors.
 
We may require additional external financing to sustain our operations if we cannot achieve positive cash flow from our anticipated operations. Additionally, even if we are able to achieve positive cash flow from operations, we may continue to seek to raise additional capital to accelerate our growth or expand our manufacturing and distribution infrastructure. Success in our future operations is subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development, and market acceptance for our products.
 
 
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Results of Operations

Results of Operations for Quarter Ended September 30, 2012 Compared to Quarter Ended September 30, 2011.

Revenues

During the quarter ended September 30, 2012, we reported revenues of $377,000 as compared with revenues of $254,000 for the quarter ending September 30, 2011. The 48% increase in revenues is attributable to the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments (“REDUCE”) under the guidance of the U.S. Army Communications-Electronics Research, Development and Engineering.

We have received deposits from customers totaling approximately $199,000 as of September 30, 2012. We expect to realize sales associated with these deposits during the next several quarters, as we obtain permits and zoning approvals from customers’ town officials and NYSEDRA for solar PV installations, complete site assessments, and complete installations and inter-connection agreements, although there can be no assurance that we will be able to meet this schedule.
 
We continue to expand our selling efforts where, by coupling our power management systems with renewable solar and wind energy, we can provide our customers with an attractive return on investment.

Gross Loss

For the quarter ended September 30, 2012, gross loss amounted to $90,000 as compared to $156,000 for the quarter ended September 30, 2011.  The improvement in gross loss is attributable to sales volume increases as well as favorable margins on our solar “PV” installations.
 
Research and Development

Research and development costs for the quarter ended September 30, 2012 totaled $147,000 as compared to $271,000 for the quarter ended September 30, 2011, a decrease of 46%. This results from a decrease in general research and development costs, as well as research and development funding associated with the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments (“REDUCE”) contract award. A portion of the funding received by the Company for the Phase One development of an Intelligent Micro-Grid for REDUCE will offset operating expenses, as well as any funds received by the Company on any future phases of this project.
 
Selling, General and Administrative

Selling, general and administrative expenses, or SG&A expenses, for the quarter ended September 30, 2012, were $561,000, as compared to $687,000 for the quarter ended September 30, 2011.  The decrease over the prior year is primarily related to non-cash expense associated with warrants issued in conjunction with 2011 private placements.
 
Depreciation and Amortization

Depreciation and amortization charges were $30,000 for the quarter ended September 30, 2012, compared to $23,000 during the quarter ended September 30, 2011 due to capital purchases made to support business requirements over the last several quarters.
 
 
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Other Income (Expense)

Interest expense for the quarter ended September 30, 2012 was $19,000 compared to a minimal income for the quarter ended September 30, 2011.The increase is due to the amortization of debt discount relating to the September, 2012 revolving line of credit agreement with TMK-ENT, and to interest payments on other debt.

Net Loss

We incurred net losses of $817,000 and $1,113,000 for the quarters ended September 30, 2012 and 2011, respectively. Improved sales and margins and lower operating expenses have reduced the period over period loss.
 
Results of Operations for Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011.

Revenues

During the nine months ended September 30, 2012, we reported revenues of $1,328,000 as compared with revenues of $454,000 for the nine months ended September 30, 2011. The increase in revenues is attributable to the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments (“REDUCE”) under the guidance of the U.S. Army Communications-Electronics Research, Development and Engineering, as well as an increase in the sale of solar “PV” systems, which were added to the Company’s product portfolio in December, 2010.

We have received deposits from customers totaling approximately $199,000 as of September 30, 2012. We expect to realize sales associated with these deposits during the next several quarters, as we obtain permits and zoning approvals from customers’ town officials and NYSEDRA for solar PV installations, complete site assessments, and complete installations and inter-connection agreements, although there can be no assurance that we will be able to meet this schedule.
 
We continue to expand our selling efforts where, by coupling our power management systems with renewable solar and wind energy, we can provide our customers with an attractive return on investment.

Gross Loss

For the nine months ended September 30, 2012, gross loss amounted to $402,000 as compared to $605,000 for the nine months ended September 30, 2011.  The improvement in gross loss is attributable to sales volume increases, as well as profitable margins recognized on our solar “PV” installations. 
 
Research and Development

Research and development costs for the nine months ended September 30, 2012 totaled $406,000 as compared to $889,000 for the nine months ended September 30, 2011. This decrease results from research and development funding associated with the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments (“REDUCE”) contract award. A portion of the funding received by the Company for the Phase One development reduced operating expenses.  Additionally for the nine months ended September 30, 2011, there was a non-cash expense associated with the award of restricted stock to employees that did not recur in 2012.
 
Selling, General and Administrative

Selling, general and administrative expenses, for the nine months ended September 30, 2012, were $1,990,000 as compared to $2,296,000 for the nine months ended September 30, 2011.  The decrease in year over year expenses was related primarily to the non-cash expenses associated with private placements in 2012 as compared with 2011, and by the award of restricted stock to employees in 2011, which did not recur in 2012. Legal expenses increased for the nine months ended September 30 2012, due to increased litigation costs.
 
Depreciation and Amortization

Depreciation and amortization charges were $91,000 for the nine months ended September 30, 2012, compared to $74,000 during the nine months ended September 30, 2011 due to capital purchases made to support business requirements over the last several quarters.
 
 
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Gain on Debt Extinguishment

The Company recorded a $1,000,000, non-recurring, non-cash gain for the nine months ended September 30, 2011, as a result of the default and settlement of the Company’s $1,000,000 working capital loan by the guarantors of the loan. The Company had no obligation to the guarantors as a result of the repayment of the loan.
 
Other Income (Expense)

Interest expense for the nine months ended September 30, 2012 was $19,000, as compared to $8,000 for the nine months ended September 30, 2011, due to the amortization of debt discount associated with warrants issued with our September 2012 revolving line of credit facility, and to timing of borrowing activity on our line of credit.

Income tax credits were $159,000 for the nine months ended September 30, 2012, as we received a New York State tax refund associated with the Company’s Qualified Emerging Technology status for the tax year ended December 31, 2010. No such credit was received during the nine months ended September 30, 2011.

Net Loss

We incurred net losses of $2,658,000 and $2,798,000 for the nine months ended September 30, 2012 and 2011, respectively. Higher sales and improved gross loss, coupled with reduction operating expenses, and a $159,000 tax refund in 2012 was offset by the 2011 $1,000,000 gain on debt extinguishment recorded during February 2011.

Liquidity and Capital Resources

As of September 30, 2012, we had a working capital deficit of $213,000 as compared to a working capital of $578,000 as of September 30, 2011. The decrease in working capital is due to net losses generated from operations, offset by private placement funding.  

During the quarter ending March 31, 2011, the Company generated a $1.0 million gain from the extinguishment of line of credit debt. On February 26, 2011, the Company received a notice of potential opportunity to cure default from First Niagara Bank, with whom the Company had established a $1.0 million working capital line of credit in April 2010, which included a demand payment for interest due of $10,976 as of February 23, 2011 under the Company’s loan agreement.  The notice provided that if the events of default were not cured by March 4, 2011, First Niagara Bank, at its sole discretion, may accelerate or demand payment in full of the obligations and take all enforcement actions or otherwise implement remedies under the applicable loan agreements.  The default was not cured by the Company by March 4, 2011.  Pursuant to the loan agreement, the interest rate under the line of credit was increased by 6% to 9.25% as of the date of the notice.  On  March 12, 2011, we received a demand notice from First Niagara Bank, demanding payment for full indebtedness to the bank including line of credit principal and interest of $1,012,421, and credit card debt of $25,351 by no later than March 17, 2011.  On March 17, 2011, the Company received written notification from the guarantors of the loan agreement that the guarantors were required by the lender, and did, on March 17, 2011, repay the $1.0 million principal balance of the Company’s working capital revolving line of credit with the Lender.  The Company has no liability to the guarantors as a result of the repayment by the guarantors of the line of credit.  Other than accrued interest and applicable fees, which have been repaid, the Company has no liability under the line of credit.
 
In addition to our $1.0 million working capital loan, our principal source of liquidity has been through private placement offerings of our common stock and warrants to purchase common stock. From 2008-2010, the Company raised $4.0 million through private placement sales of common stock at varying prices.  Out of pocket costs associated with these private placements were minimal.  Additionally, in November 2009, 1,670,000 stock options were exercised, which yielded $1.7 million.  In 2011, the Company raised $3.2 million through sales of “units”, which included shares of common stock and a warrant to purchase common stock.  The warrant vests two years from the date of purchase and has a ten year term.  On March 7, 2012, our Board of Directors approved a private placement for the sale of up to 100 units, with each unit costing no less than $15,000, and consisting of 7,500 shares of the Company’s common stock and a warrant to purchase 1,000 shares of the Company’s common stock at $10.00 per share.  Each warrant will vest two years from the date of purchase of the applicable unit and has a ten-year term.  Each purchaser of units in this private placement is required to agree to not sell any shares of common stock purchased in the private placement for at least one year.  Through September, 2012, the Company sold 43 units, which yielded $795,000. On September 4, 2012, the Company entered into a loan agreement with TMK-ENT, Inc. that provided for a $500,000 working capital revolving line of credit.  Advances under the line of credit bear interest at 10% per year, payable annually.  The note matures on September 4, 2013. Borrowings under the line of credit amount to $300,000 as of September 30, 2012.
 
We have utilized our funds to form our management, sales, and engineering teams, to purchase inventory to satisfy short term customer demand, and to further our research and product development. We have used resources to develop and test our Power on Demand system and our Mobile Renewable Power Station.  We have also utilized funds to develop and launch marketing for our Company initiative to focus on broader applications of renewable energy and power management, including, but not limited to, our Power on Demand system and Mobile Renewable Power Station.
 
 
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Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited annual financial statements as of and for the years ended December 31, 2011 and 2010, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. There is substantial doubt about our ability to continue as a going concern as the continuation and expansion of our business is dependent upon obtaining further financing, successful and sufficient market acceptance of our products, and, finally, achieving a profitable level of operations.
 
The issuance of additional equity securities by us may result in a significant dilution in the equity interests of our current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations. Furthermore, our ability to raise additional capital may be made more difficult by a global financial crisis.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to shareholders.

Critical Accounting Policies
 
As of September 30, 2012, the Company’s critical accounting policies and estimates have not changed materially from those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Information Concerning Forward-Looking Statements

All statements in this Form 10-Q, future filings by the Company with the Securities and Exchange Commission (“Commission”), the Company’s press releases and oral statements by authorized officers of the Company, other than statements of historical facts, that address future activities, events or developments are “forward-looking statements.”

These forward-looking statements include, but are not limited to, statements relating to our anticipated financial performance, business prospects, new developments, new merchandising strategies and similar matters, and/or statements preceded by, followed by or that include the words “believes,” “could,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,” or similar expressions. We have based these forward-looking statements on certain assumptions and analyses made by us in light of our experience and on our assessment of historical trends, current conditions, expectations, and projections about expected future developments and events, as well as on other factors we believe are appropriate under the circumstances and other information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in Item 1A of Part I of the Company’s 10-K filed with the Commission, for the fiscal year ended December 31, 2011, that may affect the operations, performance, development and results of our business. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date hereof.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties. All forward-looking statements and reasons why results may differ contained herein are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results might differ. All of the forward-looking statements contained herein are qualified by these cautionary statements.
 
 
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Item 4. Controls and Procedures

The Company’s management has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the SEC rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.

Based on the evaluation of the effectiveness of our disclosure controls and procedures, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2012. 
 
There can be no assurance, however, that our disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in our periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.

Changes in Internal Control over Financial Reporting
 
There have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2012 that has materially affected, or is likely to materially affect, the Company’s internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in a variety of claims, lawsuits, investigations, proceedings, and other legal actions arising in the ordinary course of our business.  We intend to vigorously defend all claims against us.  Although the ultimate outcome of these claims cannot be accurately predicted due to the inherent uncertainty of litigation, in the opinion of management, based upon current information, no currently pending or overtly threatened dispute is expected to have a material adverse effect on our business, financial condition, or results of operations.  However, even if we are successful on the merits, any pending or future lawsuits, claims, or proceeding could be time consuming and expensive to defend or settle and could result in diversion of management time and operations resources, which could materially and adversely affect us.  In addition, it is possible that an unfavorable resolution of one of more such proceedings could in the future materially and adversely affect our financial position, results of operations, or cash flows.

On November 29, 2011, we filed a complaint in the Supreme Court of the State of New York, Monroe County, against Ultralife Corporation (“Ultralife”) and against Andrew Naukam, Michael Popielec, Bradford Whitmore, Philip Fain, Peter Comerford, Steven Anderson, and John Kavazanjian, all of whom are either current or former officers and/or directors of Ultralife.  On January 17, 2012, we filed an Amended Complaint against the defendants, which asserts eight causes of action:  (1) misappropriation of trade secrets against all defendants; (2) misappropriation of an idea against all defendants; (3) unfair competition against all defendants; (4) breach of contract against Ultralife; (5) fraudulent misrepresentation against all defendants except Mr. Anderson; (6) unjust enrichment against Ultralife; (7) breach of the implied covenant of good faith and fair dealing against Ultralife; and (8) replevin against Ultralife.  The lawsuit centers on defendants’ actions in connection with Ultralife’s development of its Gen Set Eliminator System, and alleged misappropriation by defendants of our intellectual property and trade secrets related to our competing product, the Mobile Renewable Power Station.
 
 
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On February 6, 2012, the individual defendants moved to dismiss our Amended Complaint in its entirety and Ultralife moved to dismiss our claims for misappropriation of trade secrets, misappropriation of an idea, fraudulent misrepresentation, unjust enrichment, and breach of the implied covenant of good faith and fair dealing.  On March 9, 2012, the Court issued an Opinion denying, in part, the defendants’ motion to dismiss and ruling that the following claims would proceed in the litigation,:  (1) misappropriation of trade secrets against all defendants; (2) misappropriation of an idea against all defendants; (3) unfair competition against all defendants; (4) breach of contract against Ultralife; (5) fraudulent misrepresentation against all defendants except Mr. Anderson; and (6) replevin.  Two claims were dismissed because they were duplicative or incompatible with other claims that the Court held would proceed in the litigation. We believe that we have suffered damages in excess of $60 million from the defendants’ actions, although there can be no assurance that we will recover any or all of such damages.  This action is in its early stages of discovery.
 
Separately, on September 23, 2011, Ultralife filed a complaint, which was amended on February 29, 2012, in the Supreme Court of New York, Wayne County, against us and a non-officer employee of us who is a former Ultralife employee.  In that action, which has been transferred to the Supreme Court of New York, Monroe County, Ultralife has asserted claims arising out of our employment of the former Ultralife employee.  This action is in the early stages of discovery.  We believe that, even if we are unsuccessful on the merits in this litigation, it would not have a material adverse effect on our business, our financial condition or results of operations.

Item 1A. Risk Factors
 
Smaller reporting companies are not required to provide the information required by this item.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

In March of 2012, we issued 119,191 shares of our common stock to strategic vendor-investors in lieu of cash for goods and services totaling $251,854, and in August of 2012 an additional 3,768 shares of our common stock were issued to one of these vendors for services totaling $7,160.
 
On March 7, 2012, our Board of Directors approved a private placement for the sale of up to 100 units, with each unit costing no less than $15,000 and consisting of 7,500 shares of the Company’s common stock and a warrant to purchase 1,000 shares of the Company’s common stock at $10.00 per share.  Each warrant will vest two years from the date of purchase of the applicable unit, and has a ten-year term.  Each purchaser of units in this private placement is required to agree to not sell any shares of common stock purchased in the private placement for at least one year.  From March through July 2012, the Company sold 53 units, which yielded $795,000.
 
On November 1, 2012, we issued 10,000 shares of our common stock for professional services rendered.
 
 
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The terms of sales of unregistered sales of securities by us are described in Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities under the captions “Recent Unregistered Sales of Securities”.
 
The securities referenced above were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”), and/or Regulation D, as promulgated by the U.S. Securities and Exchange Commission under the Securities Act, based upon the following: (a) each of the persons to whom the securities were issued (each such person, an “Investor”) confirmed to the Company that it or he is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such units, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being acquired were being acquired for investment intent and were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
 
Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
 
On November 8, 2012, the Board of Directors of the Company approved the repricing of 85,000 outstanding compensatory options to purchase common stock of the Company (“Common Stock”) held by executive officers of the Company (including the principal executive officer, principal financial officer, and principal accounting officer) previously granted under the Amended and Restated 2008 Equity Incentive Plan (the “Options”).  As a result, the exercise price of the Options was lowered to $1.67 per share, an amount equal to the last trade of the Common Stock on the OTC Bulletin Board on November 8, 2012. There was no change in the number of shares subject to each Option, vesting or other terms of the Options.  The Company repriced 75,000 and 10,000 Options held by William A. Schmitz, the Company’s Chief Executive Officer and President, and Molly Hedges, the Company’s Acting Chief Financial Officer and Vice President of Finance, respectively.
 
On November 8, 2012, the Board of Directors of the Company approved the repricing of 172,500 outstanding warrants to purchase Common Stock held by executive officers of the Company (including the principal executive officer, principal financial officer, and principal accounting officer) (the “Warrants”).  As a result, the exercise price of the Warrants was lowered to $1.67 per share, an amount equal to the last trade of the Common Stock on the OTC Bulletin Board on November 8, 2012. There was no change in the number of shares subject to each Warrants, vesting or other terms of the Warrants.  The Company repriced 115,000 and 57,500 Warrants held by William A. Schmitz, the Company’s Chief Executive Officer and President, and Molly Hedges, the Company’s Acting Chief Financial Officer and Vice President of Finance, respectively.
 
The Board of Directors effectuated the repricing to realign the value of the Options with their intended purpose, which is to retain and motivate the holders of the Options to continue to work in the best interests of the Company. Prior to the repricing, many of the Options and Warrants had exercise prices well above the recent market prices of the Common Stock on the OTC Bulletin Board. The Options and Warrants were repriced unilaterally and the consent of holders was neither necessary nor obtained.
 
Item 6. 
 
(a)
Exhibits:
   
 
 10.24
 *
 Loan Agreement, dated as of September 4, 2012, by and between Arista Power, Incorporated and TMK-ENT, Incorporated
       
 
10.25
*
Revolving Credit Note, dated as of September 4, 2012, by and between Arista Power, Incorporated and TMK-ENT, Incorporated.
       
 
10.26
*
Warrant Purchase Agreement, dated September 4, 2012, between Arista Power, Incorporated and TMK-ENT, Incorporated.
       
  31.1   Certification of the Chief Executive Officer Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
  31.2   Certification of the Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
       
  32.1   Certification Pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
       
  32.2   Certification Pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith
 
 
23

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ARISTA POWER, INC.
     
November 13, 2012
   
 
By:
/s/ William A. Schmitz                          
   
William A. Schmitz
   
President and Chief Executive Officer
 
 
 24