10-Q

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.

14

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.

15

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.

16

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.

17

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.

18

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.

19

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.

20

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.

21

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.

22

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

EX-10.24

Exhibit 10.24

CREDIT AGREEMENT

This CREDIT AGREEMENT (“Agreement”) is made as of September 4, 2012 by and between ARISTA POWER, INC. (the “Borrower”) and TMK-ENT, INC. (“Lender”).

W I T N E S S E T H:

WHEREAS, Lender has agreed to loan certain funds to the Borrower, and the Borrower has agreed to borrow certain funds from Lender, subject to the terms and conditions set forth therein;

NOW THEREFORE, in consideration of the terms and conditions contained herein, and of any loans or extensions of credit heretofore, now or hereafter made to or for the benefit of the Borrower by Lender (all of said loans hereafter referred to as the “Loans”), the parties hereto hereby agree as follows:

1.             DEFINITIONS.

1.1.         General Terms.  When used herein, the following terms shall have the following meanings:

(i)             “Available Principal Balance” shall mean an amount equal to the Maximum Revolving Commitment less the outstanding principal balance of Revolving Credit Loans.

(ii)            “Default” shall mean the occurrence or existence of any one or more of the following events.

(a)The Borrower fails to pay any of its material “Liabilities” (as hereinafter defined) when due and said failure continues for a period of fifteen (15) days after written notice of same from Lender to the Borrower;

(b)A proceeding under any Bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against Borrower which is not dismissed within sixty (60) days of its filing, or a proceeding under any Bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by Borrower or the Borrower makes an assignment for the benefit of creditors; or

(c)A default by Borrower under any of the other Loan Documents.

(iii)           “Liabilities” shall mean all of Borrower’s liabilities, obligations, and indebtedness to Lender arising under or in accordance with the Loan Documents.

(iv)           “Loan Documents” means this Agreement, the Warrant Agreement and the Revolving Note.

(v)            “Maximum Revolving Commitment” shall mean $500,000.00.

(vi)          “Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party, or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

1

(vii)          “Revolving Note” shall mean that certain Five Hundred Thousand and No/100 Dollar ($500,000.00) note, of even date herewith executed by Borrower and made payable to the order of Lender.

(viii)         “Termination Date” shall mean September 4, 2013.

(ix)           “Warrant Agreement” shall mean that Warrant to Purchase Common Stock of the Borrower, of even date herewith, issued to the Lender,

2.             CREDIT.

2.1.          Revolving Loan.  If a Default does not exist, and subject to the provisions of Article 3 below, Lender shall, until but not after the Termination Date, advance to the Borrower, on a revolving credit basis loans (the “Revolving Credit Loans”), in an amount not to exceed at any time the Maximum Revolving Commitment.  The indebtedness of Borrower under all Revolving Credit Loans shall be evidenced by the Revolving Note.

2.2.          Maximum Principal Balance of Revolving Loan.  The aggregate outstanding balance of all Revolving Credit Loans shall at no time exceed the Maximum Revolving Commitment.  The aggregate outstanding balance of the Revolving Credit Loans at any time shall be the amounts advanced from time to time to Borrower and not repaid under Section 2.4.  The Borrower agrees that if at any time any such excess shall arise, the Borrower shall upon written request of Lender immediately pay to Lender such amount as may be necessary to eliminate such excess.

2.3.          Interest.  The Borrower shall pay interest to Lender on the outstanding and unpaid principal amount of the Revolving Credit Loans made under this Agreement at a rate of ten percent (10%) per annum.  Interest shall be calculated on the basis of a year of 365 days for the actual number of days elapsed.  All accrued and unpaid interest shall be due and payable on the Termination Date.  Accrued but unpaid interest shall not be included the aggregate outstanding balance of the Revolving Credit Loans for purposes of determining whether such balance has exceeded the Maximum Revolving Commitment.  Any amount of the Revolving Credit Loans, including, but not limited to, accrued interest, not paid when due (at maturity, by acceleration or otherwise) shall bear interest thereafter until paid in full, payable on demand, at a rate per annum equal to five (5%) percent over the then applicable interest rate (the “Default Rate”).

2.4.          Method of Payment.  The Borrower hereby authorizes Lender, if and to the extent payment is not made when due under this Agreement or under the Revolving Note, to offset from any funds of the Borrower in any capacity with Lender any amount so due.  The Borrower may prepay any Loan to Lender in whole or in part with accrued interest to the date of such prepayment on the amount prepaid.

3.            CONDITIONS OF ADVANCES.  Notwithstanding any other provisions contained in this Agreement, the making of any advance in connection with any Revolving Loan shall be conditioned upon the following:

3.1.          No Default.  No Default shall have occurred and be continuing under this Agreement or any of the Loan Documents or would result from such advance.

2

4.             NEGATIVE COVENANTS.  The Borrower covenants and agrees that so long as any Liabilities remain outstanding, and (even if there shall be no Liabilities outstanding) so long as this Agreement remains in effect (unless Lender shall give its prior written consent thereto):

4.1.Amendment of Certificate of Incorporation or By-Laws.  Borrower shall not amend its Articles of Incorporation or By-Laws, charter or other organizational documents without Lender’s prior written consent, not to be unreasonably withheld or delayed.

4.2.          Mergers, Etc.  The Borrower shall not wind up, liquidate or dissolve itself, reorganize, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person without Lender’s prior written consent.

5.             DEFAULT, RIGHTS AND REMEDIES OF THE LENDER.

5.1.          Liabilities.  If a Default shall exist or occur and be continuing, and upon the expiration of any applicable cure period, Lender may without notice declare all of the Liabilities immediately due and payable, in immediately available funds.

5.2.          Termination of Agreements.  Upon the occurrence of any Default, Lender may also, with or without proceeding with sale or foreclosure or demanding payment of the Liabilities, without notice, terminate Lender’s further performance under this Agreement or any other agreement or agreements between Lender and the Borrower and in addition may suspend Lender’s obligation to make any further advances hereunder during any cure period without further liability or obligation by Lender, and may also, upon the occurrence of any Default, appropriate and apply on any Liabilities any and all balances, credits, deposits, accounts, reserves, indebtedness, or other monies due or owing to Borrower or held by Lender hereunder or under any such financing agreement or otherwise, whether accrued or not.

5.3.           Waiver of Demand.  Demand, presentment, protest and notice of nonpayment are hereby waived by the Borrower.  The Borrower also waives the benefit of all valuation, appraisal and exemption laws.

6.             WARRANT.  As additional consideration for entering this Agreement, the Borrower agrees, as of the date hereof, to issue to Lender a warrant with a 10-year term to purchase an aggregate of 500,000 shares of common stock of the Company at $1.80 per share pursuant to the Warrant Agreement.

7.             MISCELLANEOUS.

7.1.           Waiver.  Any suspension or waiver by Lender of a Default under this Agreement shall not suspend, waive or affect any other Default under this Agreement, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character.  None of the undertakings, agreements, warranties, covenants and representations of the Borrower contained in this Agreement and no Default under this Agreement shall be deemed to have been suspended or waived by Lender unless such suspension or waiver is in writing signed by an officer of Lender, and directed to the Borrower specifying such suspension or waiver.  The failure or delay of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under the Loan Documents or the other aforesaid agreements or other documents or against any security or collateral shall not operate as a waiver of such liens, rights, powers and remedies, but all such liens, rights powers and remedies shall continue in full force and effect until all Liabilities shall have been fully satisfied, and all liens, rights, powers and remedies herein provided for are cumulative and none are exclusive.

3

7.2.          Reliance by Lender.  All covenants, agreements, representations and warranties made herein by the Borrower, shall, notwithstanding any investigation by Lender, be deemed to be material to, and to have been relied upon by, Lender.

7.3.          Applicable Law; Severability.  This Agreement shall be construed in all respects in accordance with, and governed by, the internal laws (as opposed to conflicts of law provisions) of the State of New York.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

7.4.          Amendments, Etc.  No amendment, modification, termination, or waiver of any provision of the Agreement, any Loan Document, nor consent to any departure by any of the parties from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by Lender.

7.5.          Integration.  This Agreement and the Loan Documents contain the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto.

7.6.          Notices.  Except as otherwise expressly provided herein, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given, delivered and/or received when (i) presented personally, or (ii) on the day of delivery via overnight courier to the addressee, addressed to the party to be notified as follows:

(i)If to Lender, at 5713 Eleni Court, Avon, NY  14414

(ii)If to Borrower, at 1999 Mt. Read Boulevard, Rochester, NY  14615

or to such other address as each party designates to the other in the manner herein prescribed.

7.7.          Equitable Relief.  Borrower recognizes that, in the event Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, Lender’s remedy at law may prove to be inadequate relief to Lender; therefore, Borrower agrees that Lender, if Lender so requests, shall be entitled to temporary and permanent injunctive relief if Lender proves its entitlement to such equitable relief.

7.8.           Assignment.  This Agreement shall not be assignable or transferable by the Borrower without the prior written consent of Lender and this Agreement shall be binding on successors and assigns of the parties.  The Lender may, without the consent of the Borrower, freely and without notice, assign its rights and obligations under this Agreement to any Person.

[SIGNATURE PAGE FOLLOWS]

4

IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written.

TMK-ENT, INC.

By:____________________________

        Name:

        Title:

ARISTA POWER, INC.

By: ___________________________

        Name:

        Title:

EX-10.25

Exhibit 10.25

PROMISSORY NOTE

 $500,000  As of September 4, 2012 Rochester, New York

FOR VALUE RECEIVED, ARISTA POWER, INC. (the “Borrower”), promises to pay to TMK-ENT, INC. (the “Lender”), or to its order, the principal sum of up to FIVE HUNDRED THOUSAND U.S. DOLLARS ($500,000) or such other amount as is loaned pursuant to the Credit Agreement (the “Principal Amount”), together with interest in arrears on the unpaid principal balance from time to time outstanding from the date hereof until the entire amount due hereunder is paid in full at the rate(s) provided below.

Terms not defined herein shall have the meaning ascribed to them in that certain Credit Agreement, dated September 4, 2012, between the Lender and the Borrower (the “Credit Agreement”).

1.MATURITY.  The aggregate Principal Amount, together with all accrued interest thereon and expenses incurred by the Lender in connection herewith (cumulatively, the “Outstanding Amount”), shall be due and payable in full on the earliest to occur of: (i) September 4, 2013 and (ii) the acceleration of this Note upon the occurrence of a Default.

2.INTEREST.  This Note shall bear interest at a rate of ten percent (10%) per annum.  Interest shall be calculated on the basis of a year of 365 days for the actual number of days elapsed.  All accrued interest on this Note shall become a part of the Outstanding Amount; provided, however, that accrued interest shall not be included in the Outstanding Amount when determining whether Borrower has exceeded the Maximum Revolving Commitment.  From and after the occurrence of a Default, the unpaid principal balance of this Note and, to the extent permitted by law, overdue interest shall bear interest at a rate per annum equal to five (5%) percent over the then applicable interest rate.

3.WAIVER.  Unless otherwise expressly provided in this Note, the Borrower, to the extent permitted by applicable law, waives presentment for payment, protest, and demand, and notice of protest, demand, and/or dishonor and nonpayment of this Note, notice of any Default under this Note, and all other notices or demands otherwise required by law that the Borrower may lawfully waive.

4.MISCELLANEOUS.

(a)Notices.  Except as otherwise expressly provided herein, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given, delivered and/or received when (i) presented personally, or (ii) on the day of delivery via overnight courier to the addressee, addressed to the party to be notified as follows:

(i)If to Lender, at 5713 Eleni Court, Avon, NY  14414

(ii)If to Borrower, at 1999 Mt. Read Boulevard, Rochester, NY  14615

or to such other address as each party designates to the other in the manner herein prescribed.

(b)Waiver.  No failure to exercise, and no delay in exercising, on the part of the Lender, any right, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.  The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.

1

(c)Amendments.  Any term, covenant, or condition of this Note may be amended or waived only by written consent of the Borrower and the Lender.

(d)Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without giving effect to any conflict or choice of laws principles.

(e)Transfer; Successors and Assigns.  The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. This Note shall be assignable by the Lender without the prior written consent of the Borrower. The Borrower may not assign this Note without prior written consent of the Lender.

(f)Entire Agreement.  This Note and any other agreement or instrument entered into in connection herewith, including the Loan Documents, contain the entire agreement of the Borrower and the Lender with respect to the subject matter hereof.

[SIGNATURE PAGE FOLLOWS]

2

IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.

TMK-ENT, INC.

By: ____________________________

        Name:

        Title:

ARISTA POWER, INC.

By:  ___________________________

         Name:

         Title:

EX-10.26

Exhibit 10.26

WARRANT TO PURCHASE COMMON STOCK

OF

ARISTA POWER, INC.

 No. D-1  As of September 4, 2012

THIS CERTIFIES THAT, TMK-ENT, INC., or its permitted registered assigns (the “Holder”), is entitled, subject to the terms and conditions of this Warrant, at any time or from time to time after the issuance date of this Warrant (the “Effective Date”), and before 5:00 p.m. Eastern Time on the tenth anniversary of the Effective Date (the “Expiration Date”), to purchase from ARISTA POWER, INC., a New York  corporation (the “Company”), all or any portion of the Shares (as defined below) at a per-share price equal to the Purchase Price.  Both the number of shares of Common Stock purchasable upon exercise of this Warrant and the Purchase Price are subject to adjustment and change as provided herein.

1.            CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have the following respective meanings:

1.1           “Common Stock” shall mean the Common Stock of the Company and any other securities at any time receivable or issuable upon exercise of this Warrant.

1.2            “Purchase Price” shall mean a price of $1.80per share.

1.3           “Registered Holder” shall mean any holder in whose name this Warrant is registered upon the books and records maintained by the Company.

1.4           “Shares” shall mean five hundred thousand (500,000) shares of the Company’s Common Stock.

1.5            “Warrant” as used herein shall include this Warrant and any warrant delivered in substitution or exchange therefor as provided herein.

2.             EXERCISE OF WARRANT.

2.1           Payment.  Subject to compliance with the terms and conditions of this Warrant, including without limitation Section 2.4, and applicable securities laws, this Warrant may be exercised, in whole or in part at any time or from time to time, on or before the Expiration Date by the delivery (including, without limitation, delivery by facsimile) of the form of Notice of Exercise attached hereto as Exhibit A (the “Notice of Exercise”), duly executed by the Holder, at the principal office of the Company, and as soon as practicable after such date, surrendering:

(a)this Warrant at the principal office of the Company, and

(b)payment, (i) in cash (by check) or by wire transfer, (ii) by cancellation by the Holder of indebtedness of the Company to the Holder; or (iii) by a combination of (i) and (ii), of an amount equal to the product obtained by multiplying the number of shares of Common Stock being purchased upon such exercise by the then effective Purchase Price (the “Exercise Amount”).

1

2.2           Stock Certificates; Fractional Shares.  As soon as practicable on or after the date of any exercise of this Warrant, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of whole shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share equal to such fraction of the current fair market value of one whole share of Common Stock as of such date of exercise as determined by the Company.  No fractional shares or scrip representing fractional shares shall be issued upon an exercise of this Warrant.

2.3           Partial Exercise; Effective Date of Exercise.  In case of any partial exercise of this Warrant, the Company shall cancel this Warrant upon surrender hereof and shall execute and deliver a new Warrant of like tenor and date for the balance of the shares of Common Stock purchasable hereunder. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of delivery of a Notice of Exercise (provided that surrender of this Warrant and payment of the Exercise Amount occur as provided above). The person entitled to receive the shares of Common Stock issuable upon exercise of this Warrant shall be treated for all purposes as the holder of record of such shares as of the close of business on the date the Holder is deemed to have exercised this Warrant.

2.4            Vesting and Exercisability.  This Warrant is fully exercisable as of one year from the Effective Date.

3.              VALID ISSUANCE; TAXES.  All shares of Common Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and non-assessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof.  The Company shall not be required to pay any tax or other charge imposed in connection with any transfer involved in the issuance of any certificate for shares of Common Stock in any name other than that of the Registered Holder of this Warrant.

4.             ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.  The number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities or property receivable or issuable upon exercise of this Warrant) and the Purchase Price are subject to adjustment upon occurrence of the following events:

4.1           Adjustment for Stock Splits, Stock Subdivisions or Combinations of Shares. The Purchase Price of this Warrant shall be proportionally decreased and the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally increased to reflect any stock split or subdivision of shares of Common Stock.  The Purchase Price of this Warrant shall be proportionally increased and the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally decreased to reflect any combination or reverse split of shares of Common Stock.

4.2            Adjustment for Dividends or Distributions of Stock or Other Securities or Property. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to Common Stock (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) payable in (a) securities of the Company or (b) assets (excluding cash dividends), then, in each such case, the Holder on exercise of this Warrant at any time after the consummation, effective date or record date of such dividend or other distribution, shall receive, in addition to the shares of Common Stock (or such other stock or securities) issuable on such exercise prior to such date, and without the payment of additional consideration therefor, the securities or such other assets of the Company to which the Holder would have been entitled upon such date if the Holder had exercised this Warrant on the date hereof and had thereafter, during the period from the Effective Date to and including the date of such exercise, retained such shares and all such additional securities or other assets distributed with respect to such shares as aforesaid during such period giving effect to all adjustments called for by this Section 4.

2

4.3           Reclassification.  If the Company, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change, and the Purchase Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any conversion or redemption of Common Stock that is the subject of Section 4.5.

4.4           Adjustment for Capital Reorganization, Merger or Consolidation.  In case of any capital reorganization of the capital stock of the Company (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or any merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the assets of the Company (any such transaction a “Sale of the Company”) then, and in each such case, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Amount then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 4.  The foregoing provisions of this Section 4.4 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company’s Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company’s Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant.

5.             CERTIFICATE AS TO ADJUSTMENTS.  In each case of any adjustment in the Purchase Price, or number or type of shares issuable upon exercise of this Warrant, the Chief Financial Officer or Controller of the Company shall compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted Purchase Price.  The Company shall promptly send (by either first class mail, postage prepaid or overnight delivery) a copy of each such certificate to the Holder.

3

6.             LOSS OR MUTILATION.  Upon receipt of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor as the lost, stolen, destroyed or mutilated Warrant.

7.             RESERVATION OF COMMON STOCK.  The Company hereby covenants that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of Common Stock or other shares of capital stock of the Company as are from time to time issuable upon exercise of this Warrant and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of this Warrant.  All such shares shall be duly authorized, and when issued upon such exercise, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights, except encumbrances or restrictions arising under federal or state securities laws. Issuance of this Warrant shall constitute full authority to the Company’s officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant.

8.             TRANSFER AND EXCHANGE.  Subject to the terms and conditions of this Warrant, this Warrant and all rights hereunder may be transferred to any Registered Holder’s parent, subsidiary or affiliate, or, if the Registered Holder is a partnership, to any partner of such Registered Holder, in whole or in part, on the books of the Company maintained for such purpose at the principal office of the Company, by the Registered Holder hereof in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed.  Upon any permitted partial transfer, the Company will issue and deliver to the Registered Holder a new Warrant or Warrants with respect to the shares of Common Stock not so transferred. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that, when this Warrant shall have been so endorsed, the person in possession of this Warrant may be treated by the Company, and all other persons dealing with this Warrant, as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding.

9.             COMPLIANCE WITH SECURITIES LAWS.  By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that it is an accredited investor as defined under Regulation D promulgated by the U.S. Securities Exchange Commission; that Holder is not prohibited by any applicable law, regulation or order from owning this Warrant or any of the Shares; any shares of stock purchased upon exercise of this Warrant shall be acquired for investment only and not with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as the Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder to evaluate the merits and risks of its investment in the Company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder understands that the shares of stock acquired pursuant to the exercise of this Warrant will not be registered under the Securities Act (unless otherwise required pursuant to exercise by the Holder of the registration rights, if any, granted to the Registered Holder) and will be “restricted securities” within the meaning of Rule 144 and that the exemption from registration under Rule 144 will not be available for at least six (6) months from the date of exercise of this Warrant, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed thereto a legend substantially in the following form:

4

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

10.            NO RIGHTS OR LIABILITIES AS SHAREHOLDERS.  This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company. In the absence of affirmative action by the Holder to purchase Common Stock by exercise of this Warrant or Common Stock upon conversion thereof, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Holder hereof shall cause any holder of this Warrant  to be a shareholder of the Company for any purpose.

11.           NOTICES.  Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Warrant shall be in writing and shall be conclusively deemed to have been duly given (a) when hand-delivered to the other party; (b) when received when sent by facsimile at the address and number set forth below; (c) three business days after deposit in the U.S. mail with first class or certified mail receipt requested postage prepaid and addressed to the other party as set forth below; or (d) the next business day after deposit with a national overnight delivery service, postage prepaid, addressed to the parties as set forth below with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider.

To the Company:	To the Holder:
Arista Power, Inc.	TMK-ENT, Inc.
1999 Mt. Read Boulevard	5713 Eleni Court
Rochester, NY  14615	Avon, NY  14414
Phone:  585-243-4040	Attention:  Chief Executive Officer
Fax:  585-243-4142
Attention: Chief Executive Officer

Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication.  A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 11 by giving the other party written notice of the new address in the manner set forth above.

12.            HEADINGS.  The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof.

5

13.           GOVERNING LAW.  This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to conflicts of law principles.  With respect to any matters that may be heard before a court of competent jurisdiction, the Holder and the Company consent to the jurisdiction and venue of the state and federal courts located in Monroe County, New York.

14.           NO IMPAIRMENT.  The Company will not, by amendment of its Certificate of Incorporation or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder of this Warrant against impairment.  Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon exercise of this Warrant.

15.           SEVERABILITY.  If any term, provision, covenant or restriction of this Warrant is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Warrant shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

16.           COUNTERPARTS.  For the convenience of the parties, any number of counterparts of this Warrant may be executed by the parties hereto and each such executed counterpart shall be, and shall be deemed to be, an original instrument.

17.            SATURDAYS, SUNDAYS AND HOLIDAYS.  If the Expiration Date falls on a Saturday, Sunday or legal holiday, the Expiration Date shall automatically be extended until 5:00 p.m., Eastern Time, the next business day.

18.           ENTIRE AGREEMENT.  This Warrant, together with all the exhibits attached hereto, contains the sole and entire agreement and understanding of the parties with respect to the entire subject matter of this Warrant, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, related to the subject matter of this Warrant are hereby merged herein.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the Effective Date.

TMK-ENT, INC.		ARISTA POWER, INC.
By:	/s/	By:	/s/
	Name		Name
	Title		Title

6

EXHIBIT A

NOTICE OF EXERCISE

(To be executed upon exercise of Warrant)

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder, the securities of Arista Power, Inc., a New York corporation, as provided for therein, and tenders herewith payment of the exercise price in full in the form of cash or check in same-day funds in the amount of $________________ for ____________ shares of such securities.

Please issue a certificate or certificates for such securities in the name of, and pay any cash for any fractional share to (please print name, address and social security/taxpayer identification number):

Name:

Address:

Social Security/ Taxpayer Identification Number

Signature:

Note:  The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form below.

If said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher whole number of shares.

ASSIGNMENT

(To be executed only upon assignment of Warrant Certificate)

For value received, the undersigned hereby sells, assigns and transfers unto _________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________________ attorney, to transfer said Warrant Certificate on the books of the within-named Company with respect to the number of Shares set forth below, with full power of substitution in the premises:

Name(s) of Assignee(s) Address # of Shares

And if said number of Shares shall not be all the Shares subject to the Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the Shares subject to the Warrant Certificate.

Dated:

Signature:

Note:  The signature to the foregoing Assignment must correspond to the name as written upon the face of this security in every particular, without alteration or any change whatsoever.

EX-31.1

 Exhibit 31.1

Certification of Chief Executive Officer

as required by 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

I, William A. Schmitz, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of Arista Power, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 (c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 (d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant 's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant 's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 (a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 (b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 13, 2012

/s/ William A. Schmitz

William A. Schmitz

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

as required by 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

I, Molly Hedges, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of Arista Power, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 (a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 (b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 (c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 (d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 (a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 (b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2012

/s/ Molly Hedges

Molly Hedges,

Acting Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Arista Power, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William A. Schmitz, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 to the best of my knowledge, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:  November 13, 2012

/s/ William A. Schmitz

William A. Schmitz

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Arista Power, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Molly Hedges, as Acting Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 to the best of my knowledge, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 13, 2012

/s/ Molly Hedges

Molly Hedges

Acting Chief Financial Officer

XML

Commitments and Contingencies (Details) (USD $)	Sep. 30, 2012
Annual commitments by year under the Company’s lease agreements
2012	$ 67,528
2013	69,554
2014	71,641
2015	$ 42,513

XML

Stock Based Compensation (Details 2) (USD $)	Sep. 30, 2012
Summarizes the status of the Company’s restricted share awards
Number of Restricted Shares Non-vested at September 30, 2012	169,368
Weighted Average Fair Value at Grant Date Non-vested at September 30, 2012	$ 2.80

XML

Description of the Business and Summary of Significant Accounting Policies (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Accounting Policies (Textual)
Allowance for doubtful accounts	$ 0	$ 0		$ 0
Inventory, raw materials	142,699	142,699
Inventory, work in process	306,096	306,096
Inventory reserves	63,004	63,004		47,171
Impairment of assets		$ 2,077	$ 3,876
Revenue recognition percentage	83.00%	69.00%
Accounts receivable percentage	73.00%	73.00%
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding, Number	519,400	519,400		364,400
Warrants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding, Number	2,204,250	2,204,250		1,651,250

XML

Subsequent Event (Details) (USD $)	1 Months Ended		12 Months Ended
	Nov. 30, 2012	Oct. 31, 2012	Dec. 31, 2011
Subsequent Event (Textual)
Contract with General Technical Services, LLC for development of a new Intelligent Scalable Micro-grid for the U.S. Army		$ 909,000
Term of contract		Four to eight months
Common stock issue to vendor for service renderd, Shares	10,000		46,500

XML

Warrants (Details Textual) (USD $)	1 Months Ended	9 Months Ended		12 Months Ended
	Oct. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Warrants (Textual)
Warrant exercised		0	0
Reverse stock split	One for twenty			One-for-twenty
Warrants [Member]
Warrants (Textual)
Weighted average fair value of warrants		2.59	10.00
Warrants vested		0	0
Warrants Expired or Cancelled		0	0
Warrant exercised		0	0

XML

Long-lived Assets

9 Months Ended

Sep. 30, 2012

Long Lived Assets [Abstract]

Long-lived assets

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

XML

Debt (Details Textual) (USD $)	1 Months Ended					3 Months Ended		9 Months Ended
	Oct. 31, 2011	Aug. 31, 2011	Mar. 31, 2011	Feb. 28, 2011	Apr. 30, 2010 Officers Shareholder	Sep. 30, 2012	Mar. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Oct. 14, 2011	Aug. 24, 2011
Debt (Textual)
Line of credit with First Niagara Bank					$ 1,000,000
Numbe of officiers provided guarantees					2
Numbe of shareholders secured facility by guarantee					1
Interest rate description					Prime rate, plus 0%, but at no time would the applicable interest rate be less than 3.25
Line of credit facility interest rate minimum					3.25%
Number of shares of common stock under guarantee by Mr. Brock pledged								1,000,000
Payment for interest				10,976
Number of common stock issued under guarantors warrants						1,450,000		1,450,000
Per share value of common stock issued under warrants								$ 5.00
Investment Warrants, Term								10 years
Incremental vesting schedule in tranches of shares under each warrant.								6 months
Percentage incremental vesting schedule in tranches of shares under each warrant								25.00%
Line of credit interest rate							6.00%	10.00%
Increased line of credit interest rate							9.25%
Payment of line of credit principal and interest			1,012,421
Payment of credit card debt			25,351
Payment of principal balance of the Company’s working capital revolving line of credit			1,000,000
Gain on the extinguishment of the line of credit debt							1,000,000
Loan amount to purchase asset											44,748
Term of loan	36 months	60 months
Annual interest rate	6.76%	4.99%
Monthly payments of loan	279	844
Lease of office equipment										9,068
Working capital revolving line of credit						500,000		500,000
Line of credit maturity date								Sep. 04, 2013
Line of credit, amount						300,000		300,000
Warrants issued to purchase common stock						500,000		500,000
Price per share						$ 1.60		$ 1.60
Term of warrants								10 years
Amortization of debt discount						$ 15,688		$ 15,688	$ 0

XML

Debt (Details) (USD $)	Sep. 30, 2012
Summary of annual maturities of debt
2012 (10/1/2012-12/31/2012)	$ 2,815
2013	311,688
2014	11,782
2015	9,540
2016	$ 6,629

XML

Stockholders' Equity (Details) (USD $)	1 Months Ended					3 Months Ended		9 Months Ended		12 Months Ended	48 Months Ended		1 Months Ended		12 Months Ended	1 Months Ended		6 Months Ended	12 Months Ended
	Nov. 30, 2012	Aug. 31, 2012	Mar. 31, 2012	Nov. 30, 2011	Oct. 31, 2011	Sep. 30, 2012	Mar. 31, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Nov. 01, 2012	Nov. 30, 2012 Warrants [Member]	Mar. 31, 2012 Warrants [Member]	Dec. 31, 2011 Warrants [Member]	Jul. 31, 2012 Private placement [Member] Unit	Mar. 31, 2012 Private placement [Member] Unit	Jun. 30, 2012 Private placement [Member] Unit	Dec. 31, 2011 Private placement [Member]
Stockholders' Equity (Textual)
Number of units available for sale																5	100	48
Value of each unit up for sale																$ 75,000	$ 15,000	$ 720,000	$ 17,500
Common stock and warrant consisting in each unit up for sale																	7,500		25,000
Common stock issuable upon exercise of warrants												600,000					1,000		875
Price per share						$ 1.60		$ 1.60									$ 10.00		$ 10.00
Vesting period													1 year	2 years	2 years
Expected life of warrants (Years)														10 years	10 years
Company raised amount through multiple private placement									2,900,000	3,200,000	4,100,000
Agreed period for not selling the shares																	1 year
Issuance of common stock for goods and services (Shares)		3,768	119,191
Issuance of common stock for goods and services		7,160	251,854			7,160	251,854
Common stock shares issued for professional services	10,000									46,500
Common stock value issued for professional services											174,000
Stock issued during period shares issued to landlord for due rent									44,000	19,400
Value of stock issued to landlord									$ 168,000	$ 174,000
Reverse stock split					One for twenty					One-for-twenty
Effective date of reverse stock split								Dec. 27, 2011
Description of consent for adoption of restated certificate				Approximately 74% of the aggregate voting power of Common Stock

XML

Stock Based Compensation (Details) (Stock Options [Member])	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Stock Options [Member]
Weighted-average assumptions
Expected dividend yield	0.00%	0.00%
Expected stock price volatility, minimum	96.00%	95.00%
Expected stock price volatility, maximum	97.00%	98.00%
Risk-free interest rate, minimum	2.37%	2.90%
Risk-free interest rate. maximum	2.70%	4.19%
Expected life of options, minimum (Years)	1 year 9 months 9 days	2 years 9 months 18 days
Expected life of options, maximum (Years)	9 years 9 months 18 days	10 years

XML

Going Concern

9 Months Ended

Sep. 30, 2012

Going Concern [Abstract]

Going Concern

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.

XML

Stock Based Compensation (Details 1) (Stock Options [Member], USD $)	9 Months Ended
	Sep. 30, 2012
Stock Options [Member]
Summary of the status of the Company’s aggregate stock options granted
Outstanding number of Shares Remaining , Beginning Balance	364,400
Outstanding, Weighted Average Exercise Price	$ 5.20
Options granted, number of shares remaining options	178,000
Options granted, weighted average exercise price	$ 2.05
Options cancelled/expired during 2012, Number of shares remaining options	(23,000)
Options cancelled/expired during 2012, Weighted Average Exercise Price	$ 5.74
Outstanding number of shares remaining , Ending Balance	519,400
Outstanding, Weighted Average Exercise Price Ending balance	$ 4.10
Outstanding, Weighted-Average Remaining Contractual Term	8 years 29 days
Options, Outstanding, Intrinsic Value	$ 126,478
Options exercisable, Number of Shares Remaining Options	378,500
Options, Exercisable, Weighted Average Exercise Price	$ 4.18
Exercisable, Weighted Average Remaining Contractual Term	8 years 18 days
Options, Exercisable, Intrinsic Value	$ 82,728

XML

Commitments and Contingencies (Details 1) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Summary of activity in accrued warranty account
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

XML

Condensed Balance Sheets (Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011
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
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

XML

Statement of Shareholders' Equity (Unaudited) (USD $)	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Beginning Balance at Dec. 31, 2011	$ 159,602	$ 23,709	$ 20,407,748	$ (20,271,855)
Beginning Balance, shares at Dec. 31, 2011		11,854,644
Issuance of common stock	240,000	240	239,760
Issuance of common stock, shares		120,000
Issuance of common stock for goods and services	251,854	238	251,616
Issuance of common stock for goods and services (Shares)		119,191
Issuance of warrants with private placements	36,662		36,662
Stock options and stock compensation	153,970	1	153,969
Stock options and stock compensation, shares		380
Share rounding for reverse stock split	0
Share rounding for reverse stock split (Shares)		272
Net loss for quarter	(831,394)			(831,394)
Balance, at Mar. 31, 2012	10,694	24,188	21,089,755	(21,103,249)
Balance, shares at Mar. 31, 2012		12,094,487
Issuance of common stock	480,000	480	479,520
Issuance of common stock, shares		240,000
Issuance of warrants with private placements	71,470		71,470
Stock options and stock compensation	274,856	1	274,855
Stock options and stock compensation, shares		366
Net loss for quarter	(1,009,442)			(1,009,442)
Balance, at Jun. 30, 2012	(172,422)	24,669	21,915,600	(22,112,691)
Balance, shares at Jun. 30, 2012		12,334,853
Issuance of common stock	75,000	75	74,925
Issuance of common stock, shares		37,500
Issuance of common stock for goods and services	7,160	8	7,152
Issuance of common stock for goods and services (Shares)		3,768
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	66,694	1	66,693
Stock options and stock compensation, shares		512
Net loss for quarter	(817,348)			(817,348)
Balance, at Sep. 30, 2012	$ (32,841)	$ 24,753	$ 22,872,445	$ (22,930,039)
Balance, shares at Sep. 30, 2012		12,376,633

XML

Warrants (Details) (Warrant [Member])	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Warrant [Member]
Weighted-average assumptions utilized in the fair value calculations for warrants granted:
Expected dividend yield	0.00%	0.00%
Expected stock price volatility, minimum	97.00%	95.00%
Expected stock price volatility, maximum	98.00%	98.00%
Risk-free interest rate, minimum	2.06%	2.91%
Risk-free interest rate, maximum	3.03%	4.24%
Expected life of warrants, minimum	7 years 7 months 6 days	8 years 9 months 18 days
Expected life of warrants, maximum	9 years 10 months 24 days	9 years 10 months 24 days

XML

Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary of 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

Stock Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Weighted-average assumptions used to fair value calculation 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

Summary of the status of 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

XML

Warrants (Details 1) (Warrants [Member], USD $)	9 Months Ended
	Sep. 30, 2012
Warrants [Member]
Summary of status of Company's warrant granted
Outstanding number of Shares Remaining , Beginning Balance	1,651,250
Outstanding, Weighted Average Exercise Price	$ 5.61
Warrants granted during 2012, Number of Shares Remaining warrants	553,000
Warrant granted, Weighted Average Exercise Price	$ 2.59
Warrants cancelled/expired during 2012, Number of Shares Remaining Warrants	0
Outstanding number of shares remaining , Ending Balance	2,204,250
Outstanding, Weighted Average Exercise Price Ending balance	$ 4.85
Options exercisable, Number of Shares Remaining Options	1,950,500
Options, Exercisable, Weighted Average Exercise Price	$ 4.18
Outstanding, Weighted-Average Remaining Contractual Term	8 years 5 months 19 days
Exercisable, Weighted Average Remaining Contractual Term	8 years 4 months 13 days
Options, Outstanding, Intrinsic Value	$ 0
Options, Exercisable, Intrinsic Value	$ 0

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Annual commitments by year under the Company's lease agreements

Rental Commitment
2012	$	67,528
2013	$	69,554
2014	$	71,641
2015	$	42,513

Summary of 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

XML

Description of the Business and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Description Of Business and Summary Of Significant Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

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.

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.

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.

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.

XML

Condensed Balance Sheets (Unaudited) (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2011	Sep. 30, 2012
Condensed Balance Sheets [Abstract]
Allowance for doubtful accounts	$ 0	$ 0
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, shares authorized	500,000,000	500,000,000
Common stock, par value	$ 0.002	$ 0.002
Common stock, shares issued	11,854,644	12,376,633
Number of shares outstanding	11,854,644	12,376,633
Reverse stock split	One-for-twenty

XML

Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

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.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	Arista Power, Inc.
Entity Central Index Key	0001424640
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,386,633

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

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.

XML

Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Statements Of Operations [Abstract]
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
Extinguishment of line of credit debt	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	$ (0.07)	$ (0.10)	$ (0.22)	$ (0.30)
Weighted average number of common shares outstanding - basic and diluted	12,375,206	11,189,190	12,174,029	9,251,570

XML

Stock Based Compensation

9 Months Ended

Sep. 30, 2012

Stock Based Compensation [Abstract]

Stock Based Compensation

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.

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.

.

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.

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity [Abstract]

Stockholders’ Equity

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.

XML

Warrants (Tables) (Warrant [Member])

9 Months Ended

Sep. 30, 2012

Warrant [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

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

Summary of the status of 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

XML

Description of Business and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Description Of Business and Summary Of Significant Accounting Policies [Abstract]

Description of Business

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

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

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

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

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.

Accounts Receivable

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

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

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

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

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

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.

Revenue Recognition

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

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

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

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

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.

Basic and Diluted Loss Per Share

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

Reclassifications

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

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

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

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

XML

Warrants

9 Months Ended

Sep. 30, 2012

Warrants Disclosure [Abstract]

Warrants

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.

XML

Consulting Agreement

9 Months Ended

Sep. 30, 2012

Consulting Agreement [Abstract]

Consulting Agreement

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.

XML

Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

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.

XML

Stock Based Compensation (Details Textual) (USD $)	1 Months Ended	9 Months Ended		12 Months Ended
	Oct. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Nov. 15, 2012	Apr. 01, 2011
Stock Based Compensation (Textual)
Equity Incentive Plan provided for the issuance common stock, shares		1,550,000		800,000
Number of shares are available for grant as Incentive Stock Options		50,000
Exercise price for options award		No less than 100% of the fair market value of the common stock on the day of grant.
Share-based compensation vesting period		Either immediately on the date of grant or 1 to 3 years from the date of grant.
Compensation costs for options and restricted shares granted		$ 495,518	$ 1,039,737
Reverse stock split	One for twenty			One-for-twenty
Company expensed relating to stock options		492,466	512,987
Stock option granted		178,000	80,400
Number of shares vested and scheduled to vest		169,368			169,368	55,969
Cancellation of stock option		23,000	20,250
Stock options exercised		0	0
Weighted average fair value of options granted		$ 2.05	$ 4.00
Restricted stock grant, commission payment		Up to 50% in restricted stock at the employee's discretion.
Expense related to restricted stock grant, commission payment		3,052
Expenses related to restricted stock awards		$ 3,052	$ 526,750

XML

Debt (Tables)

9 Months Ended

Sep. 30, 2012

Debt [Abstract]

Summary of annual maturities of debt

2012	(10/1/2012-12/31/2012)	$	2,815
2013		$	311,688
2014		$	11,782
2015		$	9,540
2016		$	6,629

XML

Going Concern (Details) (USD $)	1 Months Ended		3 Months Ended	6 Months Ended	9 Months Ended		12 Months Ended		48 Months Ended
	Jul. 31, 2012	Apr. 30, 2010 Shareholder Officers	Mar. 31, 2011	Jun. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2009	Dec. 31, 2010
Going Concern (Textual)
Incurred cumulative net loss					$ (22,930,039)		$ (20,271,855)
Company raised amount through multiple private placement						2,900,000	3,200,000		4,100,000
Amount yielded by company from the exercise of stock options								1,670,000
Line of credit with First Niagara Bank		1,000,000
Numbe of officiers provided guarantees		2
Numbe of shareholders secured facility by guarantee		1
Non cash gain on debt			1,000,000
Proceed from sale of common stock	75,000			720,000
Number of common stock and warrant sold	5			48
Working capital revolving line of credit					$ 500,000
Line of credit interest rate			6.00%		10.00%
Line of credit maturity date					Sep. 04, 2013

XML

Commitments and Contingencies (Details Textual) (USD $)	1 Months Ended		9 Months Ended		12 Months Ended
	Oct. 31, 2010	Aug. 31, 2009	Sep. 30, 2012 Member	Sep. 30, 2011	Dec. 31, 2011	Jan. 27, 2011
Commitments and Contingencies (Textual)
Number of members of senior management under employment agreements			5
Terms of employment agreements			3 years
Aggregate base salary of annual compensation required under the agreements			$ 872,000
Minimum term of employment agreement			2 years
Agreements expiring period		Lease term is from August 2010 through July 2015	Varying times over the period from February 11, 2014 through December 28, 2014.
Monthly base rental payment	5,396	1,400
Renewal option		2 years
Lease expiration date		Oct. 31, 2011
Issuance of shares of common stock as settlement for the early termination of the lease						1,500
Percentage increase in base rent	3.00%
Stock issued during period shares issued to landlord for due rent				44,000	19,400
Advance payments received for sale order			198,757		112,218
Warranty reserve			$ 140,074		$ 135,606

XML

Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 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

XML

Debt

9 Months Ended

Sep. 30, 2012

Debt [Abstract]

Debt

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

XML

Long Lived Assets (Details) (USD $)	Sep. 30, 2012	Dec. 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	423,180	406,747
Less accumulated depreciation	(243,856)	(158,889)
Total property and equipment before accumulated depreciation	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

XML

Consulting Agreements (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Consulting Agreement on May 24, 2010 [Member]
Consulting Agreements (Textual)
Stock eligible under consulting agreement	10,000
Vesting period	1 year
Expenses associated with this stock option granted in regard of consulting agreement		$ 6,746
Consulting Agreement on October 11, 2010 [Member]
Consulting Agreements (Textual)
Stock eligible under consulting agreement	5,500
Vesting period	3 years
Expenses associated with this stock option granted in regard of consulting agreement	9,632	11,733
Consulting Agreement on July 30, 2012 [Member]
Consulting Agreements (Textual)
Expenses associated with this stock option granted in regard of consulting agreement	30,459
Restricted shares issued to the consultant	0
Consulting Agreement on July 30, 2012 [Member] | Restricted Stock [Member]
Consulting Agreements (Textual)
Stock eligible under consulting agreement	20,000

XML

Long Lived Assets (Tables)

9 Months Ended

Sep. 30, 2012

Long Lived Assets [Abstract]

Summary of Company’s long-lived assets

	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