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 March 31, 2014

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 ¨

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 ¨

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 May 5, 2014 the Registrant had outstanding 19,938,694 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  March 31, 2014 and December 31, 2013	1
	Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 2014 and 2013	2
	Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013	3
	Unaudited Statement of Stockholders' Deficit through  March 31, 2014	4
	Notes to Unaudited Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 4.	Controls and Procedures	18
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
Signatures		20
Exhibits

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements and Notes

ARISTA POWER, INC.

Balance Sheets (Unaudited)

	March 31,			December 31,
	2014			2013
ASSETS
Current assets
Cash	$	1,273,843		$	297,385
Accounts Receivable (less allowance for doubtful accounts of $0 at March 31, 2014 and December 31, 2013)		41,465			265,245
Prepaid expenses and other current assets		153,988			232,570
Inventory		496,313			496,313
Deferred debt discount		820,750			820,750
Total current assets		2,786,359			2,112,263
Other assets		161,356			172,362
Intangible assets, net		24,802			25,305
Property and equipment, net		56,975			69,555
Total assets	$	3,029,492		$	2,379,485
Current liabilities
Accounts payable	$	1,018,776		$	1,175,221
Borrowings under line of credit, net of debt discount		769,784			684,994
Customer deposits		20,850			19,000
Accrued payroll		98,619			146.465
Deferred revenue		61,217			63,311
Accrued warranty costs		140,074			140,074
Accrued liabilities		451,316			496,011
Accrued loss contract		495,369			519,092
Derivative liabilities, short term		0			13,200
Current portion of long term debt		11,193			11,782
Total current liabilities		3,067,198			3,269,150
Long term liabilities
Long term debt		14,612			16,169
Derivative liabilities		3,917,772			762,396
Total long term liabilities		3,932,384			778,565
Total liabilities		6,999,582			4,047,715
Stockholders' (deficit)
Preferred stock, 5,000,000 shares authorized, $0.002 par value; 1,500 and 0 issued and outstanding at March 31, 2014 or December 31, 2013		3			0
Common stock, 500,000,000 shares authorized, $0.002 par value; 19,498,694 and 17,993,694 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		38,497			35,987
Additional paid-in capital		23,778,389			25,330,474
Deficit accumulated		(27,786,979	)		(27,034,691	)
Total stockholders' (deficit)		(3,970,090	)		(1,668,230	)
Total liabilities and stockholders' deficit	$	3,029,492		$	2,379,485

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

1

ARISTA POWER, INC.

Statements of Operations (Unaudited)

	Three Months			Three Months
	Ended March 31, 2014			Ended March 31, 2013
Sales	$	129,870		$	108,644
Cost of Goods Sold		198,226			197,233
Gross Loss		(68,356	)		(88,589	)
Operating Expenses:
Research and development expenses		22,517			126,538
Selling, general and administrative expenses		425,545			734,130
Total expenses		448,062			860,668
Loss from operations		(516,418	)		(949,257	)
Non-operating revenue/(expense)
Interest expense		(112,345	)		(224,820	)
Unrealized gain/(loss) on change in fair value of derivative liabilities		(121,650	)		71,400
Net loss before income taxes		(750,413	)		(1,102,677	)
Income taxes		1,875			500
Net loss	$	(752,288	)	$	(1,103,177	)
Net loss per common share - basic and diluted	$	(.04	)	$	(.09	)
Weighted average number of common shares outstanding - basic and diluted		18,495,360			12,676,895

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

2

ARISTA POWER, INC.

Statements of Cash Flows (Unaudited)

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Operating activities
Net loss	$	(752,288	)	$	(1,103,177	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation expense		13,084			18,140
Stock-based compensation		70,954			363,369
Amortization of prepaid warrants for rent, non-cash		11,006			7,337
Amortization of prepaid warrants for consulting, non-cash		95,353			0
Stock issued for rent and services		0			100,488
Amortization of debt discount		84,790			199,852
Impairment of intangible assets		0			3,396
Change in derivative liability		121,650			(71,400	)
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other current assets		(16,772	)		(121,647	)
Decrease in trade accounts receivable		223,780			365,891
Decrease in inventory		0			43,188
Increase in customer deposits		1,850			18,484
(Decrease) in deferred revenue		(2,094	)		(43,618	)
(Decrease) in accrued loss contract		(23,723	)		0
(Decrease) in trade accounts payable and accrued liabilities		(248,986	)		(69,494	)
Net cash provided by/(used in) operating activities		(421,396	)		(289,191	)
Financing activities
Proceeds from issuance of preferred stock		1,500,000			0
Stock offering costs paid		(100,000	)		0
Borrowings on line of credit		0			270,0000
Payments on debt		(2,146	)		(2,863	)
Net cash provided by financing activities		1,397,854			67,137
Increase/(decrease) in cash		976,458			(22,054	)
Cash – beginning of period		297,385			78,253
Cash – end of period	$	1,273,843		$	56,199
Supplemental Information:
Income Taxes Paid/(Tax credits received)	$	1,875		$	500
Interest Paid	$	236		$	1,511
Non-cash investing and financing activities:
Warrant derivative liability incurred with preferred stock offering	$	3,020,526		$	0
Preferred stock	$	(2,868,750	)	$	0
Additional warrants	$	(151,776	)	$	0
Stock issued for accrued expenses	$	0		$	157,903
Application of deferred debt discount	$	0		$	270,000
Warrants issued for prepaid rent	$	0		$	256,800

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

3

ARISTA POWER, INC.

Statement of Stockholders’ (Deficit)

(Unaudited)

	Number of Shares				Par Value				Additional Paid-In			Accumulated			Total Stockholders'
	Common		Preferred		Common		Preferred		Capital			Deficit			(Deficit)
Balance, December 31, 2013		17,993,694		0	$	35,987	$	0	$	25,330,474		$	(27,034,691	)	$	(1,668,230	)
Issuance of convertible preferred stock for cash				1,500				3		1,499,997						1,500,000
Stock offering costs										(100,000	)					(100,000	)
Issuance of warrants with private placement										(2,868,750	)					(2,868,750	)
Issuance of common stock and warrants for antidilution clause		1,255,000				2,510				(154,286	)					(151,776	)
Stock options and stock compensation		250,000								70,954						70,954
Net loss for quarter													(752,288	)		(752,288	)
Balance, March 31, 2014		19,498,694		1,500	$	38,497	$	3	$	23,778,389		$	(27,798,979	)	$	(3,970,090	)

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

4

ARISTA POWER, INC.

Notes to the Financial Statements

Three-Month Period ended March 31, 2014

(Unaudited)

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

Description of Business

Arista Power, Inc. (the “Company”) was incorporated on March 30, 2001 in the State of New York as Future Energy Solutions, Inc. and in November 2008 changed its name to WindTamer Corporation. In May 2011, the Company changed its name to Arista Power, Inc. The name change more accurately reflects the broadening of the Company’s focus beyond the WindTamer® brand and entry into areas within the energy storage and power management industries.

The Company is a developer, integrator, and supplier of custom-designed power management systems, and a supplier, designer and installer of solar energy systems.  The Company’s patent-pending Power on Demand system utilizes inputs from multiple energy sources including solar, wind, fuel cells, generators, and the grid, in conjunction with a custom-designed battery storage system and a proprietary smart monitoring technology that releases energy at optimal times to reduce electricity costs for large energy users. The Company also designs, sells and installs residential and commercial solar PV 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-month period ended March 31, 2014 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, 2013.

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 to an allowance for doubtful account reserve.  As of March 31, 2014 and December 31, 2013, the allowance for doubtful accounts was $0.

Inventory

Inventory consists primarily of parts and subassemblies for Power on Demand systems, solar photovoltaic (“PV”) systems, 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 March 31, 2014 consisted of raw materials amounting to $346,014 and work-in-process amounting to $150,299.  Inventory is reviewed quarterly to determine the need for an excess and obsolete inventory reserve.  As of March 31, 2014 and December 31, 2013, no reserve was necessary.

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.  Patent application costs are capitalized and amortized over the estimated useful life of the patent, which generally approximates its legal life. For the three months ended March 31, 2013, trademark costs totaling $3,396 relating to the Company’s WindTamer® trademark were impaired, while no intangible assets were impaired for the three months ended March 31, 2014.  

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 three months ended March 31, 2014 and 2013, no assets were impaired.

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 collected prior to satisfying our revenue recognition policy are reflected as customer deposits.

For research and development contracts, we recognize the revenue using the proportional effort method based upon the relationship of costs incurred to date to the total estimated cost to complete the contract. Cost elements include direct labor, materials, overhead costs 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 in the agreements when the loss is probable.

The Company uses contract accounting for certain Power on Demand system sales. Due to the limited number of these systems that have been installed to date, revenue is recognized based on the completed contract method whereby revenue and costs are deferred until the contract is completed. For contracts that contain provisions related to proceeds being paid based upon cost savings generated by the system, revenue is recorded as the costs savings are realized by and billed to the customer. If accumulated costs exceed accumulated billings at the reporting date the asset is presented net as costs of uncompleted contracts in excess of related billings. If there is a net liability it is presented as billings on uncompleted contracts in excess of related costs. We provide for any loss that we expect to incur on a contract at the time the loss is probable.

At March 31, 2014, the Company had costs of uncompleted contracts in excess of related billings totaling $143,481 ($0 as of March 31, 2013). This amount was netted with the accrued loss contract on the Company’s balance sheet.

Research and Development Costs

All costs related to research and development are expensed when incurred. Research and development costs consist of expenses 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 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, or over the specified vesting period.

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 period, 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 March 31, 2014, there were 1,500 shares of Preferred Stock, convertible into 7,500,000 shares of common stock, 1,430,608 stock options and 18,933,267 warrants outstanding which, upon exercise, could dilute future earnings per share.

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 utilized funds generated from private placement offerings and debt to fund its product development and operations and has incurred a cumulative net loss of $27,786,979 as of March 31, 2014.  The recurring losses from operations and current liquidity 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.

Note 3 – Debt

On September 4, 2012, the Company entered into an unsecured 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. On November 13, 2012, the Company amended its loan agreement to increase the revolving line of credit agreement from $500,000 to $750,000, and on December 21, 2012 amended its loan agreement to increase the revolving credit agreement for $750,000 to $1,250,000.  The note matures on December 21, 2014. Borrowings under the line of credit amount to $1,018,500 as of March 31, 2014 and December 31, 2013. In conjunction with the line of credit facility, the Company issued 1,250,000 warrants to purchase the Company’s common stock at varying prices from $1.38 to $1.62 per share. The warrants vest one year from issuance 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 and amounted to $1,839,250. The difference between the fair market value of the warrants and draws on the line of credit is $820,750 as of March 31, 2014 and December 31, 2013, which is recorded as deferred debt discount.  The deferred debt discount will be recognized and recorded as debt discount as the Company continues to borrow against the line of credit. 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 $84,790 and $199,852, respectively, for the three months ended March 31, 2014 and 2013.

Annual maturities of debt are as follows:

2014 (includes TMK-ENT, Inc. line of credit repayment)	$	1,028,136
2015	$	9,540
2016	$	6,629

8

Note 4 – Stockholders’ Equity

On March 31, 2014, the Company sold, pursuant to a securities purchase agreement, an aggregate of 1,500 shares of Series A Convertible Preferred Stock, with a stated value of $1,500,000 that are convertible into shares of the Company’s common stock at a conversion price of $0.20 in stated value per share (7,500,000 shares of common stock), and five-year warrants, which vested in full upon issuance, to purchase up to 11,250,000 additional shares of common stock at a purchase price of $0.25 per share to 8 institutional investors. Stock offering costs for the private placement amounted to $100,000. Each share of Preferred Stock is entitled to cash interest payments of 9% of the stated value per year, payable quarterly. The Preferred Stock is voluntarily and mandatorily convertible into shares of common stock pursuant to the provisions of the securities purchase agreement, with any shares of Preferred Stock outstanding on March 31, 2017 automatically converting into common stock. The investors received rights of first refusal and rights of participation in future financings of the Company until March 31, 2015. In addition, the investors received most favored nation protections on the terms and conditions of the warrants and preferred stock so long as such securities remain outstanding. Additionally, until September 30, 2015, each investor has the right to invest an amount equal to the amount invested by such investor in the above-referenced transaction in preferred stock of Arista Power on substantially similar terms. The Preferred Stock and warrants have customary anti-dilution protections and registration rights including a “full ratchet” anti-dilution adjustment provision. The warrants associated with this transaction were valued at their date of issue utilizing the Black-Scholes option pricing model, which amounted to $2,868,750.  The difference between the warrants valuation of $2,878,750 and the net proceeds received by the Company of $1,400,000 results in a deemed dividend of $1,468,750 , which has been charged to additional paid-in-capital, as the Company has no retained earnings from which to declare a dividend.

On March 31, 2014, in conjunction with the full ratchet and anti-dilution provisions of the July and August 2013 private placement of common stock, shareholders were awarded an additional 1,255,000 shares of common stock and 612,000 warrants to purchase common stock for $0.25 per share, and the exercise price for the 3,060,000 warrants outstanding that were associated with this transaction were reset to $0.25 per warrant.

Note 5 – Stock Based Compensation

The Company has established the 2008 Equity Incentive Plan, which is a shareholder-approved plan that permits the granting of stock options and restricted stock to employees, directors and consultants.   The 2008 Equity Incentive Plan provides for the issuance of up to 1,550,000 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.  

For the three months ended March 31, 2014, the Company recorded compensation costs for options and warrants of $70,954, as compared to $363,369 for the three months ended March 31, 2013. For the three months ended March 31, 2013, compensation costs relating to the issuance of options and warrants amounted to $287,171 and the Company recorded an expense of $76,198 associated with the repricing of options and warrants held by a consultant of the Company, while for the three months ended March 31, 2014, there was no expense associated with the repricing of options or warrants.

9

The Company 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:

	Three Months Ended			Three Months Ended
	March  31, 2014			March 31, 2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		112	%		108	%
Risk-free interest rate		3.63	%		2.60-2.68	%
Expected life of options	.14-9.78 years			.47-9.78 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, 2014		1,386,108	$	.61
Options granted during 2014		115,000	$	.23
Options cancelled or expired during 2014		(70,500)		.75
Outstanding at March 31, 2014		1,430,608	$	.52	7.8 years	$	26,450
Exercisable at March 31, 2014		772,308	$	.64	6.4 years	$	26,450

For the three months ended March 31, 2014, the Company recorded compensation costs for options granted under the plan of $65,992, as compared to $160,751 for the three months ended March 31, 2013. Stock option grants amounted to 115,000 for the three months ended March 31, 2014 (135,000 for the three months ended March 31, 2013) while 160,000 options vested during that period (141,650 options vested for the three months ended March 31, 2013). There were 70,500 options cancelled or expired for the three months ended March 31, 2014, while no options were cancelled for the three months ended March 31, 2013. No options were exercised for the three months ended March 31, 2014 or March 31, 2013.

The weighted average fair value of options granted during the three months ended March 31, 2014 was $.23, compared to $1.13 for the three months ended March 31, 2013. 

For the three months ended March 31, 2013, the Company recorded expenses totaling $13,575 associated with the repricing of 25,000 options awarded to a consultant (now an employee) of the Company. No such expense was recorded for the three months ended March 31, 2014.

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 have approved a change in the vesting date for restricted stock held by certain employees from April 1, 2011 to April 1, 2015. A total of 55,969 shares vested on April 1, 2011, and the remaining 169,368 shares are scheduled to vest on April 1, 2015.

On March 31, 2014, Adeeb Saba was named Chief Operating Officer and the Compensation Committee awarded him 250,000 shares of restricted stock, which will vest one half each on the first and second anniversary of the award. Compensation costs associated with this award amount to $72,500 and will be recognized over the vesting period of the stock.

10

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  March 31, 2014		118,378	$	2.80
Awarded during 2014		250,000		.29
Non-vested at March 31, 2014		419,368	$	1.10

There was no expense associated with this restricted stock grant for the three months ended March 31, 2014 and 2013. 

Note 6 – Warrants

The Company 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:

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31,2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		134	%		93-108	%
Risk-free interest rate		1.73-1.75	%		.14–2.60	%
Expected life of warrants	4.1-8.8 years			.9-9.8 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, 2014		7,671,267	$	1.51
Warrants granted during 2014		11,862,000	$	.25
Warrants expired during 2014		(600,000)		.25
Outstanding at March 31,2014		18,933,267	$	.78	5.3 years	$	0
Exercisable at March 31,2014		18,139,250	$	.76	5.6 years	$	0

The weighted average fair value of warrants issued during three months ended March 31, 2014 and 2013 was $.25 and $.73, respectively.  During the three months ended March 31, 2014, 11,878,000 warrants vested (646,375 vested for the three months ended March 31, 2013), and 600,000 warrants expired for the three months ended March 31, 2014. No options expired or were cancelled for the three months ended March 31, 2013.

For the three months ended March 31, 2014 and 2013, respectively, the Company recorded compensation costs of $4,962 and $126,420 for warrants issued to a consultant (now an employee) of the Company.  The warrants have a ten year life, a $1.20 exercise price, and vest from six months to three years from grant date.

For the three months ended March 31, 2013, the Company recorded expenses totaling $62,623 associated with the repricing of 423,125 outstanding warrants awarded to a consultant (now an employee) of the Company.  No such expense was recorded for the three months ended March 31, 2014.

11

Note 7 – Derivative Liabilities

Certain warrants issued by the Company do not have fixed settlement provisions because their exercise prices may be lowered if the Company issues securities at lower prices in the future, are classified as derivative liabilities, and are revalued at each reporting date. These warrants include (1) warrants issued to 1999 Mt RB, LLC in conjunction with our lease modification on February 4, 2013, which expired on February 4, 2014 (2) warrants issued in conjunction with the Company’s strategic advisory agreement with Sunrise Financial Group, Inc. on May 21, 2013 and (3) warrants issued in conjunction with the Company’s private placements on July 31, 2013, August 6, 2013 and March 31, 2014. The reset provisions protect the warrant holders from the potential dilution associated with future financings.

The Company has valued warrants at their date of issue utilizing the Black-Scholes option pricing model. Expected volatility is based upon a weighted average historical volatility of peer companies operating in a similar industry, or if applicable based upon the term of the warrant, based upon the Company’s historical volatility. 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 and subsequent revaluation:

	Three Months Ended	Three Months Ended
	March 31, 2014	March 31, 2013
Expected dividend yield	0%		0	%
Expected stock price volatility	134%		90-93	%
Risk-free interest rate	1.75%		.14	%
Expected life of warrants	4.1-5.0 years	.8 years
Number of warrants	15,562,351		600,000
Fair value of warrants	$3,917,772	$	185,400

The fair value of these warrant liabilities was $3,917,772 at March 31, 2014. The change in fair value for the three months ended March 31, 2014 was $121,650 and is reported in our statement of operations as an unrealized loss on the change in fair value of the derivative liabilities. For the three months ended March 31, 2013, we recorded an unrealized gain on the change in fair value of the derivative liabilities totaling $71,400. The fair value of the derivative liabilities are re-measured at the end of every reporting period and upon the exercise of the warrant.

Fair Value Measurement

Valuation Hierarchy

ASC 820, “Fair Value Measurements and Disclosures,” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the liabilities carried at fair value measured on a recurring basis as of March 31, 2014:

			Fair Value Measurements at March 31,2014
	Total Carrying Value at March 31, 2014,		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liabilities	$	3,917,722	$	-	$	-	$	3,917,722

12

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors, and are classified within Level 3 of the valuation hierarchy.

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

	Year ended December 31, 2013
Beginning balance January 1, 2014	$	775,596
Issuance of derivative financial instruments in 2014		3,020,526
Net unrealized (gain) loss on derivative financial instruments		121,650
Ending balance as of March 31,2014	$	3,917,722

Note 8- Subsequent Events

In April 2014, we issued 440,000 shares of our common stock to one of our outside attorneys (Schwell Wimpfheimer & Associates, LLP) for legal services rendered in satisfaction of a $110,000 account payable to such law firm.

In April 2014, expenses totaling approximately $200,000 that were recorded by the Company as accounts payable as of March 31, 2014 were approved to be paid by the Company’s director and officers insurance policy, with such payments expected in May 2014.

Note 9- Recent Accounting Pronouncements

The Company has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

13

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 31, 2014. 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

During 2013, we continued our product development, with most of such efforts directed at our Power on Demand system and Mobile Renewable Power Station. We expect to continue further development and product enhancement on our products in 2014.

In May 2013, we entered into an Agreement with City Lights at Queens Landing, Inc. pursuant to which City Lights has agreed to purchase a Power on Demand system for installation and use at City Lights’ 43-story, 525-unit, cooperative building located in Long Island City, New York. The City Lights Building is managed by Rose Associates, Inc., a New York-based full service real estate firm. Separately City Lights intends to purchase and have installed a combined heating and power co-generation system at the City Lights Building. The Power on Demand system will consist of a micro-grid that will include the integration of the newly installed solar PV, the newly installed CHP co-generation system, energy storage and power distribution.  This represents the Company’s first sale of a Power on Demand system to be installed in the New York City area.  We expect the Power on Demand system to be installed in the second quarter of 2014.

In 2012, we were awarded $1.8 million in U.S. Army contracts to be the prime contractor to complete Phase One and Phase Two activities to develop an Intelligent Micro-Grid for the Renewable Energy for Distributed Under-Supplied Command Environments (“REDUCE”) program under the guidance of the U.S. Army Communications-Electronics Research, Development and Engineering Center. In the latter half of September 2012, we completed Phase One activities. Work commenced on Phase Two late in 2012, which continued into 2013. We expect to complete Phase Two of the project in the second quarter of 2014. In September 2013,  the Company was awarded a single vendor contract valued at $625,000 to continue development under this contract, which will follow the completion of Phase Two in the second quarter of 2014. The Company believes that the micro-grid that it is developing for the U.S. Army will complement the development of the products that it will sell to commercial, military and governmental customers.

In November 2013, we partnered with EaglePicher Technologies by integrating the EPT’s Power Pyramid™ system into the Power on Demand system to be installed at the City Lights building in Long Island City, NY.

As of May 6, 2014, the Company’s current order backlog was approximately $1.7 million which consists of orders for several Power on Demand systems, multiple solar PV systems, and two government contracts. A portion of this backlog will be recognized as an installment sale based upon contract provisions relating to system generated cost savings.

14

Results of Operations

Results of Operations for Quarter Ended March 31, 2014 Compared to Quarter Ended March 31, 2013.

Revenues

During the quarter ended March 31, 2014, we reported revenues of $130,000 as compared with revenues of $109,000 for the quarter ending March 31, 2013.  We have received deposits from customers totaling approximately $21,000 as of March 31, 2014. 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 related incentive packages, we can provide our customers with an attractive return on investment.

Gross Loss

For the quarter ended March 31, 2014, gross loss amounted to $68,000 as compared to $89,000 for the quarter ended March 31, 2013.  The gross loss is primarily attributable to the costs associated with maintaining an operations staff, responsible for not only solar products, and Power on Demand systems, but also for troubleshooting customer issues, inventory management, and maintaining day to day operations. The reduction of gross loss relates to a non-recurring sales returns reserve recorded for the quarter ending March 31, 2013.

Research and Development

Research and development costs for the quarter ended March 31, 2014 totaled $23,000 as compared to $127,000 for the quarter ended March 31, 2013. This decrease results from lower salaries and related expenses, as well as an increase in the allocation of costs to cost of goods sold relating to the REDUCE program.

Selling, General and Administrative

Selling, general and administrative expenses amounted to $426,000 for the quarter ended March 31, 2014, as compared to $734,000 for the quarter ended March 31, 2013.  The decrease over the prior year was related primarily to reduced salary and headcount related expenses partially offset by higher consulting and legal expense in 2014 as compared to 2013.

Depreciation and Amortization

Depreciation and amortization charges were $13,000 for the quarter ended March 31, 2014, compared to $18,000 during the quarter ended March 31, 2013 due to a lower depreciable asset base in 2014. The Company also impaired costs totaling $3,000 related to the WindTamer™ trademark for the quarter ended March 31, 2013.

15

Other Income (Expense)

Interest expense for the quarter ended March 31, 2014 was $112,000, as compared to an expense of $225,000 for the quarter ended March 31, 2013. The decrease is due to the amortization of deferred debt discount relating to the Company’s line of credit over an extended period as of March 31, 2014 due to the deferral of the loan due date in May 2013 to December 2014 from December 2013.

In 2013, we recorded derivative liabilities associated with the issuance of warrants for (1) a lease modification with our existing landlord, (2) an advisory agreement with Sunrise Financial Group, LLC and (3) in conjunction with our private placement funding which occurred during the third quarter of 2013 and in the first quarter of 2014. The warrants do not have a fixed settlement provision because their exercise prices may be lowered if the Company issues securities at lower prices in the future. Accordingly, the Company revalues these derivative liabilities each quarter, and the financial statements reflect a loss on the revaluation of the derivative liabilities for the first quarter of 2014 of $122,000, as compared to a gain of $71,000 for the quarter ended March 31, 2013.

Statutory income tax payments of $1,875 and $500 were made during the quarter ending March 31, 2014 and 2013, respectively.

Net Loss

We incurred net losses of $752,000 and $1,103,000 for the quarter ended March 31, 2014 and 2013, respectively.  Operating losses of amounted to $516,000 and $949,000 for the quarter ended March 31, 2014 and 2013 respectively due to decreased operating expenses for the quarter ended March 31, 2014 as compared to the quarter ended March 31, 2013.  Increases in net loss for the quarter were due to the interest and debt discount amortization amounting to $112,000 and $225,000 relating to our TMK-ENT, Inc. line of credit for the quarter ended March 31, 2014, and 2013, respectively. Additionally, the Company recorded an unrealized loss on the change in fair value of derivative liabilities of $122,000 for the quarter ended March 31, 2014, as compared to an unrealized gain of $71,000 for the quarter ended March 31, 2013.

Liquidity and Capital Resources

As of March 31, 2014, our accumulated deficit totaled $28 million.

We had a working capital deficit of $281,000 as of March 31, 2014 as compared to working capital deficit of $1,157,000 as of December 31, 2013. The increase in working capital relates to the March 2014 private placement which provided the company working capital of $1.4 million, offset by net loss for the quarter ended March 31, 2014.

On March 31, 2014, the Company sold, pursuant to a securities purchase agreement, an aggregate of 1,500 shares of Series A Convertible Preferred Stock, with a stated value of $1,500,000 that are convertible into shares of the Company’s common stock at a conversion price of $0.20 in stated value per share, and five-year warrants, which vested in full upon issuance, to purchase up to 11,250,000 additional shares of common stock at a purchase price of $0.25 per share to 8 institutional investors. The Company received a total of $1,400,000 in net proceeds from the sales.  Each share of preferred stock is entitled to cash interest payments of 9% of the stated value per year, payable quarterly.  The preferred stock is voluntarily and mandatorily convertible into shares of common stock pursuant to the provisions of the securities purchase agreement, with any shares of preferred stock outstanding on March 31, 2017 automatically converting into common stock.  The investors received rights of first refusal and rights of participation in future financings of the Company until March 31, 2015.  In addition, the investors received “most favored nation” protections on the terms and conditions of the warrants and preferred stock so long as such securities remain outstanding.  Additionally, until September 30, 2015, each investor has the right to invest the amount invested by such investor in the above-referenced transaction in preferred stock of Arista Power on substantially similar terms. The Preferred Stock and warrants have customary anti-dilution protections and registration rights including a “full ratchet” anti-dilution adjustment provision.

We believe that we will require additional funding of approximately $1.0 million to satisfy our operating cash needs and our anticipated growth for the next twelve months.

Due to the uncertainty of our ability to meet our current operating expenses, in their report on our audited annual financial statements as of and for the years ended December 31, 2013 and 2012, 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 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.

Operating Activities

Our operating activities used net cash of $421,000 for the quarter ended March 31, 2014, as compared to $289,000 for the quarter ended March 31, 2013.  For the quarter ended March 31, 2014, cash used in operations resulted from a net loss of $752,000, reduced by non-cash adjustments of $397,000 consisting primarily of $71,000 of stock based compensation, the amortization of debt discount of $85,000, and a loss in fair value of derivative liabilities of $122,000. Net changes to working capital amounted to $66,000 and were primarily due to decreases in accounts receivable offsetting a decrease in accrued liabilities. For the quarter ended March 31, 2013, cash used in operations resulted from a net loss of $1,103,000, reduced by non-cash expenses of $621,000 for stock based compensation, stock and warrants issued for rent and services of $108,000, and the amortization of debt discount of $200,000.  Net changes to working capital for the quarter ended March 31, 2103 amounted to $193,000 due to a decrease in trade accounts receivable of $366,000, offset by an increase to prepaid expenses of $122,000 and decreases in accrued liabilities and deferred revenue of $44,000 and $69,000 respectively.

16

Investing Activities

The Company did not utilize any funds for investing activities for the quarters ended March 31, 2014 and 2013.

Financing Activities

Our financing activities provided $1,398,000 and $267,000 for the quarters ended March 31, 2014 and 2013, respectively. In 2014, the Company raised $1,500,000 in the sale of convertible preferred stock, with offering costs amounting to $100,000.  For the quarter ended March 31, 2013, the Company drew $270,000 from its line of credit. Repayments on long term debt were $2,000 and $3,000, respectively for the quarters ended March 31, 2014 and 2013.

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 March 31, 2014, 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, 2013, filed on March 31, 2014 with the Securities and Exchange Commission.

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, 2013, 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.

17

Item 3. Quantitative and Qualitative Disclosures about Market Risk

None.

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 March 31, 2014.

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 March 31, 2014 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

There were no reportable events during the quarter.

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

On March 31, 2014, the Company sold, pursuant to a securities purchase agreement, an aggregate of 1,500 shares of Series A Convertible Preferred Stock, with a stated value of $1,500,000, that are convertible into shares of the Company’s common stock at a conversion price of $0.20 in stated value per share (7,500,000 shares of common stock), and five-year warrants, which vested in full upon issuance, to purchase up to 11,250,000 additional shares of common stock at a purchase price of $0.25 per share to 8 institutional investors. Stock offering costs for the private placement amounted to $100,000. Each share of preferred stock is entitled to cash interest payments of 9% of the stated value per year, payable quarterly. The preferred stock is voluntarily and mandatorily convertible into shares of common stock pursuant to the provisions of the securities purchase agreement, with any shares of preferred stock outstanding on March 31, 2017 automatically converting into common stock. The investors received rights of first refusal and rights of participation in future financings of the Company until March 31, 2015. In addition, the investors received most favored nation protections on the terms and conditions of the warrants and preferred stock so long as such securities remain outstanding. Additionally, until September 30, 2015, each investor has the right to invest the amount invested by such investor in the above-referenced transaction in preferred stock of Arista Power on substantially similar terms. The Preferred Stock and warrants have customary anti-dilution protections and registration rights including a “full ratchet” anti-dilution adjustment provision.

On March 31, 2014, in conjunction with the full ratchet and anti-dilution provisions of the July and August 2013 private placement of common stock, shareholders were awarded an additional 1,255,000 shares of common stock and 612,000 warrants to purchase common stock for $0.25 per share, and the exercise price for the 3,060,000 warrants outstanding that were associated with this transaction were decreased from $0.30 to $0.25.

We registered the resale of the securities sold in the private placement pursuant to a registration statement on form S-1 that was filed with the Securities and Exchange Commission on April 30, 2014 and  was declared effective on May 13, 2014.

In April 2014, we issued 440,000 shares of our common stock to one of our outside attorneys (Schwell Wimpfheimer & Associates, LLP) for legal services rendered in satisfaction of a $110,000 account payable to such law firm.

18

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

None

Item 6.

(a)	Exhibits:
	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.

19

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.
May 15, 2014
	By:	/s/ William A. Schmitz
		William A. Schmitz
		President and Chief Executive Officer

20 

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:  May 15, 2014

/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: May 15, 2014

/s/ Molly Hedges

Molly Hedges,

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 March 31, 2014 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:  May 15, 2014

/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 March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Molly Hedges, as 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: May 15, 2014

/s/ Molly Hedges

Molly Hedges

Chief Financial Officer

XML

Derivative Liabilities (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Summary of weighted-average assumptions of fair value calculations for warrants granted and subsequent revaluation
Number of warrants	3,060,000
Fair value of warrants liabilities	$ 3,917,722
Warrants [Member]
Summary of weighted-average assumptions of fair value calculations for warrants granted and subsequent revaluation
Expected dividend yield	0.00%	0.00%
Expected stock price volatility	134.00%
Expected stock price volatility, minimum		90.00%
Expected stock price volatility, maximum		93.00%
Risk-free interest rate	1.75%	0.14%
Expected life of warrants		9 months 18 days
Expected life of warrants, minimum	4 years 1 month 6 days
Expected life of warrants, maximum	5 years
Number of warrants	15,562,351	600,000
Fair value of warrants liabilities	$ 3,917,772	$ 185,400

XML

Stockholders' Equity (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Securities Purchase Agreement [Member]	Mar. 31, 2014 Series A Convertible Preferred Stock [Member]	Mar. 31, 2014 Series A Convertible Preferred Stock [Member] Securities Purchase Agreement [Member]	Mar. 31, 2013 Warrants [Member]	Mar. 31, 2014 Private placement [Member] Securities Purchase Agreement [Member]
Stockholders' Equity (Textual)
Number of preferred Stock convertible into common stock			1,500	1,500
Preferred stock converted, value				$ 1,500,000
Conversion price				$ 0.20
Number of common stock shares issued upon conversion of Preferred Stock		7,500,000	7,500,000
Term of warrants		5 years
Warrants issued to purchase common stock, shares		11,250,000
Warrants issued to purchase common stock, share price		$ 0.25
Stock offering costs for the private placement						100,000
Percentage of Preferred Stock cash interest payments		9.00%
Fair value of warrants issued under securitiies purchase agreement		2,868,750
Warrants valuation, amount		2,878,750
Proceeds from issuance of warrants with private placement		1,400,000
Deemed dividend		$ 1,468,750
Additional common stock awarded to shareholders		1,255,000
Warrants exercise price, reset	$ 0.25	$ 0.25			$ 1.20
Warrants outstanding, reset	3,060,000				423,125
Additional warrants issued to shareholders		612,000

XML

Subsequent Events (Details) (Subsequent Event [Member], USD $)	1 Months Ended
	Apr. 30, 2014
Subsequent Event [Member]
Subsequent Events (Textual)
Issuance of common stock	440,000
Accounts payable to law firm	$ 110,000
Accounts Payable	$ 200,000

XML

Debt

3 Months Ended

Mar. 31, 2014

Debt [Abstract]

Debt

Note 3 – Debt

On September 4, 2012, the Company entered into an unsecured 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. On November 13, 2012, the Company amended its loan agreement to increase the revolving line of credit agreement from $500,000 to $750,000, and on December 21, 2012 amended its loan agreement to increase the revolving credit agreement for $750,000 to $1,250,000.  The note matures on December 21, 2014. Borrowings under the line of credit amount to $1,018,500 as of March 31, 2014 and December 31, 2013. In conjunction with the line of credit facility, the Company issued 1,250,000 warrants to purchase the Company’s common stock at varying prices from $1.38 to $1.62 per share. The warrants vest one year from issuance 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 and amounted to $1,839,250. The difference between the fair market value of the warrants and draws on the line of credit is $820,750 as of March 31, 2014 and December 31, 2013, which is recorded as deferred debt discount.  The deferred debt discount will be recognized and recorded as debt discount as the Company continues to borrow against the line of credit. 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 $84,790 and $199,852, respectively, for the three months ended March 31, 2014 and 2013.

Annual maturities of debt are as follows:

2014 (includes TMK-ENT, Inc. line of credit repayment)	$	1,028,136
2015	$	9,540
2016	$	6,629

XML

Stock Based Compensation (Details Textual) (USD $)	0 Months Ended	3 Months Ended
	Apr. 01, 2011	Mar. 31, 2014	Mar. 31, 2013
Stock Based Compensation (Textual)
Share-based compensation vesting period		Either immediately on the date of grant or 1 to 3 years from the date of grant.
Expense of repricing for options and warrants			$ 76,198
Expenses related to restricted stock awards
Equity Incentive Plan provided for the issuance common stock, shares		1,550,000
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.
Stock-based compensation		70,954	363,369
Compensation costs relating to issuance			287,171
Compensation costs for options granted		65,992	160,751
Board of Directors [Member]
Stock Based Compensation (Textual)
Repricing of number of outstanding compensatory options approved by board of directors			25,000
Repricing of expenses of outstanding compensatory options approved by company			13,575
Salary forfeited to purchase common share		Employees forfeited salary over a twelve-week period to purchase common shares
Number of restricted shares vested	55,969
Number of restricted shares expected to vest in future		169,368
Chief Operating Officer [Member]
Stock Based Compensation (Textual)
Restricted stock grants		250,000
Compensation costs relating to issuance		$ 72,500
Stock Option [Member]
Stock Based Compensation (Textual)
Weighted Average Exercise Price, Options granted		$ 0.23	$ 1.13
Options expired or cancelled		70,500
Stock option granted		115,000	135,000
Stock options vested		141,650	160,000

XML

Stock Based Compensation (Details 2) (Restricted Stock [Member], USD $)	3 Months Ended
	Mar. 31, 2014
Restricted Stock [Member]
Summary of Company's restricted share awards
Number of Restricted Shares, Non-vested at March 31, 2014	118,378
Weighted Average Fair Value at Grant Date, Non-vested at March 31, 2014	$ 2.80
Number of Restricted Shares, Awarded	250,000
Weighted Average Fair Value at Grant Date, Awarded	$ 0.29
Number of Restricted Shares, Non-vested at March 31, 2014	419,368
Weighted Average Fair Value at Grant Date, Non-vested at March 31, 2014	$ 1.10

XML

Warrants (Details) (Warrant [Member])	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Warrant [Member]
Weighted-average assumptions utilized in fair value calculations for warrants granted
Expected dividend yield	0.00%	0.00%
Expected stock price volatility	134.00%
Expected stock price volatility, minimum		93.00%
Expected stock price volatility, maximum		108.00%
Risk-free interest rate, minimum	1.73%	0.14%
Risk-free interest rate, maximum	1.75%	2.60%
Expected life of warrants, minimum	4 years 1 month 6 days	10 months 24 days
Expected life of warrants, maximum	8 years 9 months 18 days	9 years 9 months 18 days

XML

Warrants (Details 1) (Warrants [Member], USD $)	3 Months Ended
	Mar. 31, 2014
Warrants [Member]
Summary of status of Company's warrant granted
Number of Shares Remaining Options/Warrants, Outstanding, beginning balance	7,671,267
Number of Shares Remaining Warrants, Granted	11,862,000
Number of Shares Remaining Warrants, Warrants expired	(600,000)
Number of Shares Remaining Options/Warrants, Outstanding, balance	18,933,267
Number of Shares Remaining Options/Warrants, Exercisable	18,139,250
Weighted Average Exercise Price, Outstanding, beginning balance	$ 1.51
Weighted Average Exercise Price, Warrant granted	$ 0.25
Weighted Average Exercise Price, Warrants expired	$ 0.25
Weighted Average Exercise Price, Outstanding, balance	$ 0.78
Weighted Average Exercise Price, Exercisable	$ 0.76
Weighted-Average Remaining Contractual Term, Outstanding	5 years 3 months 18 days
Weighted Average Remaining Contractual Term, Exercisable	5 years 7 months 6 days
Aggregate Intrinsic Value, Outstanding	$ 0
Aggregate Intrinsic Value, Exercisable	$ 0

XML

Going Concern

3 Months Ended

Mar. 31, 2014

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 utilized funds generated from private placement offerings and debt to fund its product development and operations and has incurred a cumulative net loss of $27,786,979 as of March 31, 2014.  The recurring losses from operations and current liquidity 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.

XML

Warrants (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Warrants (Textual)
Warrants exercise price	$ 0.25
Outstanding warrants repriced	3,060,000
Warrants [Member]
Warrants (Textual)
Weighted average fair value of warrants	$ 0.25	$ 0.73
Warrants vested	11,878,000	646,375
Warrants exercise price		$ 1.20
Outstanding warrants repriced		423,125
Expenses associated with the repricing		$ 62,623
Warrant expired	600,000
Warrants [Member] | Consultant [Member]
Warrants (Textual)
Warrants exercise price	$ 1.20
Compensation costs	$ 4,962	$ 126,420
Term of warrants	10 years
Warrants vesting period description	Vest from six months to three years from grant date.

XML

Balance Sheets (Unaudited) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Current assets
Cash	$ 1,273,843	$ 297,385
Accounts Receivable (less allowance for doubtful accounts of $0 at March 31, 2014 and December 31, 2013)	41,465	265,245
Prepaid expenses and other current assets	153,988	232,570
Inventory	496,313	496,313
Deferred debt discount	820,750	820,750
Total current assets	2,786,359	2,112,263
Other assets	161,356	172,362
Intangible assets, net	24,802	25,305
Property and equipment, net	56,975	69,555
Total assets	3,029,492	2,379,485
Current liabilities
Accounts payable	1,018,776	1,175,221
Borrowings under line of credit, net of debt discount	769,784	684,994
Customer deposits	20,850	19,000
Accrued payroll	98,619	146,465
Deferred revenue	61,217	63,311
Accrued warranty costs	140,074	140,074
Accrued liabilities	451,316	496,011
Accrued loss contract	495,369	519,092
Derivative liabilities, short term	0	13,200
Current portion of long term debt	11,193	11,782
Total current liabilities	3,067,198	3,269,150
Long term liabilities
Long term debt	14,612	16,169
Derivative liabilities	3,917,772	762,396
Total long term liabilities	3,932,384	778,565
Total liabilities	6,999,582	4,047,715
Stockholders' (deficit)
Preferred stock, 5,000,000 shares authorized, $0.002 par value; 1,500 and 0 issued and outstanding at March 31, 2014 or December 31, 2013	3	0
Common stock, 500,000,000 shares authorized, $0.002 par value; 19,498,694 and 17,993,694 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively	38,497	35,987
Additional paid-in capital	23,778,389	25,330,474
Deficit accumulated	(27,786,979)	(27,034,691)
Total stockholders' (deficit)/	(3,970,090)	(1,668,230)
Total liabilities and stockholders' deficit	$ 3,029,492	$ 2,379,485

XML

Statement of Shareholders' (Deficit) (Unaudited) (USD $)	Total	Common Stock	Preferred Stock [Member]	Additional paid-in capital	Accumulated Deficit
Beginning Balance at Dec. 31, 2013	$ (1,668,230)	$ 35,987	$ 0	$ 25,330,474	$ (27,034,691)
Beginning Balance, shares at Dec. 31, 2013		17,993,694	0
Issuance of convertible preferred stock for cash	1,500,000		3	1,499,997
Issuance of convertible preferred stock for cash, shares			1,500
Stock offering costs	(100,000)			(100,000)
Issuance of warrants with private placement	(2,868,750)			(2,868,750)
Issuance of common stock and warrants for antidilution clause	(151,776)	2,510		(154,286)
Issuance of common stock and warrants for antidilution clause, shares		1,255,000
Stock options and stock compensation	70,954			70,954
Stock options and stock compensation, Shares		250,000
Net loss for quarter	(752,288)				(752,288)
Balance at Mar. 31, 2014	$ (3,970,090)	$ 38,497	$ 3	$ 23,778,389	$ (27,798,979)
Balance, shares at Mar. 31, 2014		19,498,694	1,500

XML

Derivative Liabilities (Details 2) (USD $)	3 Months Ended
	Mar. 31, 2014
Summary of changes in fair value of Level 3 financial liabilities
Beginning balance	$ 775,596
Issuance of derivative financial instruments in 2014	3,020,526
Net unrealized (gain) loss on derivative financial instruments	121,650
Ending balance	$ 3,917,722

XML

Going Concern (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Going Concern (Textual)
Cumulative net loss	$ (27,786,979)	$ (27,034,691)

XML

Derivative Liabilities (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Derivative Liabilities (Textual)
Unrealized gain/(loss) on change in fair value of derivative liabilities	$ (121,650)	$ 71,400
Fair value of warrants liabilities	$ 3,917,722

XML

Debt (Details Textual) (USD $)	0 Months Ended		3 Months Ended		12 Months Ended
	Dec. 21, 2012	Sep. 04, 2012	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Nov. 13, 2012
Debt (Textual)
Working capital revolving line of credit	$ 750,000	$ 500,000					$ 500,000
Line of credit interest rate		10.00%
Maximum borrowing, line of credit	1,250,000						750,000
Line of credit maturity date	Dec. 21, 2014
Line of credit, amount payable			1,018,500			1,018,500
Warrants issued to purchase common stock					1,250,000
Warrants purchase common stock varying prices minimum (Per share)					$ 1.38
Warrants purchase common stock varying prices maximum (Per share)					$ 1.62
Warrants vesting period					1 year
Adjustments To Additional Paid In Capital Issuance Of Warrants With Revolving Line Of Credit Facility					1,839,250
Deferred debt discount			820,750			820,750
Amortization of debt discount			$ 84,790	$ 199,852

XML

Description of Business and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

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”) 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. The name change more accurately reflects the broadening of the Company’s focus beyond the WindTamer® brand and entry into areas within the energy storage and power management industries.

The Company is a developer, integrator, and supplier of custom-designed power management systems, and a supplier, designer and installer of solar energy systems.  The Company’s patent-pending Power on Demand system utilizes inputs from multiple energy sources including solar, wind, fuel cells, generators, and the grid, in conjunction with a custom-designed battery storage system and a proprietary smart monitoring technology that releases energy at optimal times to reduce electricity costs for large energy users. The Company also designs, sells and installs residential and commercial solar PV 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-month period ended March 31, 2014 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, 2013.

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 to an allowance for doubtful account reserve.  As of March 31, 2014 and December 31, 2013, the allowance for doubtful accounts was $0.

Inventory

Inventory consists primarily of parts and subassemblies for Power on Demand systems, solar photovoltaic (“PV”) systems, 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 March 31, 2014 consisted of raw materials amounting to $346,014 and work-in-process amounting to $150,299.  Inventory is reviewed quarterly to determine the need for an excess and obsolete inventory reserve.  As of March 31, 2014 and December 31, 2013, no reserve was necessary.

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.  Patent application costs are capitalized and amortized over the estimated useful life of the patent, which generally approximates its legal life. For the three months ended March 31, 2013, trademark costs totaling $3,396 relating to the Company’s WindTamer® trademark were impaired, while no intangible assets were impaired for the three months ended March 31, 2014.  

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 three months ended March 31, 2014 and 2013, no assets were impaired.

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 collected prior to satisfying our revenue recognition policy are reflected as customer deposits.

For research and development contracts, we recognize the revenue using the proportional effort method based upon the relationship of costs incurred to date to the total estimated cost to complete the contract. Cost elements include direct labor, materials, overhead costs 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 in the agreements when the loss is probable.

The Company uses contract accounting for certain Power on Demand system sales. Due to the limited number of these systems that have been installed to date, revenue is recognized based on the completed contract method whereby revenue and costs are deferred until the contract is completed. For contracts that contain provisions related to proceeds being paid based upon cost savings generated by the system, revenue is recorded as the costs savings are realized by and billed to the customer. If accumulated costs exceed accumulated billings at the reporting date the asset is presented net as costs of uncompleted contracts in excess of related billings. If there is a net liability it is presented as billings on uncompleted contracts in excess of related costs. We provide for any loss that we expect to incur on a contract at the time the loss is probable.

At March 31, 2014, the Company had costs of uncompleted contracts in excess of related billings totaling $143,481( $0 as of March 31, 2013). This amount was netted with the accrued loss contract on the Company’s balance sheet.

Research and Development Costs

All costs related to research and development are expensed when incurred. Research and development costs consist of expenses 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 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, or over the specified vesting period.

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 period, 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 March 31, 2014, there were 1,500 shares of Preferred Stock, convertible into 7,500,000 shares of common stock, 1,430,608 stock options and 18,933,267 warrants outstanding which, upon exercise, could dilute future earnings per share.

Reclassifications

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

XML

Balance Sheets (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Balance Sheets [Abstract]
Allowance for doubtful accounts	$ 0	$ 0
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, par value	$ 0.002	$ 0.002
Preferred stock, shares issued	1,500	0
Preferred stock, shares outstanding	1,500	0
Common stock, shares authorized	500,000,000	500,000,000
Common stock, par value	$ 0.002	$ 0.002
Common stock, shares issued	19,498,694	17,993,694
Common stock, shares outstanding	19,498,694	17,993,694

XML

Debt (Tables)

3 Months Ended

Mar. 31, 2014

Debt [Abstract]

Summary of annual maturities of debt

2014 (includes TMK-ENT, Inc. line of credit repayment)	$	1,028,136
2015	$	9,540
2016	$	6,629

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 05, 2014
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	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		19,938,694

XML

Stock Based Compensation (Tables)

3 Months Ended

Mar. 31, 2014

Stock Based Compensation [Abstract]

Summary of Company's restricted share awards

Restricted Shares	Number of Restricted Shares		Weighted Average Fair Value at Grant Date
Non-vested at  March 31, 2014		118,378	$	2.80
Awarded during 2014		250,000		.29
Non-vested at March 31, 2014		419,368	$	1.10

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

	Three Months Ended			Three Months Ended
	March  31, 2014			March 31, 2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		112	%		108	%
Risk-free interest rate		3.63	%		2.60-2.68	%
Expected life of options	.14-9.78 years			.47-9.78 years

Summary 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, 2014		1,386,108	$	.61
Options granted during 2014		115,000	$	.23
Options cancelled or expired during 2014		(70,500)		.75
Outstanding at March 31,2014		1,430,608	$	.52	7.8 years	$	26,450
Exercisable at March 31,2014		772,308	$	.64	6.4 years	$	26,450

XML

Statements of Operations (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statements of Operations [Abstract]
Sales	$ 129,870	$ 108,644
Cost of Goods Sold	198,226	197,233
Gross Loss	(68,356)	(88,589)
Operating Expenses:
Research and development expenses	22,517	126,538
Selling, general and administrative expenses	425,545	734,130
Total expenses	448,062	860,668
Loss from operations	(516,418)	(949,257)
Non-operating revenue/(expense)
Interest expense	(112,345)	(224,820)
Unrealized gain/(loss) on change in fair value of derivative liabilities	(121,650)	71,400
Net loss before income taxes	(750,413)	(1,102,677)
Income taxes	1,875	500
Net loss	$ (752,288)	$ (1,103,177)
Net loss per common share - basic and diluted	$ (0.04)	$ (0.09)
Weighted average number of common shares outstanding - basic and diluted	18,495,360	12,676,895

XML

Warrants

3 Months Ended

Mar. 31, 2014

Warrants [Abstract]

Warrants

Note 6 – Warrants

The Company 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:

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31,2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		134	%		93-108	%
Risk-free interest rate		1.73-1.75	%		.14–2.60	%
Expected life of warrants	4.1-8.8 years			.9-9.8 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, 2014		7,671,267	$	1.51
Warrants granted during 2014		11,862,000	$	.25
Warrants expired during 2014		(600,000)		.25
Outstanding at March 31,2014		18,933,267	$	.78	5.3 years	$	0
Exercisable at March 31,2014		18,139,250	$	.76	5.6 years	$	0

The weighted average fair value of warrants issued during three months ended March 31, 2014 and 2013 was $.25 and $.73, respectively.  During the three months ended March 31, 2014, 11,878,000 warrants vested (646,375 vested for the three months ended March 31, 2013), and 600,000 warrants expired for the three months ended March 31, 2014. No options expired or were cancelled for the three months ended March 31, 2013.

For the three months ended March 31, 2014 and 2013, respectively, the Company recorded compensation costs of $4,962 and $126,420 for warrants issued to a consultant (now an employee) of the Company.  The warrants have a ten year life, a $1.20 exercise price, and vest from six months to three years from grant date.

For the three months ended March 31, 2013, the Company recorded expenses totaling $62,623 associated with the repricing of 423,125 outstanding warrants awarded to a consultant (now an employee) of the company. No such expense was recorded for the three months ended March 31, 2014.

XML

Stock Based Compensation

3 Months Ended

Mar. 31, 2014

Stock Based Compensation [Abstract]

Stock-Based Compensation

Note 5 – Stock Based Compensation

The Company has established the 2008 Equity Incentive Plan, which is a shareholder-approved plan that permits the granting of stock options and restricted stock to employees, directors and consultants.   The 2008 Equity Incentive Plan provides for the issuance of up to 1,550,000 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.  

For the three months ended March 31, 2014, the Company recorded compensation costs for options and warrants of $70,954, as compared to $363,369 for the three months ended March 31, 2013. For the three months ended March 31, 2013, compensation costs relating to the issuance of options and warrants amounted to $287,171 and the Company recorded an expense of $76,198 associated with the repricing of options and warrants held by a consultant of the Company, while for the three months ended March 31, 2014, there was no expense associated with the repricing of options or warrants.

The Company 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:

	Three Months Ended			Three Months Ended
	March  31, 2014			March 31, 2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		112	%		108	%
Risk-free interest rate		3.63	%		2.60-2.68	%
Expected life of options	.14-9.78 years			.47-9.78 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, 2014		1,386,108	$	.61
Options granted during 2014		115,000	$	.23
Options cancelled or expired during 2014		(70,500)		.75
Outstanding at March 31, 2014		1,430,608	$	.52	7.8 years	$	26,450
Exercisable at March 31, 2014		772,308	$	.64	6.4 years	$	26,450

For the three months ended March 31, 2014, the Company recorded compensation costs for options granted under the plan of $65,992, as compared to $160,751 for the three months ended March 31, 2013. Stock option grants amounted to 115,000 for the three months ended March 31, 2014 (135,000 for the three months ended March 31, 2013) while 160,000 options vested during that period (141,650 options vested for the three months ended March 31, 2013). There were 70,500 options cancelled or expired for the three months ended March 31, 2014, while no options were cancelled for the three months ended March 31, 2013. No options were exercised for the three months ended March 31, 2014 or March 31, 2013.

The weighted average fair value of options granted during the three months ended March 31, 2014 was $.23, compared to $1.13 for the three months ended March 31, 2013. 

For the three months ended March 31, 2013, the Company recorded expenses totaling $13,575 associated with the repricing of 25,000 options awarded to a consultant (now an employee) of the Company. No such expense was recorded for the three months ended March 31, 2014.

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 have approved a change in the vesting date for restricted stock held by certain employees from April 1, 2011 to April 1, 2015. A total of 55,969 shares vested on April 1, 2011, and the remaining 169,368 shares are scheduled to vest on April 1, 2015.

On March 31, 2014, Adeeb Saba was named Chief Operating Officer and the Compensation Committee awarded him 250,000 shares of restricted stock, which will vest one half each on the first and second anniversary of the award. Compensation costs associated with this award amount to $72,500 and will be recognized over the vesting period of the stock.

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  March 31, 2014		118,378	$	2.80
Awarded during 2014		250,000		.29
Non-vested at March 31, 2014		419,368	$	1.10

There was no expense associated with this restricted stock grant for the three months ended March 31, 2014 and 2013. 

XML

Debt (Details) (USD $)	Mar. 31, 2014
Summary of annual maturities of debt
2014 (includes TMK-ENT, Inc. line of credit repayment)	$ 1,028,136
2015	9,540
2016	$ 6,629

XML

Warrants (Tables) (Warrants [Member])

3 Months Ended

Mar. 31, 2014

Warrants [Member]

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

Weighted-average assumptions utilized in fair value calculations for warrants granted

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31,2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		134	%		93-108	%
Risk-free interest rate		1.73-1.75	%		.14–2.60	%
Expected life of warrants	4.1-8.8 years			.9-9.8 years

Summary of status of Company's warrant granted

	Number of Shares Remaining Warrants		Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2014		7,671,267	$	1.51
Warrants granted during 2014		11,862,000	$	.25
Warrants expired during 2014		(600,000)		.25
Outstanding at March 31,2014		18,933,267	$	.78	5.3 years	$	0
Exercisable at March 31,2014		18,139,250	$	.76	5.6 years	$	0

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2014

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 9- Recent Accounting Pronouncements

The Company has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

XML

Derivative Liabilities

3 Months Ended

Mar. 31, 2014

Derivative Liabilities [Abstract]

Derivative Liabilities

Note 7 – Derivative Liabilities

Certain warrants issued by the Company do not have fixed settlement provisions because their exercise prices may be lowered if the Company issues securities at lower prices in the future, are classified as derivative liabilities, and are revalued at each reporting date. These warrants include (1) warrants issued to 1999 Mt RB, LLC in conjunction with our lease modification on February 4, 2013, which expired on February 4, 2014 (2) warrants issued in conjunction with the Company’s strategic advisory agreement with Sunrise Financial Group, Inc. on May 21, 2013 and (3) warrants issued in conjunction with the Company’s private placements on July 31, 2013, August 6, 2013 and March 31, 2014. The reset provisions protect the warrant holders from the potential dilution associated with future financings.

The Company has valued warrants at their date of issue utilizing the Black-Scholes option pricing model. Expected volatility is based upon a weighted average historical volatility of peer companies operating in a similar industry, or if applicable based upon the term of the warrant, based upon the Company’s historical volatility. 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 and subsequent revaluation:

	Three Months Ended	Three Months Ended
	March 31, 2014	March 31, 2013
Expected dividend yield	0%		0	%
Expected stock price volatility	134%		90-93	%
Risk-free interest rate	1.75%		.14	%
Expected life of warrants	4.1-5.0 years	.8 years
Number of warrants	15,562,351		600,000
Fair value of warrants	$3,917,772	$	185,400

The fair value of these warrant liabilities was $3,917,772 at March 31, 2014. The change in fair value for the three months ended March 31, 2014 was $121,650 and is reported in our statement of operations as an unrealized loss on the change in fair value of the derivative liabilities. For the three months ended March 31, 2013, we recorded an unrealized gain on the change in fair value of the derivative liabilities totaling $71,400. The fair value of the derivative liabilities are re-measured at the end of every reporting period and upon the exercise of the warrant.

Fair Value Measurement

Valuation Hierarchy

ASC 820, “Fair Value Measurements and Disclosures,” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the liabilities carried at fair value measured on a recurring basis as of March 31, 2014:

			Fair Value Measurements at March 31,2014
	Total Carrying Value at March 31, 2014,		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liabilities	$	3,917,722	$	-	$	-	$	3,917,722

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors, and are classified within Level 3 of the valuation hierarchy.

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

	Year ended December 31, 2013
Beginning balance January 1, 2014	$	775,596
Issuance of derivative financial instruments in 2014		3,020,526
Net unrealized (gain) loss on derivative financial instruments		121,650
Ending balance as of March 31,2014	$	3,917,722

XML

Subsequent Events

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

Note 8- Subsequent Events

In April 2014, we issued 440,000 shares of our common stock to one of our outside attorneys (Schwell Wimpfheimer & Associates, LLP) for legal services rendered in satisfaction of a $110,000 account payable to such law firm.

In April 2014, expenses totaling approximately $200,000 that were recorded by the Company as accounts payable as of March 31, 2014 were approved to be paid by the Company’s director and officers insurance policy, with such payments expected in May 2014.

XML

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

3 Months Ended

Mar. 31, 2014

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

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-month period ended March 31, 2014 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, 2013.

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 to an allowance for doubtful account reserve.  As of March 31, 2014 and December 31, 2013, the allowance for doubtful accounts was $0.

Inventory

Inventory

Inventory consists primarily of parts and subassemblies for Power on Demand systems, solar photovoltaic (“PV”) systems, 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 March 31, 2014 consisted of raw materials amounting to $346,014 and work-in-process amounting to $150,299.  Inventory is reviewed quarterly to determine the need for an excess and obsolete inventory reserve.  As of March 31, 2014 and December 31, 2013, no reserve was necessary.

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.  Patent application costs are capitalized and amortized over the estimated useful life of the patent, which generally approximates its legal life. For the three months ended March 31, 2013, trademark costs totaling $3,396 relating to the Company’s WindTamer® trademark were impaired, while no intangible assets were impaired for the three months ended March 31, 2014.  

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 three months ended March 31, 2014 and 2013, no assets were impaired.

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 collected prior to satisfying our revenue recognition policy are reflected as customer deposits.

For research and development contracts, we recognize the revenue using the proportional effort method based upon the relationship of costs incurred to date to the total estimated cost to complete the contract. Cost elements include direct labor, materials, overhead costs 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 in the agreements when the loss is probable.

The Company uses contract accounting for certain Power on Demand system sales. Due to the limited number of these systems that have been installed to date, revenue is recognized based on the completed contract method whereby revenue and costs are deferred until the contract is completed. For contracts that contain provisions related to proceeds being paid based upon cost savings generated by the system, revenue is recorded as the costs savings are realized by and billed to the customer. If accumulated costs exceed accumulated billings at the reporting date the asset is presented net as costs of uncompleted contracts in excess of related billings. If there is a net liability it is presented as billings on uncompleted contracts in excess of related costs. We provide for any loss that we expect to incur on a contract at the time the loss is probable.

At March 31, 2014, the Company had costs of uncompleted contracts in excess of related billings totaling $143,481( $0 as of March 31, 2013). This amount was netted with the accrued loss contract on the Company’s balance sheet.

Research and Development Costs

Research and Development Costs

All costs related to research and development are expensed when incurred. Research and development costs consist of expenses 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 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, or over the specified vesting period.

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 period, 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 March 31, 2014, there were 1,500 shares of Preferred Stock, convertible into 7,500,000 shares of common stock, 1,430,608 stock options and 18,933,267 warrants outstanding which, upon exercise, could dilute future earnings per share.

Reclassifications

Reclassifications

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

XML

Derivative Liabilities (Details 1) (USD $)	Mar. 31, 2014
Summary of derivative liabilities fair value measured on a recurring basis
Fair value of warrants liabilities	$ 3,917,722
Quoted prices in active markets (Level 1)
Summary of derivative liabilities fair value measured on a recurring basis
Fair value of warrants liabilities
Significant other observable inputs (Level 2)
Summary of derivative liabilities fair value measured on a recurring basis
Fair value of warrants liabilities
Significant unobservable inputs (Level 3)
Summary of derivative liabilities fair value measured on a recurring basis
Fair value of warrants liabilities	$ 3,917,722

XML

Description of Business and Summary of Significant Accounting Policies (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Description of Business and Summary of Significant Accounting Policies (Textual)
Allowance for doubtful accounts	$ 0		$ 0
Inventory, raw materials	346,014
Inventory, work in process	150,299
Inventory reserves	0		0
Impairment of trademark cost	0	3,396
Cost of uncompleted contracts	$ 143,481	$ 0
Preferred Stock [Member]
Description of Business and Summary of Significant Accounting Policies (Textual)
Number of preferred Stock convertible into common stock	1,500
Number of common stock shares issued upon conversion of Preferred Stock	7,500,000
Stock options [Member]
Description of Business and Summary of Significant Accounting Policies (Textual)
Securities outstanding which dilutive for future earnings	1,430,608
Warrants [Member]
Description of Business and Summary of Significant Accounting Policies (Textual)
Securities outstanding which dilutive for future earnings	18,933,267

XML

Stock Based Compensation (Details) (Stock options [Member])	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Stock options [Member]
Weighted-average assumptions used to fair value calculation for options granted
Expected dividend yield	0.00%	0.00%
Expected stock price volatility	112.00%	108.00%
Risk-free interest rate	3.63%
Risk-free interest rate, minimum		2.60%
Risk-free interest rate, maximum		2.68%
Expected life of options, minimum (Years)	1 month 21 days	5 months 19 days
Expected life of options, maximum (Years)	9 years 9 months 11 days	9 years 9 months 11 days

XML

Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Operating activities
Net loss	$ (752,288)	$ (1,103,177)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation expense	13,084	18,140
Stock-based compensation	70,954	363,369
Amortization of prepaid warrants for rent, non-cash	11,006	7,337
Amortization of prepaid warrants for consulting, non-cash	95,353
Stock issued for rent and services	0	100,488
Amortization of debt discount	84,790	199,852
Impairment of intangible assets	0	3,396
Change in derivative liability	121,650	(71,400)
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other current assets	(16,772)	(121,647)
Decrease in trade accounts receivable	223,780	365,891
Decrease in inventory	0	43,188
Increase in customer deposits	1,850	18,484
(Decrease) in deferred revenue	(2,094)	(43,618)
(Decrease) in accrued loss contract	(23,723)	0
(Decrease) in trade accounts payable and accrued liabilities	(248,986)	(69,494)
Net cash provided by/(used in) operating activities	(421,396)	(289,191)
Financing activities
Proceeds from issuance of preferred stock	1,500,000	0
Stock offering costs paid	(100,000)	0
Borrowings on line of credit	0	2,700,000
Payments on debt	(2,146)	(2,863)
Net cash provided by financing activities	1,397,854	67,137
Increase/(decrease) in cash	976,458	(22,054)
Cash - beginning of period	297,385	78,253
Cash - end of period	1,273,843	56,199
Supplemental Information:
Income Taxes Paid/(Tax credits received)	1,875	500
Interest Paid	236	1,511
Non-cash investing and financing activities:
Warrant derivative liability incurred with preferred stock offering	3,020,526	0
Preferred stock	(2,868,750)	0
Additional warrants	(151,776)	0
Stock issued for accrued expenses	0	157,903
Application of deferred debt discount	$ 0	$ 270,000
Warrants issued for prepaid rent	0	256,800

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 4 – Stockholders’ Equity

On March 31, 2014, the Company sold, pursuant to a securities purchase agreement, an aggregate of 1,500 shares of Series A Convertible Preferred Stock, with a stated value of $1,500,000 that are convertible into shares of the Company’s common stock at a conversion price of $0.20 in stated value per share (7,500,000 shares of common stock), and five-year warrants, which vested in full upon issuance, to purchase up to 11,250,000 additional shares of common stock at a purchase price of $0.25 per share to 8 institutional investors. Stock offering costs for the private placement amounted to $100,000. Each share of Preferred Stock is entitled to cash interest payments of 9% of the stated value per year, payable quarterly. The Preferred Stock is voluntarily and mandatorily convertible into shares of common stock pursuant to the provisions of the securities purchase agreement, with any shares of Preferred Stock outstanding on March 31, 2017 automatically converting into common stock. The investors received rights of first refusal and rights of participation in future financings of the Company until March 31, 2015. In addition, the investors received most favored nation protections on the terms and conditions of the warrants and preferred stock so long as such securities remain outstanding. Additionally, until September 30, 2015, each investor has the right to invest an amount equal to the amount invested by such investor in the above-referenced transaction in preferred stock of Arista Power on substantially similar terms. The Preferred Stock and warrants have customary anti-dilution protections and registration rights including a “full ratchet” anti-dilution adjustment provision. The warrants associated with this transaction were valued at their date of issue utilizing the Black-Scholes option pricing model, which amounted to $2,868,750.  The difference between the warrants valuation of $2,878,750 and the net proceeds received by the Company of $1,400,000 results in a deemed dividend of $1,468,750 , which has been charged to additional paid-in-capital, as the Company has no retained earnings from which to declare a dividend.

On March 31, 2014, in conjunction with the full ratchet and anti-dilution provisions of the July and August 2013 private placement of common stock, shareholders were awarded an additional 1,255,000 shares of common stock and 612,000 warrants to purchase common stock for $0.25 per share, and the exercise price for the 3,060,000 warrants outstanding that were associated with this transaction were reset to $0.25 per warrant.

XML

Stock Based Compensation (Details 1) (Stock options [Member], USD $)	3 Months Ended
	Mar. 31, 2014
Stock options [Member]
Summary of Company's aggregate stock options granted
Number of Shares Remaining Options/Warrants, Outstanding, beginning balance	1,386,108
Number of Shares Remaining Options, granted	115,000
Number of Shares Remaining Warrants, Warrants expired	(70,500)
Number of Shares Remaining Options/Warrants, Outstanding, balance	1,430,608
Number of Shares Remaining Options/Warrants, Exercisable	772,308
Weighted Average Exercise Price, Outstanding, beginning balance	$ 0.61
Weighted Average Exercise Price, Options granted	$ 0.23
Weighted Average Exercise Price, Cancelled/expired	$ 0.75
Weighted Average Exercise Price, Outstanding, balance	$ 0.52
Weighted Average Exercise Price, Exercisable	$ 0.64
Weighted-Average Remaining Contractual Term, Outstanding	7 years 9 months 18 days
Weighted Average Remaining Contractual Term, Exercisable	6 years 4 months 24 days
Aggregate Intrinsic Value, Outstanding	$ 26,450
Aggregate Intrinsic Value, Exercisable	$ 26,450

XML

Derivative Liabilities (Tables)

3 Months Ended

Mar. 31, 2014

Derivative Liabilities [Abstract]

Summary of weighted-average assumptions of fair value calculations for warrants granted and subsequent revaluation

	Three Months Ended	Three Months Ended
	March 31, 2014	March 31, 2013
Expected dividend yield	0%		0	%
Expected stock price volatility	134%		90-93	%
Risk-free interest rate	1.75%		.14	%
Expected life of warrants	4.1-5.0 years	.8 years
Number of warrants	15,562,351		600,000
Fair value of warrants	$3,917,772	$	185,400

Summary of derivative liabilities fair value measured on a recurring basis

Fair Value Measurements at March 31,2014
	Total Carrying Value at March 31, 2014,		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Derivative liabilities	$	3,917,722	$	-	$	-	$	3,917,722

Summary of changes in fair value of Level 3 financial liabilities

Year ended December 31, 2013
Beginning balance January 1, 2014	$	775,596
Issuance of derivative financial instruments in 2014		3,020,526
Net unrealized (gain) loss on derivative financial instruments		121,650
Ending balance as of March 31,2014	$	3,917,722