Summary of ARISTA POWER, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Company Overview

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

We were incorporated in New York on March 30, 2001, under the name Future Energy Solutions, Inc. In November 2008, we changed our name to WindTamer Corporation. On May 18, 2011, we changed our name to Arista Power, Inc. Our name change reflected management's decision to broaden our focus beyond wind turbines. Our corporate headquarters is located at 1999 Mt. Read Boulevard, Rochester, New York. Our website address is www.aristapower.com.

The WindTamer® wind turbine was invented in 2002, and in 2003 a patent was issued for the WindTamer® wind turbine technology. From 2002 until the fourth quarter of 2009, we focused primarily on research and development of our technology and production and testing of WindTamer® wind turbine prototypes. In the fourth quarter of 2009, we began selling our wind turbines.

In 2010, we continued selling and installing our wind turbines in a variety of grid-tied and off-grid applications. Throughout 2010, we also continued research and development efforts on our WindTamer® wind turbine in order to increase the power production of the wind turbine and to decrease its installation and manufacturing costs. In the first half of 2010, we developed and sold our first Mobile Renewable Power Station for testing and use by the U.S. Army, and operated as a development stage company. During the second half of 2010, we exited reporting as a development stage company, as a result of increased customer order bookings and sales. We also developed and sold our Power on Demand energy management system, the first of which was commissioned in the first quarter of 2011. In the fourth quarter of 2010, we began selling solar PV, and installed our first solar PV system in the first quarter of 2011.

During 2011, we continued the research and development of all of our products, with most efforts directed on our Power on Demand system and Mobile Renewable Power Station. The development of our Power on Demand system and our Mobile Renewable Power Station progressed to where we were able to increase our sales and marketing efforts of such products late in 2011. Thus far, in 2012, we have continued our research and development efforts of these products, and have enhanced our product marketing efforts through the attendance at numerous trade shows.

As of August 7, 2012, the Company's current order backlog is approximately $2.2 million which consists of orders for several Power on Demand systems, solar PV systems, and development contracts. Approximately $.8 million of the total backlog is for orders booked in 2012. Total orders booked to date in 2012 amount to $1.5 million.

Financial Operations

From 2002 until the fourth quarter of 2009, we focused primarily on research and development of our technology and production and testing of WindTamer® wind turbine prototypes. In the fourth quarter of 2009, we began hiring our management, sales and engineering teams and selling our turbines. In 2010, we continued selling and installing our wind turbines in a variety of grid-tied and off grid applications. Other than the Mobile Renewable Power Station that we sold for use by the U.S. Army, substantially all of our revenue generated in 2010 was attributable to the sales of WindTamer® wind turbines. In 2011, we generated revenues from the sales of not only the WindTamer® turbine and Mobile Renewable Power Station, but also our patent-pending Power on Demand system and numerous solar PV installations.

The Company expects to incur substantial additional costs, including costs related to continued product development and expansion. We have utilized the proceeds raised from our private placements to develop and commercialize our Power on Demand system, our Mobile Renewable Power Station, our Renewable Power Station, and our WindTamer® wind turbines, as well as to sustain our operations. Our future cash requirements will depend on many factors, including the volume and the timing of future orders and sales, continued progress in our product development and cost effectiveness programs, costs to continue to develop both domestic and international sales and distribution channels, and competing technological and market developments. The timing of our ability to generate a positive cash flow will be directly dependent on the way we are able to succeed in managing these factors.

We may require additional external financing to sustain our operations if we cannot achieve positive cash flow from our anticipated operations. Additionally, even if we are able to achieve positive cash flow from operations, we may continue to seek to raise additional capital to accelerate our growth or expand our manufacturing and distribution infrastructure. Success in our future operations is subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development, and market acceptance for our products.

Results of Operations

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

Revenues

During the quarter ended June 30, 2012, we reported revenues of $640,000 as compared with revenues of $194,000 for the quarter ending June 30, 2011. The 230% increase in revenues is attributable to the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments ("REDUCE") under the guidance of the U.S. Army Communications-Electronics Research, Development and Engineering.

We have received deposits from customers totaling approximately $65,000 as of June 30, 2012. We expect to realize sales associated with these deposits during the next several quarters, as we obtain permits and zoning approvals from customers' town officials and NYSEDRA for solar PV installations, complete site assessments, and complete installations and inter-connection agreements, although there can be no assurance that we will be able to meet this schedule.

We continue to expand our selling efforts where, by coupling our power management systems with renewable solar and wind energy, we can provide our customers with an attractive return on investment.

Gross Loss

For the quarter ended June 30, 2012, gross loss amounted to $127,000 as compared to $227,000 for the quarter ended June 30, 2011. The improvement in gross loss is attributable to sales volume increases as well as favorable margins on our solar "PV" installations.

Research and Development

Research and development costs for the quarter ended June 30, 2012 totaled $112,000 as compared to $259,000 for the quarter ended June 30, 2011. This decrease results from research and development funding associated with the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments ("REDUCE") contract award. A portion of the funding received by the Company for the Phase One development of an Intelligent Micro-Grid for REDUCE will offset operating expenses, as well as any funds received by the Company on any future phases of this project.

Selling, General and Administrative

Selling, general and administrative expenses, or SG&A expenses, for the quarter ended June 30, 2012, were $770,000, as compared to $500,000 for the quarter ended June 30, 2011. The increase over the prior year was related primarily to an increase in selling expenses to support our expanded sales and marketing efforts, and in non-cash stock option costs for an award to non-employee directors in May 2011.

Depreciation and Amortization

Depreciation and amortization charges were $30,000 for the quarter ended June 30, 2012, compared to $28,000 during the quarter ended June 30, 2011 due to capital purchases made to support business requirements over the last several quarters.

Other Income (Expense)

Interest expense for the quarters ended June 30, 2012 and 2011 was minimal.

Net Loss

We incurred net losses of $1,009,000 and $986,000 for the quarters ended June 30, 2012 and 2011, respectively. Improved sales margins were offset by higher sales and administrative expenses, primarily due to an increase in non-cash stock option expense.

Results of Operations for Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011.

Revenues

During the six months ended June 30, 2012, we reported revenues of $951,000 as compared with revenues of $200,000 for the six months ended June 30, 2011. The increase in revenues is attributable to the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments ("REDUCE") under the guidance of the U.S. Army Communications-Electronics Research, Development and Engineering, as well as an increase in the sale of solar "PV" systems, which were added to the Company's product portfolio in December, 2010.

We continue to expand our selling efforts where, by coupling our power management systems with renewable solar and wind energy, we can provide our customers with an attractive return on investment.

Gross Loss

For the six months ended June 30, 2012, gross loss amounted to $312,000 as compared to $449,000 for the six months ended June 30, 2011. The improvement in gross loss is attributable to sales volume increases, as well as profitable margins recognized on our solar "PV" installations.

Research and Development

Research and development costs for the six months ended June 30, 2012 totaled $259,000 as compared to $619,000 for the six months ended June 30, 2011. This decrease results from research and development funding associated with the Phase One development of an Intelligent Micro-Grid for Renewable Energy for Distributed Under-Supplied Command Environments ("REDUCE") contract award. A portion of the funding received by the Company for the Phase One development reduced operating expenses. Additionally for the six months ended June 30, 2011, there was a non-cash expense associated with the award of restricted stock to employees that did not recur in 2012.

Selling, General and Administrative

Selling, general and administrative expenses, for the six months ended June 30, 2012, were $1,429,000, as compared to $1,609,000 for the six months ended June 30, 2011. The decrease in year over year expenses was related primarily to the non cash expenses associated with the award of restricted stock to employees in 2011, and to a reduction in 2012 non-cash financing fees associated with multiple private placements.

Depreciation and Amortization

Depreciation and amortization charges were $62,000 for the six months ended June 30, 2012, compared to $41,000 during the six months ended June 30, 2011 due to capital purchases made to support business requirements over the last several quarters.

Gain on Debt Extinguishment

The Company recorded a $1,000,000, non-recurring, non-cash gain for the six months ended June 30, 2011, as a result of the default and settlement of the Company's $1,000,000 working capital loan by the guarantors of the loan. The Company had no obligation to the guarantors as a result of the repayment of the loan.

Other Income (Expense)

Interest expense for the six months ended June 30, 2012 was $1,000, as compared to an expense of $8,000 for the six months ended June 30, 2011, which related to borrowing activity on our line of credit.

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

Net Loss

We incurred net losses of $1,841,000 and $1,685,000 for the six months ended June 30, 2012 and 2011, respectively. Higher sales and improved gross loss, coupled with a decrease in operating expenses in 2012 was offset by the 2011 $1,000,000 gain on debt extinguishment recorded during February 2011.

Liquidity and Capital Resources

As of June 30, 2012, we had a working capital deficit of $378,000 as compared to a working capital deficit of $285,000 as of June 30, 2011. The decrease in working capital is due to net losses generated from operations, offset by private placement funding.

During the quarter ending March 31, 2011, the Company generated a $1.0 million gain from the extinguishment of line of credit debt. On February 26, 2011, the Company received a notice of potential opportunity to cure default from First Niagara Bank, with whom the Company had established a $1.0 million working capital line of credit in April 2010, which included a demand payment for interest due of $10,976 as of February 23, 2011 under the Company's loan agreement. The notice provided that if the events of default were not cured by March 4, 2011, First Niagara Bank, at its sole discretion, may accelerate or demand payment in full of the obligations and take all enforcement actions or otherwise implement remedies under the applicable loan agreements. The default was not cured by the Company by March 4, 2011. Pursuant to the loan agreement, the interest rate under the line of credit was increased by 6% to 9.25% as of the date of the notice. On March 12, 2011, we received a demand notice from First Niagara Bank, demanding payment for full indebtedness to the bank including line of credit principal and interest of $1,012,421, and credit card debt of $25,351 by no later than March 17, 2011. On March 17, 2011, the Company received written notification from the guarantors of the loan agreement that the guarantors were required by the lender, and did, on March 17, 2011, repay the $1.0 million principal balance of the Company's working capital revolving line of credit with the Lender. The Company has no liability to the guarantors as a result of the repayment by the guarantors of the line of credit. Other than accrued interest and applicable fees, which have been repaid, the Company has no liability under the line of credit.

In addition to our $1.0 million working capital loan, our principal source of liquidity has been through private placement offerings of our common stock and warrants to purchase common stock. From 2008-2010, the Company raised $4.0 million through private placement sales of common stock at varying prices. Out of pocket costs associated with these private placements were minimal. Additionally, in November 2009, 1,670,000 stock options were exercised, which yielded $1.7 million. In 2011, the Company raised $3.2 million through sales of "units", which included shares of common stock and a warrant to purchase common stock. The warrant vests two years from the date of purchase and has a ten year term. On March 7, 2012, our Board of Directors approved a private placement for the sale of up to 100 units, with each unit costing no less than $15,000, and consisting of 7,500 shares of the Company's common stock and a warrant to purchase 1,000 shares of the Company's common stock at $10.00 per share. Each warrant will vest two years from the date of purchase of the applicable unit and has a ten-year term. Each purchaser of units in this private placement is required to agree to not sell any shares of common stock purchased in the private placement for at least one year. In March through June, 2012, the Company sold 48 units, which yielded $720,000, and in July 2012, 5 units were sold for $75,000.

We have utilized our funds to form our management, sales, and engineering teams, to purchase inventory to satisfy short term customer demand, and to further our research and product development. We have used resources to develop and test our Power on Demand system and our Mobile Renewable Power Station. We have also utilized funds to develop and launch marketing for our Company initiative to focus on broader applications of renewable energy and power management, including, but not limited to, our Power on Demand system and Mobile Renewable Power Station.

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited annual financial statements as of and for the years ended December 31, 2011 and 2010, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. There is substantial doubt about our ability to continue as a going concern as the continuation and expansion of our business is dependent upon obtaining further financing, successful and sufficient market acceptance of our products, and, finally, achieving a profitable level of operations.

The issuance of additional equity securities by us may result in a significant dilution in the equity interests of our current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations. Furthermore, our ability to raise additional capital may be made more difficult by a global financial crisis.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

Information Concerning Forward-Looking Statements

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

These forward-looking statements include, but are not limited to, statements relating to our anticipated financial performance, business prospects, new developments, new merchandising strategies and similar matters, and/or statements preceded by, followed by or that include the words "believes," "could," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks," or similar expressions. We have based these forward-looking statements on certain assumptions and analyses made by us in light of our experience and on our assessment of historical trends, current conditions, expectations, and projections about expected future developments and events, as well as on other factors we believe are appropriate under the circumstances and other information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described under the heading "Risk Factors" in Item 1A of Part I of the Company's 10-K filed with the Commission, for the fiscal year ended December 31, 2011, that may affect the operations, performance, development and results of our business. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date hereof.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties. All forward-looking statements and reasons why results may differ contained herein are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results might differ. All of the forward-looking statements contained herein are qualified by these cautionary statements.