As of December 31, 2011, the Company has employment agreements in place with five members of senior management. The terms of the agreements are for three years, with the Company’s option to extend employment for a fourth year. Annual compensation required under the agreements includes base salary aggregating $872,000 as well as annual bonuses based upon achieving certain performance milestones. All of these agreements contain severance provisions in the event of termination of the employee without cause that require the continued payment of the annual salary through the term of the agreement, but for a minimum of two years. The agreements expire at varying times over the period from November 14, 2012 through March 1, 2013.

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

In October 2010, a lease was executed for the Rochester facility. The lease term is from August 2010 through July 2015. The first year of the lease term requires monthly base rent payments of $5,396, payable in cash or in the Company’s common stock. The base rent increases by 3% on August 1st of the each year of the lease. The Company also is required to pay their proportionate share of real estate taxes and common area maintenance costs for the Rochester facility.

During the years ended December 31, 2011 and 2010, the Company entered into a number of sales orders for Power on Demand systems, solar PV installations and wind turbine installations. These sales orders required certain deposits of the agreed-upon purchase price upon acceptance of the sales order. The advance payments received as of December 31, 2011 amounted to $112,218 ($254,738 as of December 31, 2010) and have been included in customer deposits. We expect to install the units associated with these deposits during the next two quarters, as we obtain permits and zoning approvals from customer’s town officials, obtain NYSERDA approvals, complete site assessments, and continue product evaluation. The sales orders included product warranties of varying periods, depending on the product sold, against defects in materials and workmanship. The Company provides for estimated cost of warranties at the time the revenue is recognized and has established a corresponding warranty reserve. Factors that affect the balance required in the warranty reserve are projected cost of repair and/or replacement, component life cycles, manufacturer’s warranty on parts and components, and limited historical data. These estimates are reviewed quarterly and are updated as new information becomes available. The impact of any change in warranty cost estimates will be taken into account when analyzing future warranty reserve requirements. As of December 31, 2011 and 2010, a warranty reserve totaling $135,606 and $50,690, respectively, is included in the accrued liabilities section of the balance sheet. The following table summarizes the activity in the accrued warranty account: