As of June 30, 2012, the Company has employment agreements in place with five members of senior management. The terms of the agreements are for three years, with the Company’s option to extend employment for a fourth year. Annual compensation required under the agreements includes base salary aggregating $872,000, as well as annual bonuses based upon achieving certain performance milestones. All of these agreements contain severance provisions in the event of termination of the employee without cause that require continued payment of the annual salary through the term of the agreement but for a minimum period of at least two years. The agreements expire at varying times over the period from 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 expired October 31, 2011 with a two year renewal option. In June 2010, the Company relocated its headquarters from Geneseo, New York to Rochester, New York into a larger location. Inventory, warehousing, and assembly space at the Geneseo facility was neither large enough, nor flexible enough, to allow for continued growth, and therefore management determined that it was prudent to move to a location that could accommodate both manufacturing and assembly growth, as well as to house research and development activities and administrative office space. On January 27, 2011, the Company signed an agreement and mutual release with the landlord of the Geneseo facility, which provided for the issuance of 1,500 shares of the Company’s common stock as settlement for the early termination of the lease.

In October 2010, we executed a lease for the Rochester facility. The lease term is from August 2010 through July 2015. The first year of the lease term 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 its proportionate share of real estate taxes and common area maintenance costs for the Rochester facility.

The Company entered into a number of sales orders for Power on Demand systems, solar installations, and wind turbine units. Certain of these sales orders required deposits of the agreed-upon portion of the purchase price upon acceptance of the sales order. The advance payments received as of June 30, 2012 amounted to $64,710 (the December 31, 2011 total was $112,218) and have been included in customer deposits. We expect to install the systems and units associated with these deposits during the next two quarters, as we obtain permits and zoning approvals from customers’ town officials, obtain New York State Energy Research Development Authority (“NYSERDA”) approvals, complete site assessments, and continue product evaluation. The sales orders included product warranties of varying periods, depending on the product sold, against defects in materials and workmanship. The Company provides for estimated cost of warranties at the time the revenue is recognized and has established a corresponding warranty reserve. Factors that affect the balance required in the warranty reserve are projected cost of repair and/or replacement, component life cycles, manufacturer’s warranty on parts and components, and limited historical data. These estimates are reviewed quarterly and are updated as new information becomes available. The impact of any change in warranty cost estimates will be taken into account when analyzing future warranty reserve requirements. As of June 30, 2012 and December 31, 2011, the warranty reserve totals $140,074 and $135,606 respectively. The following table summarizes the activity in the accrued warranty account: