Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies

Commitments and Contingencies

Note 8.  Commitments and Contingencies

The following table summarizes our purchase obligations and the aggregate maturities and payments due for our contractual obligations as of June 30, 2011, and for the subsequent five years:

	Description of Commitment
	Operating leases		Purchase Obligations			Total
Period ending:
December 31, 2011	$	566,500	$	3,868,499		4,434,999
December 31, 2012	778,937					778,937
December 31, 2013	804,688					804,688
December 31, 2014	618,001					618,001
December 31, 2015 and thereafter	—					—
Total Commitments	$	2,768,126	$	3,868,499		$	6,636,625
Non-cancellable purchase obligations:			$	2,252,882
Less advance payments to suppliers			(478,828		)
Non-cancellable purchase obligations net of advance payments:			$	1,774,054

As of June 30, 2011, we had purchase commitments with our suppliers of approximately $3.9 million. Of this amount, approximately $2.3 million represents firm, non-cancelable commitments against which we have made advance payments totaling $479,000, leaving a net non-cancelable obligation of approximately $1.8 million as of June 30, 2011.

In July 2007, we signed a seven-year lease on our current corporate headquarters, and relocated all of our operations to this facility in January 2008.  Our 103,000-square-foot facility is located at 65 Middlesex Road, Tyngsboro, Massachusetts.  Our facility has an estimated production capacity of approximately 600 flywheels per year and, with further capital spending for equipment, its capacity should increase to approximately 1,000 flywheels per year on a multi-shift basis.

We provided our landlord with a $200,000 irrevocable letter of credit securing our performance under the lease. This letter of credit is secured by a cash deposit, which is included in restricted cash in the accompanying consolidated balance sheets.  In addition to our rent payments, we are responsible for real estate taxes and all operating expenses of the Tyngsboro facility.  Rent expenses were approximately $147,000 and $294,000 during each of the three- and six-month periods ended June 30, 2011, and 2010, respectively.

In November 2009, the DOE announced that it had awarded us a Smart Grid Stimulus Grant valued at $24 million for use in construction of a 20 MW flywheel energy storage plant. We are planning for this facility to be built on a property situated in Hazle Township, Pennsylvania, for which we have entered into an option agreement executed with an economic development agency of the Commonwealth of Pennsylvania. Under the terms of this two-year option, we are paying $2,500 for each of four six-month option periods, or until the option is converted to a lease. The option allows us to lease the property for 21 years at the rate of $3,250 per month. The site covered by this option is located in an economic development zone, which provides an exemption from the payment of state sales tax on equipment used to build the plant and an exemption from property taxes through 2017. We have filed for interconnection, and the regional grid operator, the PJM Interconnection (PJM) has completed the system impact study for this site.

In 2009, we entered into an option to lease land in Glenville, New York. This option was amended and extended until December 31, 2011, at a cost of $1,500 per month. In April 2010, we entered a two-year option that provides the right to purchase a property in Chicago Heights, Illinois, for $1 million. In consideration for this option, we are paying the owner $2,000 per month. If we elect to purchase the land, the option payments will be applied to the purchase price. We are currently expensing these option payments.

Additional capital expenditures will be required in the future to optimize our manufacturing facility in Tyngsboro for maximum capacity. The amount and timing of these expenditures are dependent on requirements of equipment needed to meet production schedules as well as having sufficient funding.

Legal Proceedings

We may from time to time be subject to legal proceedings, often likely to involve routine litigation incidental to our business.  The outcome of any legal proceeding is not within our complete control, may often be difficult to predict and may be resolved over a very long period of time.  Estimating probable losses associated with any legal proceedings or other loss contingency is very complex and requires the analysis of many factors, including assumptions about potential actions by third parties.  A loss contingency is recorded as a liability in the consolidated financial statements when it is both (i) probable and known that a liability has been incurred and (ii) the amount of the loss is reasonably estimable.  If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability.  If a loss contingency is not probable or not reasonably estimable, a liability is not recorded in the consolidated financial statements. There are no material legal proceedings pending.