UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, ~~2015~~2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number: ~~000~~001-~~30939~~37804

~~ACTIVE~~P10 ~~POWER~~Industries, ~~INC~~Inc.

(Exact name of registrant as specified in its charter)



Delaware		74-2961657
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2128 W. Braker Lane, BK 12, Austin, Texas		78758
(Address of principal executive offices)		(Zip Code)

(512) 836-6464

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Title of Class		Name of Exchange on Which Registered
Common Stock, $0.001 per share		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes ý No

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.ý Yes o 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 was required to submit and post such files). ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýo

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. (Check one)



Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ý
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) oý Yes ý o No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing sale price of its common stock on the last day of registrant’s most recently completed second fiscal quarter, June 30, ~~2015~~2016, as reported on The Nasdaq Stock Market, was approximately $387.97 million (affiliates being, for these purposes only, directors and executive officers and holders of 10% or more of the registrant’s outstanding shares).

As of ~~February~~March 1610, ~~2016~~2017, the registrant had 23,~~109~~421,~~207~~922 shares of common stock outstanding.

Documents Incorporated by Reference: None

~~Certain~~P10 ~~information required by Part III of Form 10-K is incorporated by reference to the registrant’s proxy statement for its 2016 Annual Meeting of Stockholders~~Industries, ~~which will be filed with the Securities and Exchange Commission within 120 days after the close of the registrant’s fiscal year ended December 31, 2015~~Inc.

Active Power, Inc.

Unless otherwise indicated, “we,” “us,” “our,” and “Active Power” mean Active Power, Inc., including our predecessor Texas corporation and our subsidiary companies. References in this report to “$” or “dollars” are to United States of America currency.

Table of Contents

PART I
ITEM 1.	Business	4
ITEM 1A	Risk Factors	136
ITEM 1B.	Unresolved Staff Comments	226
ITEM 2.	Properties	227
ITEM 3.	Legal Proceedings	228
ITEM 4.	Mine Safety Disclosures	228
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	238
ITEM 6.	Selected Financial Data	238
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	259
ITEM 8.	Financial Statements and Supplementary Data	3415
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	3516
ITEM 9A.	Controls and Procedures	3516
ITEM 9B.	Other Information	3516
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	3617
ITEM 11.	Executive Compensation	3619
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	3626
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	3628
ITEM 14.	Principal Accounting Fees and Services	3628
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	3730

Table of Contents

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements about historical or current facts, including, without limitation, statements about our business strategy, plans, and objectives of management and our future prospects, are forward-looking statements. ~~These include, among other things, statements regarding:~~

• our expectations that we can increase bookings and backlog;

• our belief that we can improve operational efficiencies;

• our ability to control our future expenses;

• our ability to expand our sales distribution network;

• our ability to diversify our revenue stream through sales to healthcare and industrial applications;

• our future anticipated working capital needs;

• our ability to raise additional cash if needed to fund our operations;

• anticipated levels of bookings and revenue;

• our ability to improve inventory turns and factory utilization;

• expected fluctuations in currency exchange rates; and

• our expectation that seasonal trends will continue in fiscal 2016.

You can identify forward-looking statements by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “seek,” “continue,” and other similar words. You should read statements that contain these words carefully because they discuss our future expectations, make projections of our future results of operations or financial condition, or state other “forward-looking” information.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about our business that could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” included in Item 1A of this report and as may be updated in filings we make from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including the Quarterly Reports on Form 10-Q to be filed by us in our fiscal year 2016.

We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. New information, future events or risks could cause the forward-looking events we discuss in this report not to occur. You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this report. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company” and “P10 Industries” refer to P10 Industries, Inc. (formerly Active Power, Inc.). References in this report to "$" or "dollars" are to United States of America currency.

Table of Contents

PART I.


ITEM 1.	Business.

Overview

~~Active~~We ~~Power~~are ~~designs,~~a ~~manufactures,~~Delaware ~~sells~~corporation, ~~and~~originally ~~services~~founded ~~flywheel-based~~in ~~uninterruptible~~1992 ~~power supply (“UPS”) products that use kinetic energy to provide short-term power~~ as a ~~cleaner~~Texas ~~alternative~~corporation ~~to electro-chemical battery-based energy storage. We also design, manufacture, sell,~~ and ~~service~~we ~~modular~~operated ~~infrastructure~~under ~~solutions~~the ~~(“MIS”)~~name ~~that~~Active ~~integrate critical power components into a pre-packaged~~Power, ~~purpose built enclosure that may include our UPS products as a component~~Inc. ~~Our~~until ~~products~~we ~~and~~changed ~~solutions are based on~~ our ~~patented~~name ~~flywheel and power electronics technology and are designed~~ to ~~ensure~~P10 ~~continuity~~Industries, ~~for~~Inc., ~~data centers and other mission critical operations~~ in ~~the~~November ~~event of power disturbances~~2016.

~~Our~~On ~~UPS~~June ~~products~~15, ~~and~~2016, ~~solutions~~our ~~are~~board ~~designed~~of todirectors ~~deliver~~determined ~~continuous~~that ~~conditioned~~we ~~power~~should ~~during~~pursue ~~short-term~~a ~~power~~strategy ~~disturbances~~of ~~and~~protecting ~~outages,~~our ~~such~~U.S. asfederal ~~voltage~~tax ~~sags~~benefits of approximately $235.5 million and ~~surges,~~research and todevelopment ~~provide~~credit ~~ride~~carry-~~through~~forwards ~~power~~of inapproximately ~~the~~$4.1 ~~event~~million, each as of aDecember ~~utility~~31, ~~failure~~2015, ~~supporting~~discontinue our then current unprofitable operations, ~~until~~seek ~~utility~~to ~~power~~monetize iscertain ~~restored~~intellectual orproperty arights ~~longer~~related ~~term~~to ~~alternative~~patents ~~power~~that ~~source,~~did ~~such~~not asrelate ato ~~diesel~~our ~~generator,~~core isbusiness ~~started.~~and Wemake ~~believe~~acquisitions of profitable operations that could utilize our ~~products~~tax ~~offer~~benefits. On anJune ~~advantage~~17, ~~over~~2016, ~~those~~we ofannounced that our ~~competitors~~board inof ~~the~~directors ~~areas~~had adopted a rights agreement and declared a dividend of ~~total~~one ~~cost~~right for each issued and outstanding share of ~~ownership,~~our ~~system~~common ~~reliability~~stock, ~~and~~which ~~sustainability~~was designed to protect our tax benefits.

WeOn ~~have~~September ~~sold~~29, ~~our~~2016, ~~flywheel-based~~we ~~UPS~~entered ~~products~~into ~~which~~an weAsset ~~call~~Purchase ~~CleanSource®~~Agreement ~~UPS~~with ~~since~~Langley ~~1999~~Holdings plc, a United Kingdom public limited company, and Piller USA, Inc., Asa Delaware corporation and a wholly owned subsidiary of ~~December 31,~~Langley. In ~~2015~~this annual report, we ~~have~~refer ~~shipped~~to ~~more~~Langley ~~than~~and 4its subsidiaries,~~500~~ ~~flywheels~~including inPiller ~~UPS~~USA, ~~systems~~Inc. (now Piller Power Systems, ~~delivering~~Inc.), ~~more~~collectively ~~than~~as 1Langley. The agreement provided,~~000~~ ~~megawatts~~among other things, that Langley would purchase from us substantially all of ~~power~~our toassets ~~customers~~and inoperations ~~more~~for ~~than~~a 50nominal ~~countries~~purchase ~~around~~price plus the ~~world~~assumption of all of our indebtedness, including bank debt, liabilities and ~~providing~~customer, ~~more~~employee ~~than~~and ~~200~~purchase ~~million~~commitments ~~runtime~~going ~~hours~~forward. The sale of ~~operation~~substantially all of our assets to Langley was approved by the holders of a majority of our outstanding shares of common stock at a special meeting of our stockholders held on November 16, 2016.

InOn ~~addition~~November to19, ~~selling~~2016, ~~stand-alone~~we ~~UPS~~completed ~~products,~~the sale of substantially all of our ~~MIS~~assets ~~products~~and ~~integrate~~operations ~~critical~~to ~~power~~Langley. Pursuant ~~components~~to ~~into~~the aterms ~~pre-packaged~~of the purchase agreement, ~~purpose~~after ~~built~~the ~~enclosure~~closing ~~that~~of ~~can~~the bedisposition ~~deployed~~of byour ~~customers~~assets, ~~indoors~~we orretained ~~outdoors~~approximately $1.6 ~~These~~million ~~solutions~~in ~~can~~cash, ~~provide~~which equaled the ~~customer~~amount ~~benefits~~by ofwhich ~~our~~the ~~UPS~~value ~~systems~~of ~~along~~the ~~with~~acquired assets exceeded the ~~advantages~~assumed ofliabilities ~~lower~~on ~~capital~~our ~~expense,~~balance ~~speed~~sheet toby ~~deployment,~~more ~~and~~than ~~system~~$5 ~~management~~million ~~controls~~at asclosing. We ~~compared~~also retained certain intellectual property rights related to aour ~~conventional~~patents ~~brick-and-mortar~~that ~~building~~are not related to the purchased assets. Langley ~~Our~~assumed ~~MIS~~the ~~products,~~lease obligations for ~~example,~~our ~~can~~engineering ~~include~~facility, but our ~~UPS~~landlord ~~products~~refused ~~with~~to ~~other~~approve ~~related~~a ~~equipment~~sublease ~~including~~of ~~switchboards~~our ~~and~~headquarters ~~automatic~~facility ~~transfer~~to ~~switch;~~Langley. However, ~~monitoring~~Langley ~~and~~agreed ~~control~~to ~~systems;~~close ~~fire~~on ~~detection;~~the ~~lighting;~~sale ~~security;~~without ~~and~~the ~~air~~sublease ~~conditioning~~of that facility. As ~~Our~~a ~~CleanSource~~result, ~~PowerHouse®~~we are still obligated to make payments under the lease for our headquarters, although Langley is acurrently ~~complete~~making ~~stand-alone~~payments ~~power~~to ~~solution~~us ~~integrating~~in athe ~~diesel~~same ~~generator~~amount. Following ~~and~~the sale of our ~~UPS~~assets to Langley, we changed our name from Active Power, Inc. to P10 Industries, Inc.

WeThis ~~also~~annual ~~integrate~~report ~~and build modular IT infrastructure solutions to specification based~~ on ~~customer~~Form ~~designs.~~10-K ~~These~~discusses ~~solutions~~our ~~are~~business ~~typically~~for ~~enclosures~~a ~~that~~majority ~~have~~of aour ~~fully~~fiscal ~~built~~year ~~out~~ended ~~interior~~December ~~including electrical~~31, ~~cooling~~2016, ~~monitoring,~~which ~~and~~consisted ~~other~~primarily ~~elements~~of ~~ready~~designing, ~~for~~manufacturing, ~~the~~selling ~~customer to add its IT racks~~ and ~~servers.~~servicing ~~These solutions typically do not include~~ our UPS products., ~~These modular IT solutions serve as the physical infrastructure for modular data center products~~ which ~~are~~was ~~self-contained,~~sold ~~fully~~to ~~functioning data centers once the customer adds its IT equipment~~Langley. We ~~These~~refer ~~products~~to ~~can~~this bebusiness ~~deployed~~in ~~rapidly~~this ~~and~~annual atreport aon ~~lower~~Form ~~cost than traditional brick~~10-~~and-mortar~~K ~~solutions,~~as ~~and~~our ~~are~~Discontinued ~~optimally suited for hyperscale IT and cloud applications~~Operations.

ToWe ~~date~~are now considered a shell company, as defined in Rule 12b-2 of the Exchange Act. Being a shell company means that we have ~~deployed~~no ~~more~~or ~~than~~nominal ~~200~~operations, ~~infrastructure~~our ~~modules~~assets ~~worldwide~~solely consist of cash and nominal other assets, ~~which~~and ~~include~~our ~~both~~business ~~CleanSource~~will ~~PowerHouse~~be primarily to monetize our retained intellectual property and to make acquisitions of profitable operating companies to create positive cash flow, which we believe will ultimately result in increasing the value of our ~~modular~~company ITin ~~solutions~~the future.

WeIn ~~offer~~connection ~~worldwide~~with ~~customer~~the ~~support~~asset ~~services~~sale to Langley, ~~including~~we ~~hardware~~notified ~~and~~The ~~software~~NASDAQ ~~maintenance~~Stock Market, or NASDAQ, on November 21, 2016 that, upon the closing under the purchase agreement, we had disposed of substantially all ~~Active~~of ~~Power~~our ~~products~~assets, and ~~other~~had ~~professional~~no ~~services~~significant ~~such~~continuing asoperations. On ~~assessment~~December 1, ~~implementation~~2016, we filed with the SEC a Notification of Removal from Listing and/or ~~lifecycle~~Registration ~~support~~under ~~for~~Section 12(b) of the Exchange Act on Form 25 to delist the shares of our ~~customers’~~common ~~infrastructure~~stock ~~projects~~from NASDAQ and the deregistration of our common stock under Section 12(b) of the Exchange Act. On that day, our common stock was suspended on NASDAQ and, since that date, our common stock has been traded solely on the OTC Pink Market operated by OTC Markets Group. On January 15, 2017, we filed with the SEC a Certification and Notice of Termination of Registration under Section 12(g) of the Exchange Act on Form 15. Shortly after filing this annual report, we intend to file with the SEC a Certification and Notice of Suspension of Duty to File Reports under Sections 13 and 15(d) of the Exchange Act on Form 15, after which we will suspend filing current and periodic reports with the SEC under the Exchange Act. Our common stock will continue to be traded on the OTC Pink Market under the symbol PIOI, but our stockholders will not be able to access the financial and other information regarding our business in the same detail as they have in the past. We intend on providing quarterly summarized financial data and annually audited US GAAP financial statements, which will be made available on our corporate website.

We are headquartered in Austin, Texas, with international offices in the United Kingdom, Germany, and China.

In 2015, 72% of our product revenue came from the sale of UPS products and 28% from the sale of MIS products.

Customers and Target Markets

UPS products can be classified into single phase and three phase systems. We compete in the higher power, three phase range. Demand for three phase systems is typically segmented by kVA (kilo-Volt-Amps or power level) and by geography. We focus on customers desiring more than 250 kVA in all parts of the globe.

In 2015, IHS Research, a provider of global market, industry, and technical expertise, estimated this segment to be approximately $1.3 billion globally, and forecasted it to grow to be approximately $1.7 billion in 2019. IHS Research forecasts even more growth in the 500 kVA and higher segment, with a compound annual growth rate projected of approximately 7% from 2015 to 2019.

~~Table~~Business ~~of Contents~~Plan

~~451~~Subsequent ~~Research,~~to anthe ITsale ~~research~~of ~~and~~substantially ~~advisory~~all ~~company~~of our assets, ~~estimated~~we ~~the~~have ~~market~~focused ~~for~~our ~~prefabricated~~efforts ~~modular~~on ~~data~~preserving ~~center~~cash ~~products~~by inreducing ~~2015~~overhead atexpenses ~~approximately~~and ~~$1.2~~transitioning ~~billion,~~away ~~and~~from ~~forecasted~~compliance ~~growth~~obligations as a public company subject to ~~approximately~~the ~~$1.5~~reporting ~~billion~~requirements byof ~~2016.~~the Exchange Act. We ~~serve~~have ~~the~~also ~~modular~~spent ~~data~~our ~~center~~efforts ~~market~~on negotiating with the landlord of our ~~CleanSource~~headquarters ~~PowerHouse~~facility and ~~modular~~Langley ITto ~~products~~terminate our obligations under the lease for that facility, which obligations have made it difficult for us to obtain the financing necessary to move forward with our acquisition strategy discussed below.

We ~~deliver~~are ~~products~~pursuing ~~and~~our ~~solutions~~new ~~that~~strategy ~~support~~of monetizing our non-core intellectual property and ~~enable~~making ~~mission~~acquisitions ~~critical~~of ~~applications~~profitable ~~that~~businesses ~~cannot~~to ~~tolerate~~create ~~downtime~~positive cash flow, which we believe will ultimately result in increasing the value of our company in the future. We are seeking financing from third parties to fund our acquisition of profitable businesses. We have been in discussions with several such potential investors, but we have no current immediate sources of funding for our new strategy, partly due to aour ~~power~~continuing ~~disturbance~~lease obligations. In ~~Although~~addition, we have been involved in activities ranging from initial verbal discussions to the review of technical and financial data ~~center~~and ~~deployments~~other ~~represent~~due diligence reviews with prospective acquisition candidates, but we currently have no acquisition targets identified. However, until such time as we are able to consummate a ~~large~~financing, ~~portion~~and an acquisition of ~~our~~a ~~installed~~profitable ~~base~~business, claims, liabilities and expenses such as payroll for the two executive employees, directors’ and officers’ insurance, taxes, legal, accounting and consulting fees and miscellaneous administrative expenses, will continue to be incurred as we continue to pursue our new strategy. We are also ~~have~~potentially ~~had~~liable ~~success~~for all future lease payments under the lease for our headquarters facility. These expenses could be material and much higher than currently anticipated and, in ~~selling~~any ~~into~~event, ~~non-IT~~will ~~environments~~reduce or eliminate the amount of assets available for ultimate distribution to our stockholders. As a result, if we do not obtain investment financing and enter into an acquisition, and terminate our obligations under the headquarters lease, we may need to proceed with a dissolution and distribution of our remaining assets in accordance with applicable law. We ~~are~~cannot ~~focusing~~be sure that we can obtain the financing necessary to complete any acquisitions, or obtain such financing on ~~healthcare~~reasonable ~~and~~terms. Any ~~industrial/manufacturing~~such ~~applications~~financing could result in dilution to our existing stockholders. Also, ~~Below~~despite ~~are~~our ~~examples~~stockholders rights plan, and our best efforts, the issuance of equity securities in any such financing could result in a “change in control” under Section 382 of the ~~types~~Internal Revenue Code, which could result in the loss of ~~mission~~some ~~critical~~or ~~loads~~all of our tax benefits. Finally, if the operations we ~~protect~~acquire ~~with~~do ~~our~~not ~~products~~generate ~~and~~a ~~solutions:~~net profit, we will not be able to realize the value of our tax benefits.

•Following ~~Data~~the ~~Center~~asset –sale, ITwe ~~equipment~~retained 18 U.S. patents and three foreign patents that were not of use to the business we sold. The amounts that we incurred in ~~extreme/hyperscale~~developing these patents were fully expensed prior to the asset sale to Langley. We retained a patent consulting firm to review and analyze these patents, ~~enterprise~~after which the consulting firm identified some evidence of potential use of our patented technology in several products. Our patent consulting firm is now in the process of doing an analysis with the goal of recommending a plan for monetization of our patents, ~~and~~which ~~colocation~~may ~~facilities~~include selling the patents, entering into to licensing arrangements or a combination of both. There is a risk that we may never be able to realize any value from these patents.

•Discontinued ~~Industrial/Manufacturing~~Operations; –Cessation ~~precision~~of ~~machining,~~UPS ~~plastic extrusion equipment, and bottling equipment~~Business

•Prior ~~Healthcare~~to –November ~~imaging~~19, ~~equipment~~2016, when we sold substantially all of our assets, we designed, manufactured, sold, and serviced flywheel-based uninterruptible power supply (i“UPS”) products that use kinetic energy to provide short-term power as a cleaner alternative to electro-chemical battery-based energy storage.e. ~~CAT~~We also designed, ~~MRI~~manufactured, ~~PET~~sold, ~~etc.~~and serviced modular infrastructure solutions (“MIS”) that integrate critical power components into a pre-packaged, purpose built enclosure that may include our UPS products as a component. Our products and ~~hospital~~solutions were based on our patented flywheel and power electronics technology and are designed to ensure continuity for data centers and other mission critical operations in the event of power disturbances.

•The ~~Transportation~~UPS –products ~~runway~~and solutions are designed to deliver continuous conditioned power during short-term power disturbances and ~~taxiway~~outages, ~~lighting~~such atas ~~airports~~voltage sags and surges, and to provide ride-through power in the event of a utility failure, supporting operations until utility power is restored or a longer term alternative power source, such as a diesel generator, is started.

•The ~~Broadcast~~MIS –products ~~master~~integrate ~~control~~critical ~~rooms~~power ~~and~~components ~~transmitter~~into ~~sites~~a pre-packaged, purpose built enclosure that can be deployed by customers indoors or outdoors.

• Entertainment facilities - casino gaming machines and data centers as well as sports complex lighting

The following list provides a representative sample of end user customers that use our products and solutions to support and enable their operations. The list includes customers to whom such products and solutions have been sold directly by us or via our Original Equipment Manufacturer (“OEM”) partners, manufacturer’s representatives, distributors, or strategic IT partners:

Representative Customers Industry Oracle Data Center Verizon Data Center Heineken Industrial/Manufacturing Pemex Industrial/Manufacturing Parkland Health and Hospital System Healthcare Merck Healthcare Cherokee Casinos Entertainment Osage Casino Entertainment Bangkok International Airport Transportation Mexico City International Airport Transportation WCBD-TV Broadcast WFFF-TV / WVNY-TV Broadcast

Distribution

We continue to develop client relationships by selling directly and through our network of partners. Specifically, we use the following distribution methods:

• direct sales;

• manufacturer’s representatives;

• distributors;

• OEM partners; and

• strategic IT partners.

Direct Sales. Our direct sales teams are located in The Americas, Europe, and Asia, and are supported by our four regional offices located in the U.S., United Kingdom, Germany, and China. Our direct sales teams are focused on establishing and expanding local presence and brand awareness, winning large customer orders, and developing the foundation for long-term client relationships in their local markets.

Manufacturer’s Representatives. We have relationships with a group of manufacturer’s representatives primarily in North America. Representatives have been granted rights to sell Active Power products in specific geographic territories. This channel remains integral to the distribution of our products in North America and increases our geographic sales coverage without adding fixed costs. Products are marketed and sold under the Active Power brand through this channel.

~~Table~~The assets that we sold to Langley included all of ~~Contents~~our accounts receivable, customer contracts, equipment, intellectual property (other than the non-core intellectual property we retained), name and website, permits, office and equipment leases, the stock of our subsidiaries, other contracts and other rights. In addition, upon closing of the asset sale, all of our employees ceased employment with us and were hired as employees of the acquirer. At closing, Langley assumed substantially all of our liabilities related to these assets and the business that we sold. These liabilities included our accounts payable, obligations under one of our facility leases, obligations under our contracts, non income tax liabilities, the remaining obligations under our revolving line of credit with Silicon Valley Bank, which was repaid and terminated at closing, and all employee-related liabilities. The landlord of our corporate headquarters facility in Austin, Texas refused to consent to a sublease of that facility in connection with the asset sale. As a result, we currently retain all obligations under that lease. In addition, the landlord has notified us that it considers us in breach of the lease agreement for the facility. We are currently in negotiations with Langley, the landlord and other potential tenants in an effort to reduce our obligations under the lease. At closing of the asset sale, we had approximately $1.6 million in cash, representing the amount by which the value of the acquired assets exceeded the assumed liabilities on our balance sheet by more than $5.0 million at closing. We have no indemnification obligations under the purchase agreement, and there is no escrow account for the net cash retained by us. We refer to the business we sold to Langley as our discontinued operations.

~~Distributors~~We are currently in negotiations with Langley, the landlord and other potential tenants in an effort to reduce our obligations under the lease. InWe ~~certain~~are ~~markets~~also ~~outside~~in discussions with a potential investor that has indicated that it is contemplating an investment in shares of ~~the~~our ~~United~~common ~~States~~stock. However, wethe ~~recruit~~investor ~~and~~has ~~retain~~indicated ~~specific~~that ~~distributors~~it would be a condition to ~~market~~the ~~our~~closing ~~products~~of ~~and~~its ~~services~~investment that we make a filing under Chapter 11 of the United States Bankruptcy Code pursuant to a prepackaged plan. The ~~distributor~~prepackaged ~~buys~~plan ~~products~~would ~~from~~provide usfor ~~and~~the ~~resells~~issuance ~~them~~of the shares of our common stock to the ~~end~~potential ~~user,~~investor ~~often~~in ~~with~~a ~~other~~manner ~~products~~which orwould ~~services~~not make the rights under our stockholders rights plan exercisable. ~~Distributors~~In ~~may~~addition, ~~also~~the ~~perform~~prepackaged ~~service~~plan ~~and~~would ~~warranty~~also ~~work~~provide for ~~end~~the ~~users~~settlement our lease obligation. ~~This~~We ~~strategy~~do ~~has~~not ~~been~~have ~~successful~~a ~~for~~definitive usagreement inwith ~~markets~~the ~~where~~potential investor, and we ~~choose~~cannot ~~not~~assure toyou ~~deploy~~that ~~direct~~the ~~sales~~transactions ordescribed ~~service~~above ~~resources~~will be consummated.

OEM Partners. OEM partners remain critical to our overall business strategy. Our primary OEM partner and one of our largest customers is Caterpillar, Inc. (“Caterpillar”). Caterpillar markets Active Power’s UPS products under the Caterpillar brand name “CAT UPS” and as a complement to its electric power product lines of diesel engines and switchgear. By offering the CAT UPS with a standby generator and switchgear, Caterpillar can transform a standby power system into a continuous power system. We believe this total solution gives Caterpillar and us significant competitive advantages in the power quality market. In 2011, we signed a five-year distribution agreement with Caterpillar, continuing this important relationship that started in 1999. Unless terminated, this contract automatically renews for successive one-year periods. Our sales to Caterpillar represented 25%, 18%, and 14% of our total revenue for the years ended December 31, 2015, 2014, and 2013, respectively.

Strategic IT Partners. We have entered into agreements with leading global organizations in the data center market who have the ability to collaborate with us on new sales opportunities. These relationships help us expand potential opportunities to market our products and services through all of our distribution channels. Our primary IT partner is Hewlett Packard Enterprise Company (“HPE”). HPE accounted for 18%, 1%, and 22% of our total revenue during 2015, 2014, and 2013, respectively.

For risks related to our dependence with Caterpillar and HPE, see Part I - Item 1A. Risk Factors, "We are significantly dependent on our relationships with Caterpillar and Hewlett Packard Enterprise Company. If these relationships are unsuccessful, for whatever reason, our business and financial prospects would likely suffer."

Geography

We focus our marketing and customer identification efforts globally, supported by our four regional offices. Located in Austin, Texas; Osterode, Germany; Evesham, United Kingdom; and Beijing, China, our regional offices provide local sales and service, applications engineering, project management, and system integration for UPS and MIS products. Sales outside of North America accounted for approximately 30%, 42%, and 20% of our total revenues in 2015, 2014, and 2013, respectively. We expect a significant portion of our total revenue will continue to be through international sales. For additional detail on revenue from external customers attributed to foreign operations, see Footnote 9 to the consolidated financial statements in this Form 10-K. For risks related to revenue from external customers attributed to foreign operations, see Part I – Item 1A. Risk Factors, “We derive a substantial portion of our revenues from international markets and plan to continue to expand such efforts, which subjects us to additional business risks including increased logistical and financial complexity, managing internal controls and processes, political instability, and currency fluctuations.”

Products: UPS and MIS

UPS

Our UPS products serve two primary functions. First, during normal operations they are continuously conditioning (“cleaning”) the incoming power from the utility and delivering “conditioned” power to the client’s mission critical load. In this mode, the UPS regulates incoming utility power fluctuations in voltage and frequency. Second, if there is any interruption in the utility source, the UPS will provide temporary, or bridging power, until either the utility power is restored or an alternative generating source, such as a diesel generator, begins to provide power. This role of the UPS in the context of a continuous power application is illustrated below:

CleanSource 300/250 Series UPS

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Active Power introduced the world’s first integrated flywheel UPS product in 1999, integrating proprietary UPS power electronics with flywheel energy storage technology. The flywheel stores kinetic energy – energy produced by motion – by constantly spinning a compact rotor in a low friction environment. When short-term backup power is required due to utility power fluctuations or losses, the UPS draws upon the stored kinetic energy of the spinning flywheel to generate electricity for the load until utility power returns. The flywheel immediately supports the critical load upon loss of utility power. Combining CleanSource UPS with a generator provides customers with complete short- and long-term protection in the event of a power disturbance. Within seconds of an extended outage occurring, the UPS signals the generator to start via the automatic transfer switch. The generator then carries the load until utility power is restored. The following is an illustration of our typical flywheel-based UPS system:

We market our flywheel-based UPS systems under the brand name CleanSource UPS rated at 300 kVA and 250 kVA for 480V and 400V applications, respectively. We currently offer CleanSource UPS products in power configurations ranging up to 1.5 MVA (million volt ampere) with the ability to parallel these products to provide even more protected power.

CleanSource HD UPS Series

In November 2012, we introduced our CleanSource 750/625HD UPS (see illustration below) which is available in standalone modules rated at 750 kVA and 625 kVA for 480V and 400V applications, respectively. This system is scalable and can be paralleled together to provide even more protected power. We believe CleanSource 750/625HD provides the reliability, power density, and total cost of ownership benefits that will make it a favorable complement to our existing products for large data center and other mission critical applications.

We also offer an Extended Runtime option on CleanSource HD UPS that can provide customers up to 30 minutes of additional UPS runtime. A secondary energy storage system, such as batteries or additional flywheel modules, supplements the primary flywheel and is available to those customers that require longer UPS autonomy.

Our UPS products represented 54%, 57%, and 37% of total revenue in 2015, 2014, and 2013, respectively.

Modular Infrastructure Solutions (MIS)

CleanSource PowerHouse

For customers looking for a complete, integrated continuous power system, we can package our CleanSource UPS along with switchboards and automatic transfer switch; monitoring and control systems; fire detection; lighting; security; and air conditioning into a fully integrated system. Due to the space efficiencies of our UPS products, we are able to offer all of these components in a pre-packaged containerized solution that we market under the brand name CleanSource PowerHouse (see illustration below).

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CleanSource PowerHouse is packaged in a purpose-built enclosure that can be deployed by customers indoors or outdoors, with size and features customized depending upon the customer’s power load requirements and local and national regulatory requirements. These systems are specifically designed to handle the demands of data centers and other mission critical applications, providing lower acquisition cost, faster time to deployment, and improved management and control versus a conventional data center electrical room. Our systems are offered in ten standard modular power configurations that enable sizing for power (and cooling) infrastructure. CleanSource PowerHouse delivers significant value to customers as the entire system is integrated and tested prior to delivery for a repeatable and simple solution.

CleanSource PowerHouse is used to support a variety of applications including facility expansion, temporary critical power needs such as event support, disaster recovery, or to support a containerized data center.

Modular IT

We use our expertise in integration, containerization, and power distribution to manufacture containerized infrastructure solutions designed to specification for select business partners on a contract basis. Modular IT infrastructure solutions refer to the components of a containerized data center. These modular IT products can include an outer shell and outfitting the interior of the enclosure with electrical, cooling, and monitoring components. Our clients then add IT equipment including servers and racks, resulting in a self-contained modular data center that our partners deliver to end users. Modular IT systems may be rapidly deployed with CleanSource PowerHouse as a cost-effective alternative to traditional data center construction for a complete modular solution.

Our MIS products (CleanSource PowerHouse and modular IT) represented 21%, 17%, and 35% of total revenue in 2015, 2014, and 2013, respectively.

Service

We deliver worldwide customer support that offers clients assessment, implementation, and lifecycle support services for all Active Power products. Building a portfolio of services to work with clients through the lifecycle of their power assessment design and implementation process is a key element of our service growth strategy. We offer the following services to our clients:

• Deployment. Our experienced group of project managers will work with a client to develop a timely deployment schedule that avoids disrupting day-to-day business activity. We ensure expectations are clearly defined through the deployment phase;

• Start-Up and Commissioning. Once the system is deployed, our team takes the system through a rigorous commissioning process to help ensure the system is working to specification. Our engineers work closely with the client’s team to make certain they are educated and trained on the successful operation of the system;

• Service, Support and Monitoring. Clients can choose from a variety of comprehensive service and support offerings, tiered to match an organization’s internal capabilities and requirements. We also offer remote monitoring service through our headquarters in Austin, Texas, locally at the client’s facility, or as a combination offering;

• Infrastructure Needs Assessment. We work locally through our global network of mission critical infrastructure engineers and project managers to assess the power and cooling needs of a client’s facility;

• Vetting and Validation. Our teams of experienced application engineers use comprehensive assessments to vet and validate the optimal solution that complements a client’s business continuity plan;

• Alignment with Business Objectives. Through continuous communication, our teams help ensure the solution accurately aligns with the original needs assessment and a client’s short-term and projected future business objectives; and

• System Design. We design client solutions to ensure all components are optimized with a particular focus on reliability, efficiency, and cost effectiveness in determining the correct match and interoperability between components.

Service revenues represented 25%, 26%, and 28% of our total revenue in 2015, 2014, and 2013, respectively.

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UPS and MIS Market Drivers

We believe there are several market dynamics fueling the growth of the UPS and MIS markets and the need for reliable and sustainable low cost backup power. These include:

Increase in data usage and storage and in data center density:

• Growth of enterprise data, social networking sites, web-based applications, cloud computing, and other similar technologies requires data centers to invest in more IT and physical infrastructure equipment to support growth in use and storage requirements;

• Additional IT and infrastructure requires more floor space; and

• Enterprises’ need for more power density to accommodate IT equipment more efficiently within a given space.

More awareness of energy efficiency from both a corporate social responsibility and financial perspective:

• More investment in highly efficient, sustainable technologies to keep electricity costs down and to stay competitive in the marketplace;

• Customer preferences for clean, green technologies that do not contain toxic, harmful chemicals and avoid disposal costs associated with electro-chemical battery-based energy storage;

• Government legislation and other cap and trade programs are becoming more prominent to help control carbon emissions;

• Electricity costs are the single highest operating costs for many organizations due to the substantial amount of power needed to support data center facilities; and

• Additional privacy legislation in Europe that resulted in data center operators maintaining data centers in multiple countries in Europe.

Modular data centers are becoming more commonplace, not only for specific niche applications like military and high density computing environments:

• Colocation sites that house modular data centers are becoming more prevalent due to performance and tangible economic benefits;

• Short lead times and rapid deployment capability are expected to increase demand for modular data center products, particularly for those organizations that do not have capital readily available to commit to building a brick and mortar facility; and

• A modular design-build approach is a more capital efficient model that enables organizations to deploy IT and infrastructure as business and IT needs evolve, reducing underutilization.

Customers focused on convenience and improving margins:

• Operators continue to focus on minimizing cost, cooling, and maintenance which in turn is driving down UPS runtime specifications;

• More mission critical organizations are moving towards innovatively designed, turnkey data center and infrastructure solutions that involve less risk, cost, and complexity and more automation; and

• Organizations want the ability to rapidly deploy IT and associated power and cooling infrastructure.

Increase in global energy consumption:

• Rapid industrialization of highly populated world regions is increasing global energy demand and placing a premium on reliability of energy supply and sensitivity to loss of power; and

• There is an increasing cost to produce and consume electricity due to depletion of finite fossil fuel sources, instability in oil-producing regions, and a preference for green energy sources.

Increasing economic impact of a power interruption to users:

• The financial cost of a power interruption through loss of products, manufacturing down time, and computer processing interruptions;

• Manufacturing and industrial environments are becoming more automated and digitized, particularly in the areas of process and machine control and material flow, making these applications prone to power quality issues and at risk for downtime;

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• Power quality is becoming more important to healthcare organizations with the increasing use of diagnostic imaging equipment and electronic medical records where a disturbance can lead to negative consequences including comprised patient safety and lost revenue; and

• Reputational cost of a power interruption to businesses.

Value Proposition

We believe our offerings deliver an unmatched combination of low total cost of ownership, reliability, and sustainability. The core differentiators for our products and solutions are the following:

Total Cost of Ownership

• Lower operating expenses through superior energy efficiency, reduced cooling needs, lower maintenance costs, and no required battery changes

• Delivers up to 40% in total cost of ownership savings over 15 years

Reliability

• Proven 12 times less likely to fail versus legacy UPS

• Unique patented design delivers predictable, consistent, and continuous operation

Sustainability

• Superior energy efficiency and power density to reduce fossil fuel generation

• Permanent energy storage to minimize waste and emissions

Competition

We compete with two primary products: UPS products and MIS products.

UPS Products. Our CleanSource UPS products compete primarily against conventional battery-based UPS systems from vendors such as Emerson/Liebert, Eaton/Powerware, and APC/MGE. We also compete against rotary (battery-free) UPS systems from vendors such as Piller, Eurodiesel, and Hitec. For applications requiring less than one megawatt of critical load, we largely compete against battery-based competitors and for applications greater than one megawatt we tend to compete against rotary systems vendors. We believe there is greater market acceptance of battery-free solutions (such as flywheel and rotary) compared to battery-based solutions in the one-megawatt and higher power range, making this an attractive market for our CleanSource 750/625HD UPS. Several of the leading conventional UPS battery vendors offer flywheel-based energy storage in place of batteries. Vycon is the principal manufacturer of these flywheel systems.

Our primary basis of competition as compared to battery-based UPS systems is our advantages in total cost of ownership, reliability, and sustainability. Our points of differentiation as compared to rotary UPS products are in space efficiencies (footprint) and total cost of ownership.

Modular Infrastructure Solutions. We provide competitive offerings in both the modular power and modular IT infrastructure segments. There are a variety of competitors with similar capabilities including systems integrators and value added service providers who may procure system components and assemble custom solutions. We believe that we are one of only a few manufacturers in the world offering pre-packaged standard modular power and IT solutions for quick delivery globally. Because of the significant up-front investment required, and the longer period between order and delivery relative to our UPS products, a significant increase in sales of our MIS products may materially increase the amount of working capital required to fund our operations.

The power density advantages we enjoy with our UPS products allow us to offer higher continuous power levels within the physical constraints of the containerized space compared to our battery-based competitors, which we believe is a barrier to entry for them. Our UPS products’ ability to operate in temperatures of up to 40 degrees Celsius in non-air -conditioned environments (such as a shell building or open-air facility) also acts as a competitive advantage for us compared to battery-based UPS systems which require sufficient air conditioning to operate.

We believe our experience with the power and cooling requirements of the infrastructure provides us with a competitive advantage in the design and manufacturing of these products compared to less experienced manufacturers. Further, the joint offering of our CleanSource PowerHouse with our modular IT solutions provides efficiencies, scale, and advantages in sales, marketing, and engineering we expect customers to find increasingly compelling.

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Intellectual Property and Assets

We use proprietary manufacturing methods and techniques, as well as proprietary control algorithms for our products. We rely upon a combination of patents, trademarks, confidentiality agreements, and other contractual restrictions with employees and third parties to establish and protect these proprietary rights. We seek patent protection for inventions incorporated into our products where we believe obtaining such proprietary rights will improve our competitive position. While proprietary intellectual property is important to the Company, management believes the loss or expiration of any intellectual property right would not materially impact the Company.

We own the registered trademarks ACTIVE POWER, CLEANSOURCE, POWERHOUSE, and DRIVEN BY MOTION in the United States and abroad. The Active Power logo is a trademark of Active Power, Inc. All other trademarks, service marks, or trade names referred to in this report are the property of their respective owners.

Research and Development

We believe research and development efforts are essential to successfully delivering innovative products that address the current and emerging customer needs, particularly as power management/infrastructure needs evolve. Our research and development team works closely with our marketing and sales teams, IT channel partners, and OEMs to define product requirements that address specific customer needs. Our research and development expenses were $5.7 million, $6.7 million, and $7.4 million in 2015, 2014, and 2013, respectively. As of December 31, 2015, our research and development and engineering teams consisted of 29 engineers and technicians.

Manufacturing

We manufacture all of our UPS products for customers at our headquarters in Austin, Texas. MIS products for our customers in the Americas are manufactured at our facility in Austin. We are an ISO 9001:2008 quality certified operation. We source the majority of our components from contract manufacturers to enhance our ability to scale operations and minimize costs. This approach allows us to respond quickly to customer orders while maintaining high quality standards and optimizing inventory levels.

We strive to continually improve inventory turns through effective supply chain processes (e.g., supply base design, Kanban and vendor managed inventory) and supplier relationship management programs. We also have Lean programs in place to help us identify and eliminate waste and drive efficiencies throughout the company.

Our internal manufacturing process consists of the fabrication of certain critical components within the flywheel energy storage system and the assembly, functional testing, and quality control of our finished products. Our functional testing is system level testing that exercises the parts and subassemblies obtained from contract manufacturers for quality control purposes.

We have entered into long-term agreements with some of our key suppliers, but we currently purchase most of our components on a purchase order basis. We are working to renew or establish more long-term agreements with our sole suppliers and other key vendors. We utilize a rolling sales volume forecast to provide visibility to our supply base, which assists in ensuring component availability. We use standard parts and components for our products where possible, and have developed multiple sources for some of our most critical components including the flywheel rotors, cast housings, inductors and bearings. Lead times for ordering materials and components vary significantly and depend on factors such as material lead-time plus manufacturing cycle-time (driven by manufacturing complexity) and current market demand for such components or commodities.

We believe our current workforce, facilities, and inventory levels will be sufficient to handle our near-term projected sales demand. However, over time, we may need to hire additional manufacturing personnel with minimal equipment upgrades to address sales volume increases.

Local Assembly

For our MIS customers in Europe, we do much of the assembly, integration, and test work at our Evesham, UK facility. In Asia, this work is usually outsourced to local integration partners. A key component of our strategy is to maintain a flexible operating model that allows us to perform local integration, assembly, and testing of certain MIS products. We perform this work either at company managed facilities or with local integration partners that have assembly, integration, and test resources. We also have a full complement of integration, assembly, and test capabilities at our Austin, Texas facility.

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Environmental Regulation

We must comply with many different federal, state, local, and foreign governmental regulations related to the use, storage, discharge, and disposal of certain chemicals and gases used in our manufacturing processes. Our facilities have been designed to comply with these regulations and we believe our activities are conducted in material compliance with such regulations. Any changes in such regulations or in their enforcement could require us to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. Any failure by us to adequately control the storage, use, discharge, and disposal of regulated substances could result in significant future liabilities. Increasing public attention has been focused on the environmental impact of manufacturing operations. While we have not experienced any material adverse effects on our operations from recently adopted environmental regulations, our business and results of operations could suffer if for any reason we fail to control the storage or use of, or to adequately restrict the discharge or disposal of, hazardous substances under present or future environmental regulations.

Backlog

Normally, our products are shipped and revenue is recognized within three to six months from the date of the order. At times products are scheduled to ship in periods greater than this when the customer is constructing or expanding a new facility. Product revenue in any quarter is often dependent on orders booked and shipped throughout that quarter as historically our backlog has only provided a portion of the next quarter’s revenue. Service contracts, however, may extend for one or more years. We are attempting to increase the size of our backlog to promote greater efficiency in production, to facilitate business planning, and to improve revenue visibility. To support these efforts, we are working to drive consistent sales performance through targeted investing in and allocation of resources to our sales organization and distribution channels to build our backlog.

The dollar amount of backlog believed to be firm was approximately $30.8 million and $26.7 million at December 31, 2015 and 2014, respectively. This increase in backlog is primarily due to the restructuring of our sales organization, a shift in our market approach, and reengagement with our OEM partner Caterpillar. Of the total backlog, approximately $9.4 million and $5.4 million at December 31, 2015 and 2014, respectively, was not expected to be filled in the following year. These amounts include both long-term service contracts and product orders.

Backlog represents:

• anticipated revenue from unfulfilled product orders believed to be firm; and

• service work not yet performed under signed contracts.

Due to possible changes in product delivery schedules and the potential cancellation of unfulfilled product orders and service contracts, our backlog at any particular date should not be relied upon as being indicative of revenue for any succeeding period.

Employees

As of December 31, ~~2015~~2016, we had ~~219~~two ~~total~~executive employees.

Seasonality

Our business has experienced seasonal customer buying patterns for a number of years. In recent years, both UPS and MIS sales were weaker in the first calendar quarter of the year. We believe this pattern, which we attribute to annual capital budgeting procedures, will continue. We also have historically seen a decline in demand for our products in Europe in the summer months compared to other regions because of reduced corporate buying patterns during the vacation season.

Where You Can Find Other Information

~~Active Power is a Delaware corporation originally founded in 1992 as a Texas corporation.~~ We ~~file~~have filed annual, quarterly, current, and other reports, proxy statements, and other information with the SEC pursuant to the Exchange Act. You may read and copy any materials ~~the~~we ~~company~~file ~~files~~ with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and other information statements, and other information regarding issuers, including ~~Active Power~~us, that file electronically with the SEC. The address of that site is www.sec.gov. We expect that we will suspend our obligation to file annual, quarterly, current, and other reports, proxy statements, and other information with the SEC pursuant to the Exchange Act after the filing of this report.

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We maintain a website at www.activepower.com. We make available free of charge through this site our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. This information can be found in the Investor Relations section of our website. The website and the information contained therein or connected thereto are not intended to be incorporated in this Annual Report on Form 10-K.

Executive Officers of the Company

The following table sets forth certain biographical information concerning our executive officers:

Name	Age	Position(s)
Mark A. Ascolese	65	President and Chief Executive Officer
James A. Powers	54	Chief Financial Officer and Vice President Finance
Randall J. Adleman	58	Vice President of Global Sales and Marketing

Mark A. Ascolese became President and Chief Executive Officer of Active Power on October 14, 2013. Mr. Ascolese has more than 40 years of experience serving a variety of mission critical and energy markets, including data centers. Prior to joining Active Power, Mr. Ascolese first served as CEO and then as Executive Board Chairman of Power Analytics Corporation (now part of Causam Energy, Inc.), an electrical infrastructure enterprise software firm focused on the mission critical and smart grid markets. Mr. Ascolese was appointed CEO of Power Analytics in March 2008 where he recruited the organization’s management team and created and implemented a successful strategic plan, transitioning the firm from a family owned company to a professionally managed business. In August 2012, Mr. Ascolese was appointed Executive Board Chairman at Power Analytics and served in this role prior to joining Active Power in October 2013. Previously, he served as President at Powerware Corporation (now part of Eaton Corporation) and in senior management positions at General Electric Company. From 2000 through 2002, Mr. Ascolese served as Senior Vice President of Business Development at Active Power during the company’s initial public offering. Mr. Ascolese earned a bachelor’s of Science in Commerce from the University of Louisville.

James A. Powers has served as Chief Financial Officer and Vice President of Active Power since December 4, 2013. As Chief Financial Officer and Vice President of Finance, he oversees all accounting, finance, treasury, and investor relations activities, as well as the company’s IT organization. From May 2013 until he joined Active Power, he served as Senior Vice President of Finance of the U.S. Windows and Doors division of Ply Gem Industries, Inc., a North American manufacturer of exterior building products. In this role, he managed the finance and IT organizations, leading all accounting, forecasting, budgeting, reporting, business analysis, internal controls, and working capital management activities. From May 2006 through May 2013, Mr. Powers served in various executive finance positions at Xerium Technologies Inc., a global manufacturer and supplier of consumable products and services used in various industries. From January 2011 through May 2013, he served as Vice President and Global Controller where he managed all corporate controllership functions, including SEC reporting and board financial reporting and analysis. From June 2008 through December 2010, Mr. Powers was Vice President of Finance, North America, at Xerium where he directed a broad range of financial functions. Prior to 2006, Mr. Powers served in various executive finance positions for international electrical equipment manufacturing businesses within Invensys Group PLC and ABB Ltd. Mr. Powers received a bachelor’s of Science in Accounting from the State of University of New York at Albany.

Randall J. Adleman served as Vice President of Global Sales and Marketing of Active Power from November 18, 2013, through February 2, 2016. In this role, he had overall responsibility for the company’s global sales and marketing organizations. From March 2010 until he joined Active Power, Mr. Adleman served as Vice President of Sales and Marketing for Valence Technology, Inc., a global manufacturer of lithium-ion energy storage solutions. There, he directed all worldwide sales and marketing efforts for the company’s motive, backup, industrial, and marine segments. Valence Technology filed a voluntary petition for chapter 11 business reorganization in the U.S. Bankruptcy Court for the Western District of Texas on July 12, 2012, during Mr. Adleman’s tenure as an executive officer. The U.S. Bankruptcy Court for the Western District of Texas approved the company’s exit from chapter 11 on November 13, 2013. Prior to that position, Mr. Adleman founded and served as Principal at Fords Barron Advisership, a corporate consultancy focused on sales force effectiveness. He has also held executive level sales positions at Misys Healthcare LLC, now part of Allscripts Healthcare Solutions, Inc.; Ingersoll-Rand plc; and Invensys Ltd. Powerware division, now part of Eaton Corporation plc. Mr. Adleman holds an undergraduate degree from Colgate University and a master’s in Business Administration with a concentration in Marketing from Fairleigh Dickinson University.


ITEM 1A.	Risk Factors

13We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are therefore not required to provide a disclosure under this item.

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You should carefully consider the risks described below before making a decision to invest in our common stock or in evaluating Active Power and our business. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we do not presently know, or that we currently view as immaterial, may also impair our business operations.

This Form 10-K contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere. See “Special Note Regarding Forward-Looking Statements.”

Risks Related to our Business

We have a history of significant operating losses.

We have incurred annual operating losses each year since our inception in 1992. Although we achieved operating profitability on a quarterly basis in the second quarter of 2012, we have not been able to sustain this and achieve quarterly or annual operating profitability since then. As of December 31, 2015, we had an accumulated deficit of $290.5 million. To date, we have funded our operations principally through the public and private sales of our stock, from borrowings under our credit facilities, from product and service revenue, and from development funding. We will need to generate significant additional revenue while maintaining our current margins to achieve annual profitability, and we cannot assure you that we will ever realize such revenue levels or achieve profitability on a consistent basis.

If our revenues do not meet our expectations, our costs exceed our estimates, or our working capital needs are greater than anticipated, we may not have adequate liquidity to continue operating our business. Our cash requirements will depend on many factors, including:

• future sales growth;

• the demand for our products;

• the gross profit we are able to generate from our sales;

• the timing, level, and extent of our research and development funding;

• the rate of expansion of our sales and marketing activities;

• the rate of expansion of our manufacturing processes;

• our overall level of operating expenses;

• the payment terms we negotiate with our suppliers; and

• our default rates on receivables.

A substantial increase in sales of our MIS solutions or a substantial increase in UPS sales may materially impact the amount of working capital required to fund our operations. In order to increase our MIS sales, we may be required to make larger investments in inventory and to increase the amount of our outstanding receivables. These larger investments may require us to obtain additional sources of working capital, debt, or equity financing in order to fund our business. Even if we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness.

We may need additional capital in the future, and it may not be available to us on favorable terms, or at all.

We have historically relied on outside financing and cash flow from operations to fund our operating losses, operations, capital expenditures, and expansion. We may require additional capital from equity or debt financing in the future to fund our operations or respond to competitive pressures or strategic opportunities. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited. We do not know whether we will be able to secure additional funding, or funding on terms acceptable to us, to continue our operations as planned. If financing is not available, we may be required to reduce, delay, or eliminate certain activities or to license or sell to others some of our proprietary technology.

Our business may be affected by general economic conditions and uncertainty that may cause customers to defer or cancel sales commitments previously made to us.

Any future economic uncertainty in the United States or certain international markets may lead to an economic recession or lower capital spending and credit availability in some or all of the markets in which we operate. A recession or even the risk of a potential recession or uneven economic growth conditions may be sufficient reason for customers to delay, defer, or cancel

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purchase decisions, including decisions previously made. This risk is magnified for capital goods purchases such as UPS and MIS products that we supply. Although we believe that our competitive advantage and our efforts to broaden the number of different markets in which we sell may help mitigate the economic risk associated with any one country or market vertical, any customer delays or cancellation in sales orders could materially adversely affect our level of revenues and operating results.

Our backlog may not result in revenue.

Our backlog is not necessarily a meaningful predictor of future results. Backlog represents anticipated revenue from unfulfilled product orders and from service work not yet performed under signed contracts. Due to possible changes in product delivery schedules and the potential for cancellation of unfulfilled product orders and service contracts by our customers, our backlog at any particular date should not be relied upon as being indicative of revenue for any succeeding period. Time periods from receipt of an order to shipment date and installation vary widely, and may be determined by a number of factors, including the terms of the customer contract and the customer’s deployment plan. The value of service contracts included in backlog could cover services extending one or more years into the future. The size of an order or the scope of a service contract can be reduced significantly during the course of a project. If the scope of an order or contract is revised or an order or contract is canceled, we adjust backlog accordingly. Also, some of the orders we accept from customers require certain conditions or contingencies to be satisfied prior to shipment or prior to commissioning or installation, some of which are outside of our control and some of which may not be satisfied. For these and other reasons, we may not fully realize our backlog as revenue.

Our reliance on large and complex system solutions and customer concentration may adversely affect our ability to accurately predict the timing of revenues and to meet short-term expectations of operating results.

Our reliance on large and complex system solutions means that we must devote substantial effort and time to complete sales to customers. Further, a large portion of our quarterly revenue is derived from relatively few large transactions with relatively few customers. For example, in 2015 and 2014, our three largest customers contributed 48% and 30% of our revenue, respectively. Any delay in completing these large sales transactions or any reduction in the number of customers or large transactions, may result in significant adverse fluctuations in our quarterly revenue. Further, we use anticipated revenues to establish our operating budgets and a large portion of our expenses, particularly rent and salaries are fixed in the short term. As a result, any shortfall or delay in revenue could result in increased losses and would likely cause our operating results to be below public expectations. The occurrence of any of these events would likely materially adversely affect our results of operations.

Our financial results may vary significantly from quarter to quarter.

Our product revenue, operating expenses, and quarterly operating results have varied in the past and may fluctuate significantly from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. As a result, you should not rely on our operating results during any particular quarter as an indication of our future performance in any quarterly period or fiscal year. The factors which may affect our business include, among others:

• timing of orders from our customers and the possibility that customers may change their order requirements with little or no notice to us;

• demand for of our flywheel-based energy storage system as an alternative to lead-acid batteries and our continuous power and infrastructure solutions;

• ongoing need for short-term power outage protection in traditional UPS systems;

• deferral of customer orders in anticipation of new products from us or other providers of power quality systems;

• our order backlog may not increase and does not always result in revenue;

• limited visibility into customer spending plans;

• timing of deferred revenue components associated with large orders;

• ability to manage capital requirements associated with large orders;

• timing and execution of our new product introductions;

• new product releases, licensing, or pricing decisions by our competitors;

• commodity and raw material component prices;

• ability to adjust our cost structure in response to reductions in income;

• loss of a significant customer or distributor;

• impact of changes to our product distribution strategy and pricing policies;

• failure to achieve our anticipated revenue growth rate;

• impact of changes to our product distribution strategy and pricing policies of our distributors;

• changes in product mix;

• fluctuations in currency exchange rates;

• changes in the mix of domestic and international sales;

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• rate of market growth for our products; and

• acceptance of our latest generation UPS product in the marketplace.

The market for power quality products is evolving and it is difficult to predict its potential size or future growth rate. Most of the organizations that may purchase our products have invested substantial resources in their existing power systems and, as a result, have been reluctant or slow to adopt a new technology, particularly during a period of reduced capital expenditures. Moreover, our current products are alternatives to traditional battery-based UPS systems and may never be accepted by our customers or may be made obsolete by other advances in power quality technologies.

Significant portions of our expenses are not variable in the short term and cannot be quickly reduced to respond to decreases in revenue. Therefore, if our revenue is below our expectations, our operating results are likely to be adversely and disproportionately affected. In addition, we may change our prices; modify our distribution strategy and policies; accelerate our investment in research and development; or shift our sales and marketing efforts in response to competitive pressures or to pursue new market opportunities. Any one of these activities may further limit our ability to adjust spending in response to revenue fluctuations. We use forecasted revenue to establish our expense budget. Because most of our expenses are fixed in the short term or incurred in advance of anticipated revenue, any shortfall in revenue may result in significant losses.

A significant increase in sales of our MIS products may materially increase the amount of working capital required to fund our operations.

Because of the significant up-front investment required, and the longer period between order and delivery relative to our UPS products, a significant increase in sales of our MIS products may materially increase the amount of working capital required to fund our operations. The amount of time between the receipt of payment from our customers and our expenditures for raw materials, manufacturing, and shipment of products (the cash cycle) for MIS sales can be as much as 210 days, depending on customer payment terms. If we experience a substantial increase in the size or number of MIS orders, we may need to obtain additional sources of working capital, debt, or equity financing to fund the business. If we are unsuccessful at obtaining additional sources of working capital, we may be required to curtail our level of MIS sales or we may lose potential customers, either of which may adversely impact our results of operations.

Our credit facility includes certain covenants and other events of default. Should we not comply with these covenants or incur an event of default, we may be required to repay our obligation in cash, which could have an adverse effect on our liquidity.

Our Second Amended and Restated Loan and Security Agreement dated August 5, 2010 (as amended on March 5, 2012, August 15, 2012, and July 28, 2014, the “Loan Agreement”) with Silicon Valley Bank (“SVB”) includes certain financial and administrative covenants, including a requirement to maintain a liquidity ratio equal to or greater than 1.25:1.00. The liquidity ratio is defined as unrestricted cash, cash equivalents and marketable securities on which bank has a perfected security interest, plus the aggregate amount of eligible accounts receivable accounts divided by all obligations we owe to SVB. If we fail to stay in compliance with our covenants or suffer some other event of default under the Loan Agreement, we may be required to repay the outstanding borrowings. Should this occur, our liquidity would be adversely impacted. For additional information related to the Loan Agreement, please refer to Footnote 4, “Revolving Credit Facility,” of the consolidated financial statements on pages 56 to 57 of this Form 10-K.

Our liquidity could be impacted by customer credit risk on receivables.

Most of our sales are on an open credit basis. Our failure to collect receivables from any of our customers in a timely manner could have a significant adverse effect on our liquidity. The collection risk may potentially increase if we sell a higher proportion of MIS, such as our CleanSource PowerHouse products, due to their higher average selling price. If future actual default rates on receivables differ from those currently anticipated, our working capital could decrease and we may not have adequate liquidity to continue operating our business.

We derive a substantial portion of our revenues from international markets and plan to continue to expand such efforts, which subjects us to additional business risks including increased logistical and financial complexity, managing internal controls and processes, political instability, and currency fluctuations.

The percentage of our total revenue derived from customers located outside of North America was 30%, 42%, and 20% in 2015, 2014, and 2013, respectively. Our international operations are subject to a number of risks, including:

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• foreign laws and business practices that favor local competition;

• dependence on local channel partners;

• compliance with multiple, conflicting, and changing government laws and regulations;

• longer cash cycles;

• difficulties in managing and staffing foreign operations;

• foreign currency exchange rate fluctuations and the associated effects on product demand and timing of payment;

• political and economic stability, particularly in the Middle East and Africa;

• greater difficulty in the contracting and shipping process and in accounts receivable collection including longer collection periods;

• ability to fund working capital requirements;

• greater difficulty in hiring qualified technical sales and application engineers; and

• difficulties with financial reporting in foreign countries.

To date, the majority of our sales to international customers and purchases of components from international suppliers have been denominated in U.S. dollars, Euros, and British Pounds. All of our UPS products are manufactured in the U.S. and then sold to our foreign subsidiaries and customers, normally in U.S. dollars. An increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive for our international customers to purchase, thus rendering our products less competitive. We also source the non-UPS components for our modular power infrastructure products locally where possible and pay for these components in local currencies as a way to mitigate the impact of fluctuations in foreign currencies and lessen the impact of any unfavorable fluctuations with the U.S. dollar. We and many of our subsidiaries sell products outside of the country of incorporation, and often in foreign currencies. To the extent we record sales in other than our local currency; this can result in translation gains and losses. Currently, we do not engage in hedging activities for our international operations to offset this currency risk. However, we may engage in hedging activities in the future.

We are subject to risks relating to product concentration and lack of revenue diversification.

We derive a substantial portion of our revenue from a limited number of products, particularly from our CleanSource 300/250 Series UPS product family. These UPS products are also an integral component of our CleanSource PowerHouse products. We expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of these products is therefore critical to our future success.

Our future success will also depend on our ability to reduce our dependence on these few products by developing and introducing new products and product or feature enhancements in a timely manner. Specifically, our ability to capture significant market share depends on our ability to develop and market extensions to our existing product lines at higher and lower power range offerings and as containerized solutions. We are currently investing significant amounts in our UPS and MIS products to broaden our product portfolio. Even if we are able to develop and commercially introduce new products and enhancements, they may not achieve market acceptance and the revenue generated from these new products and enhancements may not offset the costs, which would substantially impair our revenue, profitability, and overall financial prospects. Successful product development and market acceptance of our existing and future products depend on a number of factors, including:

• changing requirements of customers;

• accurate prediction of market and technical requirements;

• timely completion and introduction of new designs;

• quality, price, and performance of our products;

• availability, quality, price, and performance of competing products and technologies;

• our customer service and support capabilities and responsiveness;

• successful development of our relationships with existing and potential customers; and

• changes in technology, industry standards, or end-user preferences.

We must expand our distribution channels and manage our existing and new product distribution relationships to grow our business.

The future growth of our business will depend on our ability to expand our existing relationships with distributors; to identify and develop additional channels for the distribution and sale of our products; and to manage these relationships. As part of our growth strategy, we may expand our relationships with distributors and develop relationships with new distributors. We will also look to identify and develop new relationships with additional third parties that could serve as outlets for our products, or provide additional opportunities for our existing sales channels, such as the relationships we have developed with IT hardware manufacturers such as HPE. Our inability to execute this strategy successfully and to integrate and manage our existing OEM channel partners and our new distributors and manufacturer’s representatives would likely impede our future growth.

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We must continue to hire and retain skilled personnel.

We believe our future success will depend upon our ability to attract, motivate, and retain highly skilled managerial, engineering, sales, and product marketing personnel. There is a limited supply of skilled employees in the power quality marketplace. Our small size relative to our competitors, our history of significant operating losses and our lack of brand equity, particularly in foreign markets, makes it very difficult for us to attract new personnel. If we are unable to attract the new personnel we desire, retain personnel we currently employ, or if we are unable to replace departing employees quickly, our operations and new product development may suffer.

We are significantly dependent on our relationships with Caterpillar and Hewlett Packard Enterprise Company. If these relationships are unsuccessful, for whatever reason, our business and financial prospects would likely suffer.

Caterpillar, together with its dealer network, is our primary OEM customer and the single largest customer for our flywheel-based UPS products. Caterpillar accounted for 25%, 18%, and 14% of our revenue in 2015, 2014, and 2013, respectively. HPE is our largest IT channel partner and accounted for 18%, 1%, and 22% of our revenue in 2015, 2014, and 2013, respectively. A number of factors could cause these customers to cancel or defer orders, including interruptions to their operations due to a downturn in their industries; delays or changes in their product offerings; securing other sources for the products we manufacture; or developing such products internally. If our relationships with Caterpillar or HPE are not successful or suffer a material adverse change, such as a material reduction in the level of orders due to an inability to win customer projects or other factors outside of our control; or their failure to pay us on a timely basis, our business and operating results would suffer unless we are able to replace these revenues from another source or sources in a timely manner.

We face significant competition from other companies.

The markets for power quality and power reliability systems are intensely competitive. There are many companies engaged in all areas of traditional and alternative UPS and backup power systems in the U.S. and abroad, including, among others, major electric and specialized electronics firms, as well as universities, research institutions, and foreign government-sponsored companies. There are many companies that are developing flywheel-based energy storage systems and flywheel-based power quality systems. We may face future competition from companies that are developing other types of emerging power technologies, such as advanced new battery chemistries, high-speed composite flywheels, ultra-capacitors, and superconducting magnetic energy storage.

Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, service, marketing, and other resources, broader name and brand recognition, and a larger installed base of customers. As a result, these competitors may have greater credibility with our existing and potential customers and greater service infrastructure than we do. Given our current production volumes and lack of strategic supplier management programs, we may receive less favorable pricing from our suppliers than some of our larger competitors. Our competitors may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion, and sale of their products than we can, which would allow them to respond more quickly than us to new or emerging technologies or changes in customer requirements.

In addition, some of our current and potential competitors have established supplier or joint development relationships with our current or potential customers. These competitors may be able to use their existing relationships to discourage these customers from purchasing products from us or to persuade them to replace our products with their products. Increased competition could decrease our prices, reduce our sales, lower our margins, or decrease our market share. These and other competitive pressures could prevent us from competing successfully against current or future competitors and could materially harm our business.

We have underutilized manufacturing capacity and have no experience manufacturing our products in large quantities.

In 2001, we leased and equipped a 127,000 square foot facility used for manufacturing and testing of our three-phase product line, including our UPS and energy storage products. To be financially successful and to fully utilize the capacity of our facility and allocate its associated overhead, we must achieve significantly higher sales volumes. We must accomplish this while also preserving the quality levels we achieved when manufacturing these products in more limited quantities. To date, we have not been successful at increasing our sales volume to a level that fully utilizes the capacity of the facility and we may never increase our sales volume to necessary levels. If we do not reach these necessary sales volume levels, or if we cannot sell our products at our suggested prices, our ability to reach profitability on a quarterly or annual basis would be adversely impacted.

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Achieving the necessary production levels to absorb the capacity of our manufacturing facility efficiently presents a number of technological and engineering challenges for us. We have not previously manufactured our products in high volume. We do not know whether or when we will be able to develop efficient, low-cost manufacturing capability and processes that will enable us to meet the quality, price, engineering, design, and product standards or production volumes required to manufacture large quantities of our products successfully. Even if we are successful in developing our manufacturing capability and processes, we do not know whether we will do so in time to meet our product commercialization objectives or to satisfy the requirements of our customers.

We must build quality products to ensure acceptance of our products.

The market perception of our products and related acceptance of such products is highly dependent upon the quality and reliability of the products we build. Any quality problems attributable to our UPS or MIS product lines may substantially impair our revenue and operating results. Moreover, quality problems for our product lines could cause us to delay or cease shipments of products or have to recall or field upgrade products, thus adversely affecting our ability to meet revenue or cost targets. In addition, while we seek to limit our liability as a result of product failure or defects through warranty and other limitations, if one of our products fails, a customer could suffer a significant loss and seek to hold us responsible for that loss and our reputation with other current or potential customers would likely suffer.

We depend on sole and limited source suppliers and outsource selected component manufacturing.

We purchase some of our critical component parts from sole source and limited source suppliers. If our suppliers receive excess demand for their products, we may receive a low priority for order fulfillment as large volume customers may receive priority that may result in delays in our acquiring components. A delay in acquiring components for our products may delay the manufacture and shipment of our products. Some of these delays may be substantial. As a result, we may purchase critical long-lead time or single-sourced components in large quantities to help protect our ability to deliver finished products on time. If we overestimate our component requirements, we may have excess inventory, which will increase our costs. If we underestimate our component requirements, we will have inadequate inventory, which will delay our manufacturing and render us unable to deliver products to customers on scheduled delivery dates. If we are unable to obtain a component from a supplier or if the price of a component has increased substantially, we may be required to manufacture the component internally, which will also result in delays or we may be required to absorb price increases. Manufacturing delays could negatively impact our ability to sell our products and could damage our customer relationships.

To assure the availability of our products to our customers, we outsource the manufacturing of selected components prior to the receipt of purchase orders from customers based on their forecasts of their product needs and internal product sales revenue forecasts. However, these forecasts do not represent binding purchase commitments from our customers. We do not recognize revenue for such products until we receive an order from the customer and the product is shipped to the customer. As a result, we incur inventory and manufacturing costs in advance of anticipated revenue. As demand for our products may not materialize, this product delivery method subjects us to increased risks of high inventory carrying costs, obsolescence and excess, and may increase our operating costs. In addition, we may from time to time make design changes to our products, which could lead to obsolescence of inventory.

Our manufacturing operations are concentrated in a small number of nearby facilities.

All of our UPS systems and our MIS products for customers in the Americas are manufactured in our Austin, Texas facility. Our manufacturing, research and development, and administrative activities are concentrated in two nearby facilities. If, for any reason, including as a result of a natural disaster, act of terrorism, or other similar event, either of these facilities should be damaged or destroyed or become inoperable or inaccessible, our ability to conduct our business could be adversely affected or interrupted entirely.

We may be unable to protect our intellectual property and proprietary rights.

We expect future technological advancements made by us will be critical to achieving and sustaining market acceptance of our products. We rely on a combination of patent, copyright, trademark, and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants, and business partners and control access to and distribution of our software, documentation, and other proprietary information.

Despite these efforts, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult, and we cannot be certain the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where applicable laws may not protect our proprietary rights as fully as in the U.S. In addition, the measures we undertake may not be sufficient to protect our proprietary technology adequately and may

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not preclude competitors from independently developing products with functionality or features similar to those of our products. We believe that our success depends more on the knowledge, passion, experience and technological expertise of our employees than on the legal protection that our patents and other proprietary rights might afford.

We may be subject to claims by others that we infringe on their proprietary technology.

In recent years, there has been significant litigation in the U.S. involving patents, trademarks, and other intellectual property rights. We may become involved in litigation in the future to protect our intellectual property or defend allegations of infringement asserted by others. Legal proceedings could subject us to significant liability for damages or invalidate our intellectual property rights. Any litigation, regardless of its merits or its outcome, would likely be time consuming and expensive to resolve and would divert management’s time and attention. Any potential intellectual property litigation also could force us to take specific actions, including:

• cease selling our products that use the challenged intellectual property;

• obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology or trademark, which license may not be available on reasonable terms, or at all;

• redesign those products that use infringing intellectual property; or

• cease to use an infringing trademark.

Our involvement in any such litigation may cause us to incur unexpected litigation costs, require modifications to or limit our ability to sell our products, and adversely impact our business and reputation.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations.

Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on our internal control over financial reporting, including management’s assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our reporting obligations.

A material weakness or other control deficiency could result in errors in our reported results and could have a material adverse effect on our operations.

A material weakness is a control deficiency or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected. In 2013, our management identified a material weakness resulting from control deficiencies related to our credit approval process whereby we did not confirm information from an employee of ours in China regarding the facts surrounding Qiyuan, a distributor with which we entered into a distribution agreement.

In response to such material weakness, management implemented additional credit approval process procedures including actions to further verify the financial condition and ownership structure of all new customers. The material weakness was remediated as of December 31, 2013. Any further material weakness or unsuccessful remediation could adversely impact investor confidence in the accuracy and completeness of our financial statements. As a result, our ability to obtain any additional financing could be materially and adversely affected, which in turn could materially and adversely affect our business and our financial condition. In addition, perceptions of us among customers, lenders, investors, securities analysts, and others could also be adversely affected. We can give no assurances the measures we have taken to date, or any future measures we may take, will prevent or remediate any additional material weaknesses in the future.

Our pending legal matters have increased our costs and could result in fines and penalties.

We are involved in legal matters from time to time. These matters may harm our business and liquidity in the future. We have incurred and may continue to incur substantial expenses for legal and accounting services related to such matters. These matters have also required significant time and attention from our management. At this point, we remain unable to predict the

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duration, scope, or results of the pending SEC investigation described in Footnote 7, "Contingencies," of the consolidated financial statements on page 60 of this Form 10-K. We may incur defense costs that may exceed our insurance coverage. We may also incur costs if the insurers of our directors and officers and our liability insurers deny coverage for the costs and expenses related to any litigation. Adverse outcomes or other developments during the course of such matters may harm our business, financial condition, results of operations, or liquidity.

Cybersecurity incidents could disrupt business operations, result in loss of critical and confidential information, and adversely impact our reputation and results of operation.

Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address, and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks, and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage; litigation with third parties; diminution in the value of our investment in research; development and engineering; and increased cybersecurity protection and remediation costs; which in turn could adversely affect our competitiveness and results of operations.

Tax matters could adversely impact our results of operations and financial condition.

We are subject to potential income tax and other taxes in the United States and in foreign jurisdictions. Our tax liabilities are affected by the amount of income we have in various jurisdictions and the amounts we charge in intercompany transactions for products, services, funding, and other items. We are subject to periodic tax audits in the United States and in other various jurisdictions. Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing, or other matters and assess additional taxes. We assess the likelihood of adverse outcomes resulting from these examinations to determine the need for and adequacy of a provision for income taxes. However, the outcomes from these examinations could have an adverse effect on our provision for income taxes and cash tax liability. In addition, our income taxes and other tax liability in the future could be adversely affected by numerous factors including changes in tax laws, regulations, accounting principles, or interpretations thereof, which could adversely impact our results of operations and financial condition.

Seasonality may contribute to fluctuations in our quarterly operating results.

Historically, our business has experienced seasonal customer buying patterns. In recent years, our business has generally experienced relatively weaker demand in the first calendar quarter of the year. We believe this pattern, which we attribute to annual capital budgeting procedures, may possibly continue. In addition, we anticipate demand for our products in Europe may decline in the summer months, compared to other regions, because of reduced corporate buying patterns during the vacation season.

Risks Related to our Common Stock

We have anti-takeover provisions that could discourage, delay or prevent our acquisition.

Provisions of our certificate of incorporation and bylaws could have the effect of discouraging, delaying, or preventing a merger or acquisition that a stockholder may consider favorable. We also are subject to the anti-takeover laws of the State of Delaware, which may further discourage, delay, or prevent someone from acquiring or merging with us. In addition, our agreement with Caterpillar for the distribution of UPS products provides that Caterpillar may terminate the agreement in the event we are acquired or undergo a change in control. The possible loss of a significant customer could be a significant deterrent to possible acquirers and may substantially limit the number of possible acquirers. All of these factors may decrease the likelihood we would be acquired, which may depress the market price of our common stock.

The trading price of our common stock has been volatile and is likely to be volatile in the future.

Historically, the market price of our common stock has fluctuated significantly. In 2015, the sales price of our common stock ranged from $1.16 to $2.60 per share. In addition to the other risks described in the “Risk Factors” section of this Form 10-K, the market price of our common stock can be expected to fluctuate significantly in response to numerous other factors, many of which are beyond our control, including the following:

• actual or anticipated fluctuations in our operating results;

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• changes in financial estimates by securities analysts, any financial guidance we may provide, or our failure to perform in line with such estimates or guidance;

• changes in market valuations of other technology companies, particularly those that sell products used in power quality systems;

• announcements by us or our competitors of significant sales, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

• introduction of technologies or product enhancements that reduce the need for flywheel energy storage or modular infrastructure products;

• our loss of one or more key OEM customers or channel partners;

• an inability to expand our distribution channels successfully;

• departures of key personnel;

• our ability to obtain additional equity capital or borrowings under our credit agreement;

• the outcome of our pending SEC investigation; and

• changing external capital market conditions.

If the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results, or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry or the stock market generally even if these events do not directly affect us. Each of these factors, among others, could cause our stock price to decline.

We have not in the past and do not currently intend to pay cash dividends on our common stock.

We have never declared or paid any cash dividends on our common stock, and we do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. Future cash dividends, if any, will be determined by our Board of Directors, in its discretion, based upon our earnings, financial condition, cash flow, capital resources, capital requirements, charter restrictions, contractual restrictions including those under our bank credit facility, and such other factors as our Board of Directors deems relevant.


ITEM 1B.	Unresolved Staff Comments.

None.


ITEM 2.	Properties.

Our corporate headquarters facility is a 127,000 square foot building we lease in Austin, Texas. We lease this building pursuant to a lease agreement that expires in December 2021. Our discontinued manufacturing, administrative, information systems, sales and service groups utilized this facility. We currently ~~utilize~~have ~~this~~an arrangement with Langley, the acquirer of our discontinued operation, to use our corporate headquarters facility. The purchase agreement with Langley contemplated that the parties would execute a sublease under which Langley would assume the full lease obligations for one year and one third of the space and obligations for the remaining term of the lease. The landlord of that facility did not consent to the sublease, and Langley agreed prior to the closing of the transaction to waive the requirement to enter into a sublease of that facility. Langley has been paying us the full amount of the rent for the facility and we have been making the payments to the landlord. We are negotiating with the landlord, Langley and other potential subtenants to approve a sublease of the facility. The landlord has notified us that it considers us in breach of the lease agreement for the facility. If we are unable to negotiate a sublease with the landlord and Langley, we would continue to be responsible for rent payments under the existing lease agreement.

~~Our engineering facility of approximately 12,150 square feet is also located in Austin, Texas and is leased pursuant to a lease agreement that expires in December 2021.~~7

In addition to these properties, we lease facilities totaling 12,979 square feet in the United Kingdom, Germany and China for sales and service activities.

Our current manufacturing and test facilities located at our corporate headquarters can support a business volume significantly in excess of our current revenues primarily with the addition of direct labor only and no need for additional significant capital investment. We believe our existing facilities are adequate to meet our current needs and plans.


ITEM 3.	Legal Proceedings.

~~Refer~~We may be involved, either as plaintiff or defendant, in a variety of ongoing claims, demands, suits, investigations, tax matters and proceedings that arise from time to ~~Footnote~~time 7in the ordinary course of our business. We evaluated all potentially significant litigation, ~~“Contingencies~~government investigations,” claims or assessments in which we are involved and we do not believe that any of these matters, individually or in the ~~consolidated~~aggregate, ~~financial~~will ~~statements~~result onin ~~page~~losses 60that are materially in excess of ~~this~~amounts ~~Form~~already ~~10-K~~recognized, if any.


ITEM 4.	Mine Safety Disclosures.

Not applicable.

PART II.

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ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

~~Our~~Prior to December 1, 2016, our common stock iswas traded on The NASDAQ Stock Market LLC under the symbol “ACPW.” ~~The~~Since ~~following~~December ~~table~~1, ~~lists~~2016, ~~the high and low per share sales prices for~~ our common stock ashas ~~reported~~traded byon ~~The~~the ~~NASDAQ~~OTC ~~Stock~~Pink Market ~~LLC~~under ~~for~~ the ~~periods~~symbol ~~indicated:~~“PIOI.”

	High		Low
2015
Fourth Quarter	$	1.74	$	1.16
Third Quarter	$	2.12	$	1.59
Second Quarter	$	2.48	$	1.94
First Quarter	$	2.60	$	1.72
2014
Fourth Quarter	$	2.00	$	1.63
Third Quarter	$	2.79	$	1.88
Second Quarter	$	3.40	$	2.63
First Quarter	$	3.67	$	3.15

The following table lists the high and low per share sales prices for our common stock as reported by The NASDAQ Stock Market LLC or the OTC Pink Market, as the case may be, for the periods indicated:

As of February 16, 2016, there were 23,109,207 shares of our common stock outstanding held by 120 stockholders of record.



	High		Low
2016
Fourth Quarter	$	0.34	$	0.14
Third Quarter	$	0.65	$	0.26
Second Quarter	$	1.05	$	0.39
First Quarter	$	1.38	$	0.87

2015
Fourth Quarter	$	1.74	$	1.16
Third Quarter	$	2.12	$	1.59
Second Quarter	$	2.48	$	1.94
First Quarter	$	2.60	$	1.72

As of March 10, 2017, there were 23,421,922 shares of our common stock outstanding held by approximately 57 stockholders of record.

Our transfer agent for our common stock is American Stock Transfer & Trust Company located at 59 Maiden Lane Plaza Level, New York, NY 10038. Tel: +1-800-937-5449.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Future dividends, if any, will be determined by our board of directors.

WeRecent ~~did~~Sales ~~not repurchase any~~ of ~~our~~Unregistered ~~securities during 2015.~~Securities

Please refer to "Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in this Form 10-K for the information required by Item 201(d) of Regulation S-K with respect to securities authorized for issuance under our equity compensation plans at December 31, 2015.

Sale of Unregistered Securities

None.


ITEM 6.	Selected Financial Data.

~~The~~We ~~following~~are ~~tables~~a ~~include~~smaller ~~selected~~reporting ~~consolidated financial data for each of our last five fiscal years. The consolidated statement of operations data for the years ended December 31~~company, ~~2015,~~as ~~2014,~~defined ~~and~~by ~~2013~~Rule ~~and consolidated balance sheet data at December 31, 2015 and 2014 have been derived from the audited consolidated financial statements appearing elsewhere in this Form 10~~12b-K.2 ~~The consolidated statement~~ of ~~operations data for~~ the ~~years~~Exchange ~~ended December 31~~Act, ~~2012~~ and ~~2011~~are ~~and~~therefore ~~the consolidated balance sheet data at December 31, 2013, 2012 and 2011, have been derived from audited consolidated financial statements~~ not ~~appearing~~required into ~~this~~provide ~~document.~~a ~~This~~disclosure ~~data~~under should be read in conjunction with the consolidated financial statements and notes thereto, with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and with the other financial data set forth elsewhere in this ~~Form 10-K~~item. ~~Our historical results of operations are not necessarily indicative of results of operations to be expected for future periods.~~

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Consolidated Statement of Operations Data
In thousands except per share data	Year Ended December 31,
	2015			2014			2013			2012			2011
Total revenue	$	57,421		$	49,136		$	61,699		$	76,315		$	75,482
Total cost of goods sold	$	40,604		$	36,484		$	42,303		$	51,601		$	57,581
Gross profit	$	16,817		$	12,652		$	19,396		$	24,714		$	17,901
Total operating expenses	$	22,877		$	24,672		$	27,013		$	26,440		$	24,781
Operating loss	$	(6,060	)	$	(12,020	)	$	(7,617	)	$	(1,726	)	$	(6,880	)
Net loss	$	(6,459	)	$	(12,827	)	$	(8,351	)	$	(1,922	)	$	(7,094	)
Basic and diluted net loss per share	$	(0.28	)	$	(0.57	)	$	(0.43	)	$	(0.10	)	$	(0.11	)

Consolidated Balance Sheet Data
In thousands	Year Ended December 31,
	2015		2014		2013		2012		2011
Cash and investments	$	12,260	$	14,824	$	12,261	$	13,524	$	10,746
Working capital	$	11,946	$	17,247	$	17,696	$	23,945	$	13,753
Total assets	$	30,595	$	36,098	$	37,907	$	45,799	$	35,027
Long-term obligations	$	583	$	821	$	741	$	713	$	726
Total stockholders' equity	$	13,555	$	18,793	$	20,306	$	25,999	$	16,292

Table of Contents


ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. Our expectations with respect to future results of operations that may be embodied in oral and written forward-looking statements, including any forward looking statements that may be included in this report, are subject to risks and uncertainties that must be considered when evaluating the likelihood of our realization of such expectations. Our actual results could differ materially. The words “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar phrases as they relate to us are intended to identify forward-looking statements. For further discussion regarding forward-looking statements, please see “Special Note Regarding Forward-Looking Statements.” ~~In addition, please see the risk factors section above for a discussion of items that may affect our future results.~~

Management’s Discussion and Analysis ~~(“MD&A”)~~ of Financial Condition and Results of Operations, or MD&A, is designed to provide readers with narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may impact our future results. ~~Our MD&A is presented in the following sections:~~

~~• 2015 Highlights~~Overview

•Prior to November 19, 2016, ~~Plan~~we designed, manufactured, sold, and serviced flywheel-based uninterruptible power supply, or UPS, products that use kinetic energy to provide short-term power as a cleaner alternative to conventional electro-chemical battery-based energy storage. We also designed, manufactured, sold, and serviced modular infrastructure solutions, or MIS, that integrate critical power components into a pre-packaged, purpose-built enclosure that may include our UPS products as a component. On November 19, 2016 we sold this business and substantially all of our assets to Langley Holdings plc, a United Kingdom public limited company, and Piller USA, Inc., a Delaware corporation and a wholly owned subsidiary of Langley. In this annual report, we refer to Langley and its subsidiaries, including Piller USA, Inc. (now Piller Power Systems, Inc.), collectively as Langley. We refer to the business we sold to Langley as our discontinued operations.

•After ~~Results~~the closing of ~~Operations~~the disposition of our assets to Langley, we retained approximately $1.6 million in cash, which equaled the amount by which the value of the acquired assets exceeded the assumed liabilities on our balance sheet by more than $5.0 million at closing. We incurred a loss on the sale of the discontinued operations of approximately $6.6 million. We also retained our net operating losses and other tax benefits and certain intellectual property rights related to our patents that are not related to the purchased assets. We currently have no active operations and only two executive employees. Our continuing business will be primarily to monetize our retained intellectual property and to make acquisitions of profitable operating companies to create positive cash flow. We refer to our remaining operations as our continuing operations. Following the asset sale to Langley, we changed our name from Active Power, Inc. to P10 Industries, Inc.

•The ~~Critical~~financial ~~Accounting~~statements ~~Policies~~included in this report as of an for the fiscal years ending December 31, 2016 and ~~Estimates~~2015 reflect the sale to Langley, by identifying assets and liabilities that were sold and assumed, and identifying income and expenses allocated to our discontinued operations and continuing operations. See Note 3 to our Consolidated Financial Statements included in this report. Because our business during the 2016 and 2015 fiscal years consisted primarily of the discontinued operations, the following discussion of our results of operation focuses on these discontinued operations.

•Results ~~Liquidity~~of ~~and~~Continuing ~~Capital~~Operations ~~Resources~~for the Fiscal Years Ended December 31, 2016 and 2015

•During ~~Off-Balance~~the ~~Sheet~~years ~~Arrangements~~ended December 31, 2016 and 2015, we generated no revenue from our continuing operations and incurred general and administrative expenses associated with general corporate overhead of $1.4 million in 2016 and $1.3 million in 2015.

•We ~~New~~have ~~Accounting~~deemed ~~Pronouncements~~that our general corporate overhead costs prior to the sale to Langley included twenty percent of the payroll and benefits for our Chief Executive Officer, Chief Financial Officer and General Counsel, through his departure in July 2016, related to their services in support of our corporate governance. We also included costs associated with our directors and officers liability insurance, board of director's fees, investor relations, audit, U.S. tax preparation and disclosure fees, franchise tax, and SEC filing fees. The operating expenses of our continuing operations incurred after the sale to Langley include the full salaries and benefits of our two executive employees, legal costs, consulting costs associated with the monetization of our retained intellectual property and other general administrative expenses. All costs associated with the sale of the discontinued operations have been classified as loss on disposal.

~~2015 Highlights~~9

~~Our~~Results ~~total revenue in 2015 was $57.4 million, an increase~~ of ~~$8.3~~Discontinued ~~million~~Operations orfor ~~17%~~the ~~from~~Fiscal ~~2014.~~Years ~~Product~~Ended ~~revenue~~December ~~in 2015 was $43.2 million~~31, an2016 ~~increase~~and ~~of $7.0 million or 19% from 2014. Service revenue in~~ 2015 ~~was $14.2 million, an increase of $1.2 million or 10% from 2014.~~

~~The~~Set ~~change~~forth webelow ~~made~~are toour revenues and costs and expenses for the ~~business~~discontinued inoperations ~~early~~for ~~2014~~the ~~primarily~~fiscal toyears 2016 and 2015. This information should be read in conjunction with our ~~sales~~Consolidated ~~organization~~Financial Statements and ~~go-to~~notes ~~market~~thereto ~~approach~~included ~~coupled~~in ~~with~~this areport. Our ~~continued~~fiscal ~~focus~~2016 onresults ~~increasing~~include ~~bookings~~operations ~~and~~through ~~backlog~~November 18, ~~improving~~2016, ~~operational~~the ~~efficiencies~~day before the sale of our discontinued operations to Langley, and ~~controlling~~therefore ~~costs~~do ~~yielded~~not ~~steady~~contain ~~progress~~the full twelve months of operations reflected in the fiscal 2015 results. As Aa ~~number~~result, ofthe ~~achievements~~fiscal ~~from~~2016 ~~2015~~results ~~are~~reflect ~~highlighted~~six ~~below~~fewer weeks, or an 11.5% reduction in the operating period, than fiscal 2015.

• Increased backlog by 15% or $4.1 million to $30.8 million at December 2015, compared to $26.7 million at December 31, 2014



	Year Ended December 31,
($ in thousands)	2016			2015			$ change			% change
Product revenue	$	21,224		$	43,247		$	(22,023	)	(51	)%
Service and other revenue	10,529			14,174			(3,645		)	(26	)%
Total revenue	31,753			57,421			(25,668		)	(45	)%
Cost of product revenue	17,148			32,017			(14,869		)	(46	)%
Cost of service and other revenue	6,634			8,587			(1,953		)	(23	)%
Total cost of goods sold	23,782			40,604			(16,822		)	(41	)%
Gross profit	7,971			16,817			(8,846		)	(53	)%
Operating expenses:
Research and development	4,135			5,723			(1,588		)	(28	)%
Selling and marketing	7,349			10,589			(3,240		)	(31	)%
General and administrative	3,979			5,240			(1,261		)	(24	)%
Total operating expenses	15,463			21,552			(6,089		)	(28	)%
Loss on sale of discontinued operations	(6,597		)	—			(6,597		)	100	%
Loss from operations of discontinued operations	(14,089		)	(4,735		)	(15,951		)	(337	)%
Interest expense, net	(312		)	(375		)	63			17	%
Other income (expense), net	(19		)	(24		)	5			21	%
Loss before income taxes	(14,420		)	(5,134		)	(9,286		)	(181	)%
Income tax expense	—			—			—			—	%
Net Loss from discontinued operations	$	(14,420	)	$	(5,134	)	$	(9,286	)	(181	)%

•Fiscal ~~Reduced~~2016 ~~net~~Compared ~~inventory by 6% or $0.4 million since December 2014, through December 31, 2015 and improved inventory turns~~ to ~~6.1~~Fiscal in 2015 ~~versus 3.9 in 2014~~

• ~~Lowered~~Product ~~operating~~revenue ~~expenses~~from bydiscontinued ~~7% or $1~~operations.8 ~~million~~Our inproduct ~~2015~~revenue ~~versus~~was ~~2014~~derived ~~with~~from ~~expenses down seven of last nine quarters. Excluding~~ the ~~management~~following ~~incentive plan our operating expenses would have been lowered by $3.0 million or 12% versus 2014~~sources:

• Won a large, multimillion dollar deal from one of our strategic IT partners for our new modular product, a cost reduced alternative to enable us and our IT partners in selling modular data center and infrastructure enclosures



	Year Ended December 31,
($ in thousands)	2016		2015		$ change			% change
Product revenue:
UPS product revenue	$	17,994	$	31,046	$	(13,052	)	(42	)%
Modular Infrastructure Solutions	3,230		12,201		(8,971		)	(74	)%
Total product revenue	$	21,224	$	43,247	$	(22,023	)	(51	)%

•Total ~~Introduced~~product ~~Extended~~revenue ~~Runtime~~for ~~option~~fiscal on2016 ~~CleanSource~~was HD$21.2 ~~UPS~~million, ~~that~~compared ~~can~~to ~~provide~~$43.2 ~~customers~~million upfor fiscal 2015, a $22.0 million decrease. The decrease in our product revenue in 2016 compared to 302015 ~~minutes~~primarily came from lower bookings in 2016 as a result of ~~additional~~customers ~~UPS~~deferring ~~runtime.~~delivery Aof ~~secondary~~previously ~~energy~~placed ~~storage~~orders ~~system,~~and ~~such~~delaying asthe ~~batteries~~placement orof ~~additional~~new ~~flywheel~~orders ~~modules~~along with a large order from an IT channel partner not repeating in 2016 and the shorter operating period. In 2016, ~~supplements~~85% of our product revenue came from the ~~primary~~sale ~~flywheel~~of UPS systems and is15% ~~available~~from tothe ~~those~~sale ~~customers~~of ~~that~~MIS ~~require~~products. ~~longer~~Sales of our UPS ~~autonomy~~products decreased by approximately $13.1 million, or 42%, compared to 2015 as we saw decreased demand from key customers during the 2016.

~~• Increased number of non-data center projects entering our opportunities pipeline as a result of renewed focus on non-IT applications including healthcare and industrial to diversify revenue stream~~10

•Product ~~Settled~~revenue ~~stockholder~~from ~~class~~our ~~action~~OEM ~~complaint~~channel for fiscal 2016 was $5.4 million, compared to $11.2 million in 2015, a $5.8 million decrease or 52%. The size and ~~derivative~~volume ~~actions~~of orders from our OEM channel fluctuated significantly on a quarterly basis, and we received a smaller number of large transactions from our OEM channel in ~~May~~2016. Sales to Caterpillar, our primary OEM customer, represented 20% of our total revenue (including services) for fiscal 2016 compared to 25% in fiscal 2015. ~~with~~We supported our OEM partners’ efforts to sell total ~~settlement~~solutions ~~amounts~~to their customers, which included generators and ~~related~~switchgear ~~expenses~~that ~~paid~~they ~~from~~manufacture ~~insurance~~along ~~proceeds~~with our UPS products as a total solution.

25Product revenue from our IT channel partner for fiscal 2016 was $1.6 million, compared to $10.2 million in 2015, a decrease of $8.5 million or 84%. This decrease reflects larger orders for our MIS products during 2015 from our IT channel partner Hewlett Packard Enterprise or HPE. The level of orders fluctuated depending on HPE's success and need for modular infrastructure solutions. Total sales (including services) to HPE represented 8% and 18% of our total revenue for fiscal 2016 and fiscal 2015, respectively.

~~Table~~Product revenue in North and South America was $13.5 million, a decrease of ~~Contents~~$18.6 million, or 58%, compared to $32.1 million for 2015. Our revenue in this region decreased in 2016 compared to 2015, primarily as a result of declines in demand from Caterpillar and HPE, which are located in the United States.

~~UPS~~Product ~~sales~~revenue ~~increased~~in ~~$3.0~~Europe, ~~million~~the orMiddle ~~11%~~East, ~~compared~~and toAfrica ~~2014,~~decreased ~~making~~by upapproximately ~~72%~~$4.1 ofmillion, ~~total~~or ~~product~~43%, ~~revenue~~to ~~versus~~$5.5 ~~78%~~million in ~~2014.~~fiscal ~~MIS~~2016 ~~sales~~compared ~~increased~~to $49.15 million orin ~~50%~~fiscal ~~compared~~2015. toThis ~~2014,~~decrease ~~making~~is updue ~~28%~~to oflower ~~total~~direct ~~product~~UPS ~~revenue~~sales in the region.

~~Service~~Our ~~sales~~product revenue in the Asia Pacific region increased by 36%, or $10.26 million, orin ~~10%~~2016 into ~~2015~~$2.2 million compared to ~~2014~~$1.6 million in 2015. This increase is primarily ~~attributable~~due to higher UPS sales ofin ~~spare~~the ~~parts compared to 2014~~region.

~~Our~~Service ~~gross~~and ~~profit~~other ~~was~~revenue ~~29%~~from ofdiscontinued operations. Service and other revenue ~~for~~decreased ~~fiscal~~by ~~2015~~approximately ~~compared~~$3.6 tomillion, or 26%, to $10.5 million in fiscal ~~2014~~2016 from $14.2 million in fiscal 2015. This ~~margin~~decrease ~~increase~~primarily isreflects ~~related~~lower tosales ~~improvements~~of inspare ~~manufacturing~~parts, ~~absorption~~a onreduction ~~increased~~in revenue from new equipment startups and ~~production~~a reduction in ~~2015~~service contract revenue associated with the reduced operating period in 2016.

~~Net~~Cost ~~loss~~of ~~was~~product $6revenue from discontinued operations.5 ~~million~~The incost ~~2015~~of ~~compared~~product torevenue ~~$12.8~~as ~~million~~a percentage of total product revenue was 81% and 74% in ~~2014~~2016 and 2015, respectively. The ~~decrease~~increase in ~~net~~cost ~~loss~~as ~~from~~a ~~2014~~percentage toof ~~2015~~revenue was ~~due~~related to anlower ~~increase~~manufacturing absorption associated with the decreased production in ~~revenue~~2016. During 2016 and ~~gross~~2015, ~~margin~~we operated a manufacturing facility that had a manufacturing and ~~lower~~testing ~~operating~~capacity ~~expenses~~significantly greater than what was required by our product revenue levels. Our manufacturing operational costs included a large portion of fixed costs relative to our operational needs. We expensed the excess costs of the underutilization of this facility as part of our cost of product revenues.

~~Cash~~Cost ~~and~~of ~~cash~~service ~~equivalents~~and ~~totaled~~other ~~$12.3~~revenue ~~million~~from atdiscontinued ~~December 31, 2015, compared to $14~~operations.8 ~~million~~The atcost ~~December 31,~~of ~~2014.~~service ~~Management~~and ~~believes~~other ~~this~~revenue ~~available~~as ~~cash~~a ~~balance,~~percentage ~~combined~~of ~~with~~total ~~cash~~service ~~we anticipate to generate from operations~~ and ~~the~~other ~~credit~~revenue ~~facility~~increased weby ~~have in place~~2%, ~~will be sufficient~~ to ~~fund~~63%, ~~our~~in ~~operations~~2016 ascompared ~~we work~~ to ~~increase~~61% ~~sales~~in ~~volume and scale the business~~2015. InThe ~~March~~increase ~~2014,~~in wecost ~~raised~~as ~~additional funds through~~ a ~~public~~percentage ~~offering~~of torevenue ~~provide~~reflects ~~additional~~higher ~~funds~~unabsorbed ~~for~~costs ~~our~~associated ~~future~~with ~~anticipated working capital needs. See Note 3 to~~ the ~~consolidated~~26% ~~financial~~service ~~statements~~revenue ~~of this Form 10-K for more information~~decline.

Gross profit from discontinued operations. Our gross profit was 25% of revenue for fiscal 2016 ~~Plan~~compared to 29% in fiscal 2015. This margin decrease was due to higher unabsorbed costs associated with lower revenue. We implemented additional cost control measures in 2016, including one week of unpaid furlough per quarter for all U.S. based employees, curtailed overtime and reduced contract labor, but those measures were insufficient to offset the revenue decline.

~~Our~~Research ~~priorities~~and ~~remain~~development ~~unchanged~~from indiscontinued ~~2016~~operations. asResearch weand ~~continue~~development toexpenses ~~focus~~were onapproximately ~~increasing~~$4.1 ~~bookings~~million ~~and~~in ~~backlog~~2016, ~~improving~~a ~~operational~~reduction ~~efficiencies,~~of ~~and~~approximately ~~controlling costs~~$1.6 ~~Our~~million, ~~efforts~~or to28%, ~~grow~~from the ~~business~~approximately ~~will~~$5.7 bemillion ~~supported~~in ~~through~~expenses ~~continued~~in ~~expansion~~fiscal of2015. ~~our~~The ~~sales~~decrease ~~distribution~~was ~~network~~primarily ~~worldwide;~~due ~~diversifying~~the ~~our~~11.5% ~~revenue~~reduction ~~stream~~in ~~through~~the ~~pursuing~~operating ~~health~~period ~~care~~for ~~and~~2016, ~~industrial~~cost ~~applications~~control ~~where~~measures ~~our~~put ~~UPS~~in ~~and~~place, ~~MIS~~including ~~products~~one ~~are~~week ~~uniquely~~of ~~suited;~~unpaid ~~and~~furlough ~~reinforcing~~each ~~our~~quarter ~~value~~for ~~proposition~~all ~~with customers~~U.S. Webased ~~will~~employees, ~~also~~lower ~~look~~product ~~for~~development ~~ways~~costs toand ~~strengthen~~lower ~~our~~bonus ~~operating~~expense ~~base~~of ~~and~~$0.2 ~~lower~~million ~~our~~which ~~overall~~was ~~cost~~partially ~~structure~~offset by $0.2 million higher stock compensation expense.

~~Our~~Selling ~~sales~~and ~~cycles~~marketing ~~have~~from ~~been~~discontinued ~~extending~~operations. Selling ~~which~~and wemarketing ~~believe~~costs iswere aapproximately ~~function~~$7.3 ofmillion in 2016, a ~~number~~reduction of ~~variables~~approximately ~~including~~$3.2 ~~delays~~million, or 31%, from the approximately $10.6 million in ~~customers’~~expenses ~~deployment~~in ~~schedules~~fiscal ~~related~~2015. The decrease was primarily due to ~~persistent~~the ~~sluggishness~~11.5% reduction in the ~~economy.~~operating Weperiod ~~have~~during ~~seen~~2016, ~~delays~~cost control measures put in ~~orders~~place, ~~being~~including ~~awarded~~one ~~and~~week ~~schedule~~of ~~changes~~unpaid tofurlough ~~defer~~each ~~deliveries~~quarter for all U.S. Webased ~~remain~~employees, ~~vigilant~~and in$0.9 ~~our~~million ~~expense~~lower ~~management~~commissions ~~initiatives~~on inreduced ~~light~~bookings, ofoffset ~~these~~partially ~~market~~by ~~conditions~~$0.2 million higher stock compensation expense.

AGeneral ~~number~~and ofadministrative ~~risks~~from discontinued operations. General and ~~challenges~~administrative ~~face~~expenses ~~our~~were ~~business~~approximately ~~going~~$4.0 ~~forward~~million in fiscal 2016, a reduction of approximately $1.3 million, or 24%, from the approximately $5.2 million in expenses in fiscal 2015. The decrease was primarily due to the 11.5% reduction in the operating period during 2016, cost control measures

• We have a history of operating losses and have not yet reached operating profitability on an annual basis. We believe the success of our UPS and MIS products and our service offerings combined with our focus on direct sales to customers and a lower overall operating cost base, will help us to further increase our revenues and reduce our level of operating losses. Consequently, we willcontinue to focus on our operating costs and cash and working capital management in 2016 to maintain sufficient funds for our operating activities.11

•put ~~The higher sales price of our CleanSource PowerHouse and modular IT infrastructure orders can cause large quarterly fluctuations~~ in ~~our~~place ~~inventory,~~including ~~receivables~~one ~~and~~week ~~payables balances, depending on the number~~ of ~~such~~unpaid ~~orders~~furlough ineach ~~progress~~quarter atand ~~any~~lower ~~point~~bonus inexpense ~~time. This can cause material fluctuations in the level~~ of ~~working capital we require~~$1.2 ~~If the number of such orders increases rapidly or any of these orders have payment terms that are less favorable~~million, weoffset ~~will~~partially ~~need~~by ~~access to more working capital to fund the growth of our business and to fulfill these orders~~$0.8 Wemillion ~~extended~~higher ~~our~~stock ~~bank~~compensation ~~credit facility in 2014 to help fund our growth and manage our working capital requirements~~expense.

•Loss ~~Our~~on ~~sales~~sale ~~cycle~~of isdiscontinued ~~such that we generally have some visibility in advance for future orders~~operations. ~~However,~~We incurred a ~~sudden~~loss ~~change~~on inthe ~~business~~sale ~~volume~~of orour ~~product~~discontinued ~~mix,~~operations ~~positive~~as orthe ~~negative,~~result ~~from any~~ of ~~our~~the ~~business~~sale orof ~~channel~~assets ~~partners or~~ in ~~our~~excess ~~direct~~of ~~business~~liabilities ~~can~~of ~~significantly~~$5.0 ~~impact~~million ~~our~~for ~~expected~~a ~~revenues~~nominal ~~and~~amount. ~~impact~~In ~~our~~addition, ~~ability~~we toaccrued ~~quickly~~approximately ~~respond to opportunities~~$1.2 ~~The~~million ~~continued~~to ~~slow~~settle ~~global economic growth has reduced~~ our ~~confidence~~outstanding inlease ~~the ability to predict future revenues~~obligations, ~~and~~we ~~even~~wrote ~~with~~off ~~improving~~approximately ~~economic conditions, there is still uncertainty and risk in our forecasting~~$0.2 ~~Our~~million ~~limited window~~ of ~~sales~~cumulative ~~visibility~~translation ~~does~~adjustments ~~provide~~associated us with ~~some opportunity to adjust expenditures or take other measures to reduce~~ our ~~cash~~divested ~~consumption~~foreign ifsubsidiaries ~~we can see~~ and ~~anticipate~~we aincurred ~~shortfall in revenue~~$0.2 ~~This~~million ~~window may also give us time to identify additional sources~~ of ~~funding~~transaction ~~if we anticipate an increase in our working capital requirements due to increased revenues or changes in our revenue mix. A significant increase in sales~~costs, ~~especially~~net ~~in our MIS business, would likely increase our working capital requirements due to the longer production time and cash cycle~~ of ~~sales~~shared ofexpenses ~~these~~with ~~products~~Langley.

•Interest ~~Foreign~~expense, ~~currency~~net ~~volatility~~from ~~could~~discontinued ~~make~~operations. itNet ~~more~~interest ~~challenging~~expense ~~for~~was us$0.3 million in fiscal 2016 compared to ~~sell~~$0.4 ~~outside~~million ofin 2015. The interest expense incurred during 2016 and 2015 was in connection with the USoutstanding balance on our revolving credit facility. AsThe ~~foreign~~debt ~~currencies~~outstanding ~~strengthen~~on ~~against~~this facility was repaid at the ~~dollar,~~closing ~~our~~of ~~pricing~~the ~~may~~sale ~~not~~of beour asdiscontinued ~~competitive~~operations to Langley, resulting in ~~certain~~the ~~geographies~~debt being outstanding for a shorter period of time, and therefore, lower expense in 2016.

26Other income (expense), net from discontinued operations. Other income (expense), net was $19,000 in fiscal 2016 and $24,000 in fiscal 2015, a decrease of $5,000 or 21%. This decrease primarily reflects foreign exchange losses or gains on settlement of intercompany balances and sales contracts held in foreign currencies.

~~Table~~Income oftax ~~Contents~~expense from discontinued operations. We had no income tax expense in 2016 or 2015.

Results of Operations

Below are our revenues and costs and expenses for fiscal 2015, 2014, and 2013. This information should be read in conjunction with our Consolidated Financial Statements and notes thereto.

	Year Ended December 31,											Year Ended December 31,
($ in thousands)	2015			2014			$ change			% change		2014			2013			$ change			% change
Product revenue	$	43,247		$	36,211		$	7,036		19	%	$	36,211		$	44,158		$	(7,947	)	(18	)%
Service and other revenue	14,174			12,925			1,249			10	%	12,925			17,541			(4,616		)	(26	)%
Total revenue	57,421			49,136			8,285			17	%	49,136			61,699			(12,563		)	(20	)%
Cost of product revenue	32,017			29,182			2,835			10	%	29,182			32,825			(3,643		)	(11	)%
Cost of service and other revenue	8,587			7,302			1,285			18	%	7,302			9,478			(2,176		)	(23	)%
Total cost of goods sold	40,604			36,484			4,120			11	%	36,484			42,303			(5,819		)	(14	)%
Gross profit	16,817			12,652			4,165			33	%	12,652			19,396			(6,744		)	(35	)%
Operating expenses:
Research and development	5,723			6,689			(966		)	(14	)%	6,689			7,430			(741		)	(10	)%
Selling and marketing	10,589			11,940			(1,351		)	(11	)%	11,940			12,032			(92		)	(1	)%
General and administrative	6,565			6,043			522			9	%	6,043			7,551			(1,508		)	(20	)%
Total operating expenses	22,877			24,672			(1,795		)	(7	)%	24,672			27,013			(2,341		)	(9	)%
Loss from Operations	(6,060		)	(12,020		)	5,960			50	%	(12,020		)	(7,617		)	(4,403		)	(58	)%
Interest expense, net	(375		)	(395		)	20			5	%	(395		)	(370		)	(25		)	(7	)%
Other income (expense), net	(24		)	(160		)	136			85	%	(160		)	(364		)	204			56	%
Loss before income taxes	(6,459		)	(12,575		)	6,116			49	%	(12,575		)	(8,351		)	(4,224		)	(51	)%
Income tax expense	—			(252		)	252			100	%	(252		)	—			(252		)	100	%
Net Loss	$	(6,459	)	$	(12,827	)	$	6,368		50	%	$	(12,827	)	$	(8,351	)	$	(4,476	)	(54	)%

Fiscal 2015 Compared to Fiscal 2014

Product Revenue. Our product revenue was derived from the following sources:

	Year Ended December 31,								Year Ended December 31,
($ in thousands)	2015		2014		$ change		% change		2014		2013		$ change			% change
Product revenue:
UPS product revenue	$	31,046	$	28,064	$	2,982	11	%	$	28,064	$	22,620	$	5,444		24	%
Modular Infrastructure Solutions	12,201		8,147		4,054		50	%	8,147		21,538		(13,391		)	(62	)%
Total product revenue	$	43,247	$	36,211	$	7,036	19	%	$	36,211	$	44,158	$	(7,947	)	(18	)%

Total product revenue for fiscal 2015 was $43.2 million, compared to $36.2 million in fiscal 2014, a $7.0 million increase. The increase in our product revenue in 2015 compared to 2014 came from higher sales primarily by the increase in MIS business that was driven by a large order from our IT channel partner, which fluctuates depending on their success and needs for modular infrastructure solutions. In 2015, 72% of our product revenue came from the sale of UPS systems and 28% from the sale of MIS products. Sales of our UPS products increased by approximately $3.0 million, or 11%, compared to 2014 as we saw an increase in our OEM channel sales.

Product revenue from our OEM channel for fiscal 2015 was $11.2 million, compared to $7.8 million in 2014, a $3.5 million increase or 45%. The size and volume of orders from our OEM channel can fluctuate significantly on a quarterly basis, and we continue to see a small number of large transactions from our OEM channel. Sales to Caterpillar, our primary OEM customer,

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represented 25% of our total revenue for fiscal 2015 compared to 18% in fiscal 2014. We have supported our OEM partners’ efforts to sell total solutions to their customers that include generators and switchgear that they manufacture along with our UPS products as a total solution.

Product revenue from our IT channel partner for fiscal 2015 were $10.2 million, compared to $2.1 million in 2014, an increase of $8.1 million or 386%. This increase reflects larger orders of our MIS products during 2015 from our IT channel partner Hewlett Packard Enterprise ("HPE"). The level of orders may continue to fluctuate depending on our partner’s success and need for modular infrastructure solutions. Total sales to HPE represented 18% and 1% of our total revenue for fiscal 2015 and fiscal 2014.

Product revenue in North and South America ("Americas") was $32.1 million, an increase of $10.7 million or 50%, compared to $21.3 million for 2014. Our revenue in the Americas increased in 2015 compared to 2014, primarily as a result of higher MIS revenues and the increase in sales from our OEM channels, which historically have largely originated in the North American market.

Product revenue in Europe, the Middle East, and Africa (“EMEA”) decreased by approximately $2.2 million, or 19% to $9.5 million in fiscal 2015 compared to $11.7 million in fiscal 2014. This decrease is due to lower direct UPS sales.

Our product revenue in the Asia Pacific region (“APAC”) decreased by 48%, or $1.5 million in 2015 to $1.6 million compared to $3.1 million in 2014. This decrease is primarily due to lower UPS sales in the region.

We did not have any revenues greater than 10% concentrated in a single country outside of the United States in 2015 or 2014.

Service and other revenue. Service and other revenue increased by approximately $1.2 million, or 10%, to $14.2 million in fiscal 2015, compared to $12.9 million in fiscal 2014. These increases primarily reflect higher sales of spare parts.

Cost of product revenue. The cost of product revenue as a percentage of total product revenue was 74% and 81% in 2015 and 2014, respectively The decrease in costs as a percentage of revenue reflects higher MIS sales with better margin along with continued improvements in manufacturing absorption associated with increased production from the prior year, offset by lower margin UPS sales related to supply chain commitments we made more than two years ago to support our CleanSource HD UPS products at prices higher than we expect in the future. We expect to fully absorb these costs in the first half of fiscal 2016 resulting in improved margins. During 2015 and 2014, we operated a manufacturing facility that has a manufacturing and testing capacity significantly greater than required by our current product revenue levels. Our manufacturing operational costs include a large portion of fixed costs relative to our operational needs. We incurred approximately $5.9 million and $5.8 million, in 2015 and 2014, respectively, in fixed costs related to our manufacturing facility. We expense the excess costs of the underutilization of this facility as part of our cost of product revenues.

Cost of service and other revenue. The cost of service and other revenue as a percentage of total service and other revenue increased by 5%, to 61% in 2015 compared to 56% in 2014. The increase in costs as a percentage of revenue reflects higher unabsorbed costs and training costs for new employees during fiscal 2015. A large portion of the costs involved in operating our service organization are fixed in nature and we incurred approximately $3.2 million and $2.3 million in unabsorbed overhead costs in fiscal 2015 and 2014, respectively. The utilization of our service personnel will be affected by the number of products implemented in a particular period. When we have a lower number of installation projects we would expect our costs as a percentage of revenue to increase due to lower employee utilization.

Gross profit. Our gross profit was 29% of revenue for fiscal 2015 compared to 26% in fiscal 2014. This margin increase was related to higher MIS margins as we continue to improve manufacturing absorption from fiscal 2014. Our gross margins fluctuate on a quarterly basis depending on changes in the product and geographic mix of our revenues and were as high as 33% during the first quarter of 2015 and as low as 25% in the fourth quarter of 2015.

Research and development. Research and development expenses were approximately $5.7 million, $1.0 million or 14%, lower in fiscal 2015 compared to $6.7 million in fiscal 2014. The decrease was primarily due to lower payroll expense and employee benefits of $0.6 million and reduced fees from external parties of $0.4 million related to prototype and testing expenses which were incurred in fiscal 2014.

Selling and marketing. Selling and marketing costs were approximately $10.6 million, $1.4 million or 11% lower in fiscal 2015, compared to $11.9 million for the same period of 2014. The decrease was primarily due to lower payroll expense including sales commissions of $1.3 million in 2015 compared to 2014.

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General and administrative. General and administrative expenses were approximately $6.6 million, $0.5 million or 9%, higher in fiscal 2015 compared to $6.0 million in 2014. The increases were primarily due to increases in bonus expense of $0.7 million and an increase is stock compensation expense of $0.4 million offset by a decrease of $0.4 million of legal fees.

Interest expense, net. Net interest expense remained flat at $0.4 million in fiscal 2015 compared to $0.4 million in 2014. The interest expense incurred during 2015 and 2014 was in connection with the outstanding balance on our revolving credit facility.

Other income (expense), net. Other income (expense), net was $24,000 in fiscal 2015 and $0.2 million in fiscal 2014, a $0.1 million decrease or 85%. This decrease primarily reflects foreign exchange losses or gains on settlement of intercompany balances and sales contracts held in foreign currencies.

Income tax expense. Our income tax expense for 2015 was $0 with an effective tax rate of 0%, compared to approximately $0.3 million with an effective tax rate of 2% for 2014. The decrease in the effective tax rate for fiscal 2015 was primarily due to settlement under tax examination by the German tax authorities from fiscal 2014. In September 2014, we settled a tax examination of our German subsidiary for years 2007 through 2011. In the settlement, we agreed to transfer pricing adjustments for the period under examination resulting in a reduction of loss carryovers and a deemed distribution subject to withholding taxes under German law. We recorded a provision for income taxes of $0.3 million in the quarter ended September 30, 2014 related to settlement of the German tax examination.

As a result of the examination, the Company also adjusted net operating losses in jurisdictions impacted by the transfer pricing adjustments to account for appropriate intercompany pricing for years prior to 2014. There was no overall tax impact as the net operating loss deferred tax assets are fully offset by a valuation allowance. Both the settlement and the adjustments to the net operating losses are reflected in the Company’s rate reconciliation of the income tax footnote.

Fiscal 2014 Compared to Fiscal 2013

Total revenues in fiscal 2014 were $49.1 million, compared to $61.7 million in fiscal 2013, a $12.6 million, or 20% decrease. The decrease in revenue was primarily attributed to our MIS products.

Total product revenue for fiscal 2014 was $36.2 million, compared to $44.2 million in fiscal 2013, a $8.0 million decrease. The decrease in our product revenue in 2014 compared to 2013 came from lower sales from our MIS products primarily related to HPE, which fluctuates depending on their success and needs for modular infrastructure solutions, partially offset by an increase in our UPS sales. In 2014, 78% of our product revenue came from the sale of UPS systems and 22% from the sale of MIS products. Sales of our UPS products increased by approximately $5.4 million, or 24%, compared to 2013 as we saw an increase in our direct sales to our customers.

Product revenue from our OEM channel for fiscal 2014 was $7.8 million, compared to $7.2 million in 2013, a $0.6 million increase or 7%. This reflects increased performance from our OEM partners, primarily in the U.S. market. Sales to Caterpillar, our primary OEM customer, represented 18% of our total revenue for fiscal 2014 compared to 14% in fiscal 2013.

Product revenue from our IT channel partners for fiscal 2014 was $2.1 million, compared to $11.1 million in 2013, a decrease of $9.0 million or 81%. This reduction reflects decreased demand for our MIS products during 2014 from our IT channel partner, HPE. The level of orders may continue to fluctuate depending on our partner’s success and need for infrastructure solutions.

Product revenue in the Americas was $21.3 million, or 59% of our total product revenue for 2014, a decrease of $15.1 million or 41%, compared to $36.4, or 82%, for 2013. Our revenue in the Americas decreased in 2014 compared to 2013, primarily as a result of lower MIS revenue associated with large projects in 2013 which were not repeated.

Product sales to customers in EMEA increased by approximately $7.7 million, or 195%, to $11.7 million in fiscal 2014 compared to $4.0 million in fiscal 2013. This increase relates primarily to two large UPS orders, one approximately $3.3 million and another approximately $1.2 million which were recognized in fiscal 2013.

Our product sales in APAC decreased by 18%, or $0.7 million, in 2014 to $3.1 million compared to $3.8 million in 2013. This decrease is primarily due to reduced UPS sales in China.

We did not have any revenues greater than 10% concentrated in a single country outside of the United States in 2014 or 2013.

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Service and other revenue. Service and other revenue decreased by approximately $4.5 million, or 26%, to $13.0 million in fiscal 2014, compared to $17.5 million in fiscal 2013. The decrease primarily reflects reduced service revenue and professional fees stemming from lower MIS product demand in 2014.

Cost of product revenue. The cost of product revenue as a percentage of total product revenue was 81% and 74% in 2014 and 2013, respectively. During 2014 and 2013, we operated a manufacturing facility that has a manufacturing and testing capacity significantly greater than required by our current product revenue levels. Our manufacturing facility is comprised of a large portion of our fixed costs. We incurred approximately $5.8 million and $6.9 million, in 2014 and 2013, respectively, in fixed costs for our manufacturing facility. Our manufacturing capacity is in excess of our current business requirements. We expense the excess costs of the underutilization of this facility as part of our cost of product revenues.

Cost of service and other revenue. The cost of service and other revenue as a percentage of total service and other revenue increased by 2%, to 56% in 2014 compared to 54% in 2013. A large portion of the costs involved in operating our service organization are fixed in nature and we incurred approximately $2.3 million and $3.0 million in unabsorbed overhead costs in fiscal 2014 and 2013, respectively. The utilization of our service personnel will be affected by the number of MIS products implemented in a particular period. When we have a lower number of installation projects we would expect our costs as a percentage of revenue to increase due to lower employee utilization

Gross profit. Our gross profit was 26% of revenue for fiscal 2014 compared to 31% in fiscal 2013. The decrease in gross profit margin in 2014 compared to 2013 is related to under absorption of fixed overhead costs in manufacturing and service due to the lower revenue and manufacturing production in 2014. Our gross margins fluctuate on a quarterly basis depending on changes in the product and geographic mix of our revenues and were as high as 30% during the third quarter of 2014 and as low as 19% in the second quarter of 2014.

Research and development. Research and development expenses were approximately $6.7 million, $0.7 million or 10%, lower in fiscal 2014 compared to $7.4 million in fiscal 2013. The decrease was primarily due to reduced costs for development activities on our next generation of UPS products.

Selling and marketing. Selling and marketing costs were approximately $11.9 million in fiscal 2014, compared to $12.0 million for the same period in 2013. The decrease was primarily due to severance expense to former executives in 2013 offset by payroll expense increase in 2014.

General and administrative. General and administrative expenses were approximately $6.0 million, $1.5 million or 20%, lower in fiscal 2014 compared to $7.6 million in 2013. This decrease was primarily due to reductions in (i) relocation and temporary living costs for executives of $0.4 million; (ii) severance payments to former executives of $0.3 million, and (iii) legal fees of $0.3 million from 2013.

Interest expense, net. Net interest expense was relatively flat in fiscal 2014 compared to 2013. The interest expense incurred during 2014 and 2013 was in connection with the outstanding balance on our revolving credit facility.

Other income (expense), net. Other income (expense), net was $0.2 million in fiscal 2014 compared to income of $0.4 million in 2013, a $0.2 million decrease or 56%. This decrease primarily reflects foreign exchange losses or gains on settlement of intercompany balances and sales contracts held in foreign currencies.

Income tax expense. Our income tax expense for 2014 was approximately $0.3 million with an effective tax rate of 2%, compared to $0 for 2013. The increase in the effective tax rate for fiscal 2014 was primarily due to settlement under tax examination by the German tax authorities. In September 2014, we settled a tax examination of our German subsidiary for years 2007 through 2011. In the settlement, we agreed to transfer pricing adjustments for the period under examination resulting in a reduction of loss carryovers and a deemed distribution subject to withholding taxes under German law. We recorded a provision for income taxes of $0.3 million in the quarter ended September 30, 2014 related to settlement of the German tax examination.

Critical Accounting Policies and Estimates

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We consider an accounting policy to be critical if:


•	the accounting estimate requires us to make assumptions about matters that are highly uncertain or require the use of judgment at the time we make that estimate; and


•	changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we could have reasonably used instead in the current period, would have a material impact on our financial condition or results of operations.

~~Management~~Our management has reviewed the development and selection of these critical accounting estimates with the ~~Audit~~audit ~~Committee~~committee of our ~~Board~~board of ~~Directors~~directors. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in these and other items could still have a material impact upon our financial statements.

Revenue recognition

We ~~recognize~~recognized revenue for our discontinued operations when four criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. In general, revenue is recognized when revenue-generating transactions fall into one of the following categories of revenue recognition:

• We ~~recognize~~recognized product revenue at the time of shipment for a significant portion of all products sold directly to customers and through distributors because title and risk of loss typically pass on delivery to the common carrier. Our customers and distributors dodid not have the right to return products. We ~~may~~sometimes ~~enter~~entered into bill-and-hold arrangements and when this ~~occurs~~occurred delivery may not be present, but other criteria ~~are~~were reviewed to determine proper timing of revenue recognition.

• Unless performed under a maintenance agreement, we ~~recognize~~recognized installation, service and maintenance revenue at the time the service is performed.

• We ~~recognize~~recognized revenue associated with maintenance agreements over the life of the contracts using the straight-line method, which approximates the expected timing in which applicable services are performed. Amounts collected in advance of revenue recognition ~~are~~were recorded as a current liability in the deferred revenue line of the consolidated balance sheet or long-term liability based on the time from the balance sheet date to the future date of revenue recognition.

• We ~~recognize~~recognized revenue on certain rental programs over the life of the rental agreements using the straight-line method. Amounts collected in advance of revenue recognition are recorded as a current or long-term liability based on the time from the balance sheet date to the future date of revenue recognition.


•	Shipping costs reimbursed by the customer are included in revenue.

Multiple element arrangements (“or MEAs”) are arrangements to sell products to customers that frequently include multiple deliverables. Our most significant MEAs ~~include~~included the sale of one or more of our CleanSource® UPS or CleanSource PowerHouse products, combined with one or more of the following products or services: design services, project management, commissioning and installation services, spare parts or consumables, and maintenance agreements. Delivery of the various products or performance of services within the arrangement may or may not coincide. Certain services related to design and consulting may occur prior to product delivery. Commissioning and installation typically take place within six months of product delivery, depending upon customer requirements. Maintenance agreements, consumables, and repair, maintenance or consulting services generally are delivered over a period of one to five years.

When arrangements include multiple elements, we allocate revenue to each element based on the relative selling price and recognize revenue when the elements have standalone value and the four criteria for revenue recognition have been met. We establish the selling price of each element based on Vendor Specific Objective Evidence (“VSOE”) if available, Third Party Evidence (“TPE”) if VSOE is not available, or Best Estimate of Selling Price (“BESP”) if neither VSOE nor TPE is available. We generally determine selling price based on amounts charged separately for the delivered and undelivered elements to similar customers in standalone sales of the specific elements. When arrangements include a maintenance agreement, we recognize revenue related to the maintenance agreement at the relative selling price on a straight-line basis over the life of the agreement.12

of services within the arrangement may or may not coincide. Certain services related to design and consulting may occur prior to product delivery. Commissioning and installation typically take place within six months of product delivery, depending upon customer requirements. Maintenance agreements, consumables, and repair, maintenance or consulting services generally are delivered over a period of one to five years.

When arrangements included multiple elements, we allocated revenue to each element based on the relative selling price and recognize revenue when the elements had standalone value and the four criteria for revenue recognition have been met. We established the selling price of each element based on Vendor Specific Objective Evidence, or VSOE, if available, Third Party Evidence, or TPE, if VSOE is not available, or Best Estimate of Selling Price, or BESP, if neither VSOE nor TPE is available. We generally determined selling price based on amounts charged separately for the delivered and undelivered elements to similar customers in standalone sales of the specific elements. When arrangements included a maintenance agreement, we recognized revenue related to the maintenance agreement at the relative selling price on a straight-line basis over the life of the agreement.

Any taxes imposed by governmental authorities on our revenue-producing transactions with customers are shown in our consolidated statement of operations on a net-basis; that is, excluded from our reported revenues.

Inventories

Inventories are priced at the lower of cost (using the first-in, first-out method) or market. We ~~estimate~~estimated inventory reserves on a quarterly basis and record reserves for obsolescence or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions, inventory turns and specific identification of items, such as product discontinuance, damaged goods or engineering/material changes.

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and marketability of products, the impact of new product introductions, inventory turns and specific identification of items, such as product discontinuance, damaged goods or engineering/material changes.

Warranty liability

Estimated warranty liability costs ~~are~~were accrued for each of our products at the time of sale. Our estimates ~~are~~were principally based on assumptions regarding the lifetime warranty costs of each product, including ~~where~~when little or no claims experience may exist. Due to the uncertainty and potential volatility of these estimates, changes in our assumptions could have a material effect on our reported operating results. Our estimate of warranty liability iswas reevaluated on a quarterly basis. Experience has shown that initial data for a new product can be very volatile due to factors such as product and component failure rates, material usage and service delivery costs in correcting product failures; therefore our process ~~relies~~relied upon long-term historical averages until actual data is available. As actual experience becomes available, it iswas used to modify the historical averages to ensure that the forecast is within the range of likely outcomes. The resulting balances ~~are~~were then compared to current spending rates to help ensure that the accruals are adequate to meet expected future obligations.

Stock-based compensation

Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as an expense ratably over the requisite service period of the award. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop our estimates based on historical data and market information that can change significantly over time. A small change in estimates used can have a relatively large impact on the estimated valuation.

We use the Black-Scholes option valuation model to value employee stock awards. We estimate stock price volatility based upon our historical volatility. Estimated option life and forfeiture rate assumptions are derived from historical data.

Liquidity and Capital Resources

Our primary ~~sources~~source of liquidity at December 31, ~~2015~~2016 ~~are~~was our cash ~~and~~on ~~cash~~hand ~~equivalents,~~of ~~our~~approximately ~~bank~~$1.6 ~~credit~~million. We ~~facilities~~have ~~and~~no ~~projected~~credit ~~cash~~facility ~~flows~~and ~~from~~no ~~operating~~operations ~~activities.~~that Ifcould webe ~~meet~~the ~~our~~source ~~cash~~of ~~flow~~additional ~~projections~~cash. However, we ~~expect~~are ~~that~~in wethe ~~will~~process ~~have~~of ~~adequate~~reviewing ~~capital~~how ~~resources~~we tocould ~~continue~~monetize ~~operating our business for at least~~ the ~~next~~intellectual ~~twelve~~property ~~months.~~we ~~Our~~retained ~~projections~~after ~~and our assumptions around~~ the ~~adequacy~~sale of our ~~liquidity~~discontinued ~~are~~operations ~~based~~to onLangley. We ~~estimates~~do ~~regarding~~not ~~expected~~currently ~~revenues~~have ~~and~~estimates ~~future~~of ~~costs.~~the ~~However,~~amount ~~there~~or ~~are~~timing ~~scenarios~~of inthe ~~which~~cash ~~our~~we ~~revenues~~ may ~~not~~receive ~~meet~~from ~~our~~this ~~projections,~~potential ~~our~~source. We ~~costs~~are ~~may~~in ~~exceed~~negotiations ~~our~~with ~~estimates~~several orpotential ~~our~~investors ~~working~~to ~~capital~~raise orfunds ~~capital~~through ~~expenditure~~the ~~needs~~sales ~~may~~of beour ~~greater~~equity ~~than anticipated~~securities. We ~~Further,~~expect ~~our~~that ~~estimates~~these ~~may~~funds ~~change~~would ~~and~~fund ~~future events or developments may also affect~~ our ~~estimates.~~ongoing ~~Any~~operating ofexpenses ~~these~~as ~~factors~~well ~~may~~as ~~change~~investments ~~our~~in ~~expectation~~profitable ofbusiness ~~cash~~acquisitions. We ~~usage~~expect inthat ~~2016~~any ~~and~~such ~~beyond~~acquisitions orwould ~~significantly~~also ~~affect~~involve ~~our~~borrowings ~~level~~under ofcredit ~~liquidity~~facilities.

~~Our~~If ~~Second~~we ~~Amended~~meet ~~and~~our ~~Restated~~cost ~~Loan and Security Agreement dated August 5~~projections, ~~2010~~we ~~(as~~expect ~~amended~~that onwe ~~March~~will 5,have ~~2012,~~adequate ~~August~~capital ~~15,~~resources ~~2012,~~to ~~and~~continue ~~July~~operating ~~28,~~for ~~2014,~~at least the ~~“Loan~~next ~~Agreement”)~~twelve ~~with~~months. Our ~~Silicon~~projections ~~Valley~~and ~~Bank~~our ~~(“SVB”)~~assumptions ~~gives~~around usthe ~~flexibility~~adequacy toof ~~help fund~~ our ~~business~~liquidity ~~operations~~are ~~and~~based ~~manage~~on ~~our~~estimates ~~working~~regarding ~~capital~~expected ~~requirements~~future costs. These ~~For~~costs ~~additional~~are ~~information~~currently ~~related~~limited to ~~the~~two ~~Loan~~executive ~~Agreement,~~employees ~~please~~and ~~refer~~corporate ~~to Footnote 4~~overhead. However, ~~“Revolving~~there ~~Credit~~are ~~Facility,” of the consolidated financial statements on pages 56 to 57 of this Form 10-K.~~

In March 2014, we sold approximately 3.7 million shares of common stock at a purchase price of $3.15 per share, for proceeds, net of fees and expenses, of approximately $10.4 million, in a public underwritten offering made under a shelf registration statement that we had filed with the SEC and that had been declared effective in June 2013. The proceeds from this offering were used by us to help fund our working capital requirements and for general corporate purposes.13

~~Should~~scenarios ~~additional~~in ~~funding~~which beour ~~required~~costs ormay ~~desirable,~~exceed weour ~~would~~estimates ~~expect to raise the required funds through borrowings~~ or ~~public or private sales of debt or equity securities. If~~ we ~~raise~~could ~~additional~~face ~~funds~~unexpected ~~through~~claims, ~~the~~including ~~issuance~~costs ofassociated ~~convertible~~with ~~debt~~a orlease ~~equity~~for ~~securities, the ownership of~~ our ~~existing~~former ~~stockholders~~headquarters, ~~could~~for bewhich ~~significantly diluted. If~~ we ~~obtain~~remain ~~additional debt financing~~responsible. Further, ~~a substantial portion of~~ our ~~operating~~estimates ~~cash flow~~ may bechange ~~dedicated to the payment of principal~~ and ~~interest~~future onevents ~~such~~or ~~indebtedness,~~developments ~~and~~may ~~the~~also ~~terms~~affect ~~of the debt securities issued could impose significant restrictions on~~ our ~~operations~~estimates. Any Weof dothese ~~not~~factors ~~know~~may ~~whether~~change ~~we will be able to secure additional funding, or funding on terms acceptable to us, to continue~~ our ~~operations~~expectation asof ~~planned.~~cash Ifusage ~~financing~~in isfiscal ~~not~~2017 ~~available,~~and ~~we may be required to reduce~~beyond, ~~delay~~ or ~~eliminate~~significantly ~~certain~~affect ~~activities~~our orlevel ~~to license or sell to others some~~ of ~~our proprietary technology~~liquidity.

If we raise additional funds through the issuance of convertible debt or equity securities, the ownership of our existing stockholders could be significantly diluted. If we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. We do not know whether we will be able to secure additional funding, or funding on terms acceptable to us, to continue our operations as planned.

We are currently in negotiations with Langley, the landlord and other potential tenants in an effort to reduce our obligations under the lease. We are also in discussions with a potential investor that has indicated that it is contemplating an investment in shares of our common stock. However, the investor has indicated that it would be a condition to the closing of its investment that we make a filing under Chapter 11 of the United States Bankruptcy Code pursuant to a prepackaged plan. The prepackaged plan would provide for the issuance of the shares of our common stock to the potential investor in a manner which would not make the rights under our stockholders rights plan exercisable . In addition, the prepackaged plan would also provide for the settlement our lease obligation. We do not have a definitive agreement with the potential investor, and we cannot assure you that the transactions described above will be consummated.

Significant uses of cash

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Operating Activities

The following table summarizes the yearly changes in cash used in operating activities (in thousands):

Year	AnnualAmount			Change fromPrior Year			PercentChange
2015	$	(1,611	)	$	5,617		78	%
2016	$	(7,169	)	$	(5,590	)	(354	)%
2014	$	(7,228	)	$	(5,921	)	(453	)%
2015	$	(1,579	)	$	5,649		78	%
2013	$	(1,307	)	$	4,683		78	%

Cash used in operating activities was approximately $17.62 million in ~~2015~~fiscal 2016 compared to approximately $71.26 million in ~~2014~~2015. ~~Cash~~The increase in cash used in operating activities in fiscal 2016 was primarily related to our net loss from continuing operations of $61.54 million ~~partially~~and ~~offset~~cash used by ~~the reduction in~~ our ~~accounts~~discontinued ~~receivable~~operations of $2.5.7 million ~~and~~which ~~non~~included ~~cash~~the ~~stock~~loss ~~based~~on ~~compensation~~discontinued operations of $17.48 million. ~~Changes~~partially inoffset ~~our~~by ~~net~~stock ~~working~~based ~~capital~~compensation ~~resulted in cash provided~~ of approximately $2.67 million ~~in 2015, compared to $3~~.1 ~~million~~Changes in ~~2014. The frequent changes in~~ our net working capital ~~can~~resulted ~~result~~ in ~~very~~cash ~~large~~used ~~fluctuation in inventory, payables and receivables, even weekly, based on the large size~~ of ~~some~~approximately ~~of our orders. Our~~ $01.3 million ~~change~~ in ~~inventory~~2016, ~~also~~compared ~~includes~~to ~~a non-~~cash ~~charge~~provided of approximately $02.15 million in 2015 ~~related to items purchased as inventory but later capitalized to property and equipment as test units~~.

Our top five customers represented 56% of our 2015 total revenue and 63% of our total receivables at December 31, 2015. As a result of this customer concentration, our failure to collect receivables from any of these customers in a timely manner could have a significant adverse effect on our liquidity. This risk may potentially increase as we sell more modular infrastructure solutions due to their higher average selling price. We do continue to request deposits and periodic payments from large customers where commercially possible, particularly for projects with multiple deliverables. However, the amount of such advance payments can fluctuate significantly on a quarterly basis, depending on the size and scope of customer orders at any point in time. As a result, we will need to continue to focus on management of cash and working capital in 2016 to manage the level of funds we use in our operating activities.

Cash used in operating activities was $7.2 million in 2014 compared to $1.3 million in 2013. Cash used in operating activities was primarily related to our net loss of $12.8 million partially offset by the change in our inventory of $5.3 million initiated by our current management team to bring inventory levels down. Changes in our net working capital resulted in cash provided of $3.1 million in 2014, compared to cash used of $4.3 million in 2013. Our change in inventory includes a non-cash charge of $44,000 in 2014 related to items purchased as inventory for our latest generation UPS product, but later capitalized to property and equipment as test units.

Investing Activities

Investing activities primarily ~~consist~~consisted of the sale of our discontinued operations and the purchases of property and equipment for our discontinued operations. The cash used in investing activities increased to $03.82 million in ~~2015~~2016 from $0.38 million in ~~2014~~2015, aswhich wewas ~~invested~~primarily ~~more~~due into ~~capital~~the ~~improvements~~sale inof ~~2015. Capital~~our ~~expenditures~~discontinued ~~increased~~operations partially offset by our reduction in ~~2015~~capital ~~from~~expenditures ~~2014~~to bypreserve ~~approximately~~cash ~~$0.5~~in ~~million~~2016. The ~~Our~~cash ~~capital~~used ~~expenditures~~ in ~~2015~~investing ~~primarily~~activities included ~~investments~~$3.3 inmillion ~~equipment~~paid to ~~support~~close ~~our~~the ~~demonstration~~sale ~~units,~~of ~~manufacturing~~the ~~facility,~~discontinued ~~computers and software~~operations.

The cash used in investing activities decreased to $0.3 million in 2014 from $0.9 million in 2013 as we invested less in capital improvements in 2014. Capital expenditures decreased in 2014 from 2013 by approximately $0.7 million. Our capital expenditures in 2014 primarily included investments in equipment to support our manufacturing facility, computers, software, and test units of our latest generation UPS product.

Financing Activities

Funds used in financing activities during ~~2015~~2016 was $933,000, compared to ~~funds provided by financing activities of~~ $~~10.6~~9,000 ~~million~~ in ~~2014,~~2015 aand ~~$10.6 million decrease. This decrease is~~ primarily ~~due~~included tonet ~~the 2014 sale of approximately 3.7 million shares of our common stock at a purchase price of $3.15 per~~ share, ~~for~~settlement ~~proceeds, net~~ of ~~fees~~equity ~~and expenses, of approximately $10~~awards.~~4 million, in a public underwritten offering.~~

Funds provided by financing activities during 2014 was $10.6 million compared to $0.6 million in 2013, a $10.0 million increase. This increase primarily includes the sale of approximately 3.7 million shares of our common stock at a purchase price of $3.15 per share, for proceeds, net of fees and expenses, of approximately $10.4 million, in a public underwritten offering. Proceeds from the exercise of employee stock options were approximately $0.1 million during 2014.14

Table of Contents

Future uses of cash

We believe that our cash ~~and~~on ~~investments,~~hand ~~projected cash flows from operations and sources of available liquidity~~ will be sufficient to fund our operations for the next twelve months. However, aunexpected ~~sudden~~costs ~~change~~or inclaims ~~business~~against ~~volume~~us, ~~positive~~including orthe ~~negative,~~settlement ~~from any~~ of ~~our~~potential ~~business~~lease ~~or channel partners~~obligations, ~~or in our direct business, or any customer-driven events such as order or delivery deferral,~~ could significantly impact our expected ~~revenues and~~ cash needs. ~~The continuing global economic instability and currency fluctuation has increased the already present challenge of predicting future revenues.~~ We docontinue ~~have some opportunity~~ to ~~adjust~~work ~~expenditures~~towards ormonetizing ~~take other measures to reduce~~ our ~~cash~~retained ~~consumption~~intellectual ifproperty ~~we see~~ and ~~anticipate~~to aseek ~~shortfall~~new ininvestors ~~revenue.We~~as ~~can also identify~~ additional sources of ~~funding~~cash iffor wefuture ~~anticipate~~investments ~~an increase~~ in ~~our~~new ~~working capital requirements due to increased revenues or changes in our revenue mix~~businesses. ~~A significant increase in sales, especially in our MIS business, would likely increase our working capital requirements, due to the longer production time and cash cycle of sales of these products.~~

~~Other~~The ~~factors~~purchase agreement with Langley contemplated that the parties would execute a sublease under which Langley would assume the full lease obligations related to our headquarters facility for one year and for one third of the space and obligations for the remaining term of the lease. The landlord of the facility refused to consent to the sublease, and Langley agreed to close on the sale without the sublease of the facility. Langley has been occupying the facility with our former employees and paying to us the full amount of the rent, and we have been making the payment to the landlord. We are negotiating with the landlord to approve a sublease of the facility to Langley. The landlord has notified us that it considers us in breach of the lease agreement for the facility. If we are unable to negotiate a sublease with the landlord and Langley, we would continue to be responsible for rent payments under the lease agreement, and Langley may ~~affect~~be prohibited from using the facility. We are working to mitigate this exposure through continued negotiations with the parties and the engagement of a commercial real estate broker to find a tenant for the space that Langley is not expected to occupy after one year. We have accrued $1.2 million as the best estimate of the expense which may be required to settle our obligation under the lease agreement. This amount represents one year of lease costs including common area maintenance, insurance and property taxes. Payment of the accrued expense would substantially reduce the Company’s liquidity.

~~Our~~We ~~cash requirements will depend on many factors, including any sales growth, the market acceptance of our products, the gross profit we~~ are ~~able~~currently toin ~~generate~~negotiations with ~~our sales~~Langley, the ~~timing~~landlord and ~~level~~other ofpotential ~~development~~tenants ~~funding,~~in ~~the~~an ~~rate~~effort ofto ~~expansion~~reduce of our ~~sales~~obligations ~~and~~under ~~marketing activities,~~ the ~~rate of expansion of our manufacturing processes, and the timing and extent of research and development projects~~lease. ~~Although~~We we are ~~not~~also ain ~~party~~discussions ~~to any agreement or letter of intent~~ with ~~respect to~~ a potential ~~acquisition~~investor orthat ~~merger,~~has weindicated ~~may~~that ~~enter~~it ~~into~~is ~~acquisitions~~contemplating oran ~~strategic~~investment ~~arrangements~~ in ~~the~~shares ~~future~~of ~~to help support~~ our ~~growth~~common stock. However, ~~which~~the ~~could~~investor ~~also~~has ~~require~~indicated usthat toit ~~seek~~would ~~additional~~be ~~equity~~a orcondition ~~debt~~to ~~financing.~~the ~~Should~~closing ~~additional~~of ~~funding~~its beinvestment ~~required~~that ~~or desirable,~~ we ~~may~~make ~~need~~a tofiling ~~raise~~under ~~the~~Chapter ~~required~~11 ~~funds~~of ~~through~~the ~~borrowings~~United orStates ~~public~~Bankruptcy orCode ~~private~~pursuant ~~sales~~to ofa ~~debt~~prepackaged ~~or equity securities~~plan. IfThe weprepackaged ~~raise~~plan ~~additional~~would ~~funds~~provide ~~through~~for the issuance of ~~convertible debt or equity securities,~~ the ~~percentage~~shares ~~ownership~~ of our ~~existing~~common ~~stockholders~~stock ~~could~~to bethe ~~significantly~~potential ~~diluted.~~investor Ifin wea ~~obtain~~manner ~~additional~~which ~~debt~~would ~~financing,~~not amake ~~substantial~~the ~~portion~~rights ofunder our ~~operating~~stockholders ~~cash~~rights ~~flow~~plan ~~may~~exercisable. beIn ~~dedicated~~addition, to the ~~payment~~prepackaged ofplan ~~principal~~would ~~and~~also ~~interest~~provide onfor ~~such indebtedness, and~~ the ~~terms~~settlement ~~of the debt securities issued could impose significant restrictions on~~ our ~~operations~~lease obligation. We do not ~~know~~have ~~whether~~a wedefinitive ~~will~~agreement bewith ~~able~~the topotential ~~secure additional funding~~investor, orand ~~funding~~we oncannot ~~terms~~assure ~~acceptable~~you tothat ~~us,~~the totransactions ~~continue~~described ~~our~~above ~~operations~~will ~~as planned. If financing is not available, we may~~ be ~~required to reduce, delay or eliminate certain activities or to license or sell to others some of our proprietary technology~~consummated.

Off-Balance Sheet Arrangements

During the years ended December 31, ~~2015,~~2016 ~~2014,~~ and ~~2013~~2015, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

New Accounting Pronouncements

Refer to Footnote 1, “Summary of Significant Accounting Policies,” of the consolidated financial statements ~~on pages 53 to 54~~ of this Form 10-K.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and therefore are not required to provide a disclosure under this item.


ITEM 8.	Financial Statements and Supplementary Data.

The ~~Financial~~information ~~Statements~~required ~~and~~by ~~Selected~~this ~~Quarterly~~Item ~~Financial~~is ~~Data~~set ~~required~~forth byin ~~this~~our ~~item~~Consolidated Financial Statements and Notes thereto are included in Part IV, Item 15(a)(1) ~~and~~of ~~are~~this ~~presented~~Annual ~~beginning~~Report on ~~Page~~Form 4310-K.

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ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.


ITEM 9A.	Controls and Procedures.

Effectiveness of Disclosure Controls and Procedures.

Our Chief Executive Officer and our Chief Financial Officer, based on the evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that, as of December 31, ~~2015~~2016, our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process, designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2015~~2016. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework issued by COSO (2013 framework). A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Based on our assessment, management concluded that, as of December 31, ~~2015~~2016, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting during the quarter ended December 31, ~~2015~~2016 that have materially affected, or are reasonably likely to affect materially, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Forward looking statements regarding the effectiveness of internal controls during future periods are subject to the risk that controls may become inadequate because of change in conditions, or that the degree of compliance with the policies and procedures may deteriorate.


ITEM 9B.	Other Information.

None.

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PART III.


ITEM 10.	Directors, Executive Officers and Corporate Governance.

~~Pursuant~~Directors toand ~~General Instruction G(3) of Form 10-K, the information required by this item relating to our executive officers is included under the caption “~~Executive Officers ~~of the Company” in Part I of this Form 10-K.~~

~~The~~Our ~~other~~board ~~information~~of ~~required~~directors ~~under~~currently ~~Item~~consists 10of ~~will~~two benon-executive ~~included~~directors and one executive director. Our board of directors, in accordance with our ~~Proxy~~Certificate ~~Statement~~of ~~for~~Incorporation, ~~the~~is currently divided into three classes, with Class I having one director, Stephen J. Clearman, with two vacancies, Class II having two directors, Daryl Dulaney and Mark A. Ascolese, with one vacancy, and Class III having three vacancies. The terms of each class expire at successive annual meetings so that stockholders elect one class of directors at each annual meeting. In November of 2016, ~~Annual~~after ~~Meeting~~the closing of ~~Stockholders~~the sale of substantially all of our assets to Langley on November 19, ~~which~~2016, ~~information~~each isof ~~incorporated~~T. ~~into~~Patrick ~~this~~Kelly, ~~Annual~~Steven ~~Report~~Sams, byJames ~~reference~~E. J. deVenny III, Peter Gross and Robert S. Greenberg tendered their resignations from their position on our board of directors.



Name	Age	Current Position
Daryl Dulaney	63	Chairman of the Board of Directors

Stephen J. Clearman	66	Director

Mark A. Ascolese	66	President, Chief Executive Officer and Director

James A. Powers	55	Chief Financial Officer and Vice President of Finance Director

Daryl Dulaney was appointed to our board of directors in January 2016 and was appointed Chairman of our board of directors in April 2016. Mr. Dulaney is a corporate leader with more than 30 years of experience. Before retiring in October 2014, he served as CEO of Siemens Infrastructure and Cities Sector for North America, a provider of sustainable technologies for metropolitan areas and their infrastructures. During that time, he also served as CEO of Siemens Industry, Inc., a position he held since October 2009. His career at Siemens Industry, Inc., spanned more than 18 years in various executive leadership positions. Prior to his time at Siemens, Dulaney served in various management positions for suppliers of building automation and process control products.

We believe Mr. Dulaney’s qualifications to serve on our board include his extensive executive management experience that includes six years as the CEO of a multi-billion dollar organization in a relevant industry. His experience in successfully growing small field offices into larger operations, specifically in the building automation and infrastructure industries, has further benefited our board of directors. In addition, his significant functional experience in sales and marketing, human resources, and finance has added to the overall knowledge and effectiveness of our board of directors.

Stephen J. Clearman was appointed to our board of directors in June 2012. Since 2003, Mr. Clearman has served as managing partner and co-founder of Kinderhook Partners, LLC, an investment advisory firm he co-founded. Mr. Clearman has been a director of a number of public and privately held companies.

In March 2012, we entered into a Securities Purchase Agreement pursuant to which Kinderhook Partners purchased 1,764,705 shares of our common stock for an aggregate purchase price of approximately $6.0 million. In connection with the transaction, we entered into a Side Letter Agreement with Kinderhook Partners pursuant to which Mr. Clearman was appointed to our board of directors. We are obligated to use our reasonable best efforts to include Mr. Clearman as a nominee for election to our board of directors in any year in which such election is required by our governing documents or applicable law.

We believe Mr. Clearman’s qualifications to serve on our board of directors include previous general and financial management experience with rapidly growing and publicly traded technology companies. We also believe this skill set qualifies him to serve on the Nominating and Corporate Governance Committee and Compensation Committee of our Board of Directors.

Mark A. Ascolese became our President and Chief Executive Officer on October 14, 2013. Mr. Ascolese has more than 40 years of experience serving a variety of mission critical and energy markets, including data centers. Prior to joining us, Mr. Ascolese first served as CEO and then as Executive Board Chairman of Power Analytics Corporation (now part of Causam Energy, Inc.), an electrical infrastructure enterprise software firm focused on the mission critical and smart grid markets. Mr. Ascolese was appointed CEO of Power Analytics in March 2008. In August 2012, Mr. Ascolese was appointed Executive Board Chairman at Power Analytics and served in this role until joining us in October 2013. From 2000 through 2002, including during our initial public offering, Mr. Ascolese served as our Senior Vice President of Business Development.

As the only management representative on our board, Mr. Ascolese provides an insider’s perspective to our board discussions about our business and strategic direction. In addition, his extensive senior management and executive experience within the global power supply industry having spent more than 20 years with Powerware Corporation, a global uninterruptible power supply (UPS) manufacturer, proved beneficial in managing our recently discontinued operations.

James A. Powers has served as our Chief Financial Officer and Vice President of Finance since December 4, 2013. From May 2013 until he joined us, Mr. Powers served as Senior Vice President of Finance of the U.S. Windows and Doors division of Ply Gem Industries, Inc., a North American manufacturer of exterior building products. In this role, he managed the finance and IT organizations, leading all accounting, forecasting, budgeting, reporting, business analysis, internal controls, and working capital management activities. From May 2006 through May 2013, Mr. Powers served in various executive finance positions at Xerium Technologies Inc., a global manufacturer and supplier of consumable products and services used in various industries, including as Vice President and Global Controller from January 2011 through May 2013, and Vice President of Finance, North America, from June 2008 through December 2010.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership of our common stock and other equity securities with the SEC on a timely basis. Based solely upon our review of Forms 3, 4 and 5 and amendments to these forms furnished to us, we believe that all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on a timely basis all such required reports during our 2016 fiscal year.

Code of Ethics

Our Code of Business Conduct and Ethics, which is our code of ethics applicable to all directors, officers, employees and consultants worldwide, embodies our global principles and practices relating to the ethical conduct of our business and our long-standing commitment to honesty, fair dealing and full compliance with all laws affecting our business. The Code of Business Conduct and Ethics is intended to comply with Item 406 of Regulation S‑K of the Exchange Act and the NASDAQ Marketplace Rules. Our Code of Business Conduct and Ethics is posted on our Internet website under the “Corporate Governance” link on our “Investor Relations” page.

Audit Committee

The members of our Audit Committee through November 2016 were Messrs. Kelly, deVenny and Dulaney. Messrs Kelly and deVenny resigned in November 2016. We do not currently have an Audit Committee.

Mr. Kelly served as the Chairman of the Audit Committee until his resignation on November 22, 2016. Our Audit Committee held five meetings during 2016. Our board of directors determined that all of the members of our Audit Committee in 2016 were “independent” as that term is defined in Rule 5605(a)(2) of the NASDAQ Marketplace Rules and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934. Our board of directors determined that Mr. Kelly was qualified as an “audit committee financial expert” under Item 407(d)(5) of Regulation S‑K.


ITEM 11.	Executive Compensation.

~~The~~SUMMARY ~~information~~COMPENSATION ~~required by this Item will be included in our definitive Proxy Statement for the 2016 Annual Meeting of Stockholders, which information is incorporated into this Annual Report by reference.~~TABLE

The following table summarizes the compensation for the fiscal years ended December 31, 2016 and December 31, 2015 earned by or awarded to, as applicable, our principal executive officer and our principal financial officer as of December 31, 2016. In this Annual Report on Form 10-K we refer to such officers as our “named executive officers.” We had no other executive officers as of December 31, 2016



Name and Principal Position	Year	Salary ($)		Option Awards ($)			Stock Awards ($)	Non-Equity Plan Compensation ($)		All Other Compensation ($)		Total ($)
		[1]		[2]			[3]	[4]		[5]
Mark A. Ascolese, President and Chief Executive Officer	2016	$	418,846	$	79,500	$	—	$	—	$	—	$	498,346
Mark A. Ascolese, President and Chief Executive Officer	2015	$	450,000	$	388,020	$	—	$	481,950	$	708	$	1,320,678

James A. Powers, Chief Financial Officer and Vice President of Finance	2016	$	260,615	$	—	$	79,200	$	—	$	—	$	339,815
	2015	$	280,000	$	129,340	$	—	$	179,928	$	661	$	589,929

Randall J. Adleman, Vice President of Global Sales and Marketing	2016	$	21,154	$	—	$	—	$	16,554	$	125,000	$	162,708
	2015	$	250,000	$	64,670	$	—	$	137,839	$	590	$	453,099

[1] Represents total salary earned during the calendar years 2016 and 2015. In 2016, all U.S. based employees, including the named executive officers, participated in an unpaid furlough, resulting in one week of unpaid leave each quarter through the date of the acquisition of our discontinued operations by Langley.

[2] The amounts reported in this column represent the aggregate value of the stock options granted to our named executive officers during 2016 and 2015, respectively, based on their grant date fair value, as determined in accordance with the share-based payment accounting guidance under ASC 718, excluding the impact of estimated forfeitures related to service-based vesting. Refer to the section titled "Stock-Based Compensation Expense" under Note 1, "Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our stock option awards.

[3] Represents the aggregate value of stock awards granted to our named executive officers during 2016 based on the grant date fair value, as determined in accordance with the share-based accounting guidance under ASC 718. Refer to section titled "Stock-Based Compensation Expense" under Note 1, "Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our stock awards.

[4] Represents amounts earned under our 2015 Management Incentive Plan for Mr. Ascolese and Mr. Powers and commissions earned by Mr. Adleman under his 2015 Management Incentive Plan. In October 2016, our board of directors determined that Mr. Ascolese would be paid the amount he earned 50% in cash and 50% in shares of our common stock, based upon the trading price of our common stock as of December 31, 2015, payable upon the closing of a financing to implement our new acquisition strategy. Mr. Powers was paid the amount he earned in cash prior to the closing of the acquisition of our discontinued operations by Langley. The payment to Mr. Powers is subject to repayment if Mr. Powers voluntarily terminates his employment with us within six months following November 19, 2016, the date of that closing, and prior to us closing on a financing to implement our new acquisition strategy, prorated for the period of time he is employed by us during that six month period.

[5] Mr. Adleman's employment with us was terminated on February 2, 2016. Includes Mr. Adleman's severance in accordance with his employment agreement.

Narrative Disclosure to Summary Compensation Table

2015 Annual Bonus

Management Incentive Program. Our 2015 Management Incentive Program, or MIP, was an annual bonus program designed to motivate and reward our named executive officers for their contributions toward the achievement of short-term financial and operating goals that we believed drove our operating results and created long-term stockholder value. All of our named executive officers participated in this program.

Our Compensation Committee, as the administrator of the MIP, has the sole discretion and authority to change the payout calculation, the performance metrics and to increase or decrease the amount of the payout under the MIP. Notwithstanding the foregoing, MIP payouts are based on each participant’s base salary, target bonus percentage, and a company performance multiplier, calculated as follows:



Base salary	X	Participant's target bonus %	X	Company Performance multiplier	=	Participant's payout

Our Compensation Committee, with recommendations provided by our Chief Executive Officer, established an annual target award, expressed as a percentage of the executive’s base salary. For 2015, the target award level for Mr. Ascolese was 100% of base salary and the target award level for Mr. Powers was 60% of base salary. The Compensation Committee determines the actual bonus earned by a named executive officer under this program and has discretion to choose to award a bonus or not, and to modify the actual award amount, in light of all relevant factors after completion of the fiscal year.

The company performance multiplier was based on our performance for three financial metrics - Bookings, Adjusted EBITDA, and Operating Cash Flow. Based on our performance, the company performance multiplier could range from 0% (in which case there would be no payout under the MIP) up to 200%. The company performance multiplier is equally weighted among each of the three financial metrics. The portion of the payout attributed to a metric will be 0% if the minimum threshold for that metric is not met. If the applicable minimum threshold is met, the 1/3 portion of the payout attributable to a metric will range from 25% to 200%, based on our performance. However, if the Adjusted EBITDA minimum threshold is not met and the Bookings minimum threshold is met, the payout for the Bookings metric will be a straight-line calculation up to a cap of 150%.

Our Compensation Committee determined that the corporate goals established for 2015 were attainable, though reasonably difficult to achieve. Since our actual 2015 results achieved the minimum threshold amounts, a payout was earned under this program. After considering the input of our Chief Executive Officer, our Compensation Committee determined to defer all cash payouts under the MIP for Mr. Ascolese and Mr. Powers until a later time to be determined in our Compensation Committee's discretion. In October 2016, our Compensation Committee and board of directors determined that Mr. Ascolese will be paid the amount he earned 50% in cash and 50% in shares of our common stock, based upon the trading price of our common stock as of December 31, 2015, payable upon the closing of a financing to implement our new acquisition strategy. Mr. Powers was paid the amount he earned in cash after the closing of the acquisition of our discontinued operations by Langley. The payment to Mr. Powers is subject to repayment if Mr. Powers voluntarily terminates his employment with us within six months following November 19, 2016, the date of that closing, and prior to us closing on a financing to implement our new acquisition strategy, prorated for the period of time he is employed by us during the six month period.

2016 MIP

Our 2016 MIP, which was similar to the 2015 MIP, was approved by our Compensation Committee on February 22, 2016. The Compensation Committee determines the actual bonus earned by a named executive officer under this program and has discretion to choose to award a bonus or not, and to modify the actual award amount, in light of all relevant factors after completion of the fiscal year. Due to the sale of our discontinued operations to Langley during the fiscal year, our Compensation Committee determined that no bonuses should be awarded under the program.

Policy Regarding Tax Deductibility of Compensation

Within our performance-based compensation programs, we aim to compensate our senior executive management team in a manner that is tax efficient for us. However, our Compensation Committee may determine that it is appropriate to pay compensation which is not deductible from time-to-time.

Timing of Grants and Insider Trading Policy

Equity awards to our executive officers and other key employees were typically granted annually in conjunction with the review of their respective individual performance. This review took place at regularly scheduled meetings of our Compensation Committee, which were typically held in conjunction with the meetings of our board of directors during the first quarter of each year. Equity awards were automatically granted to our non-employee directors on the date of each Annual Meeting of our stockholders, in accordance with the terms of our director compensation policy. Grants to newly hired executive officers were typically made at the next regularly scheduled Compensation Committee meeting or at a special meeting on or following their hire date, with vesting typically commencing from the actual hire date. The exercise price of all stock options has historically been set at the closing price of our common stock on The NASDAQ Capital Market on the date of grant of the award, which is the date of approval of the award or the day that the stock trading black-out window under our insider trading policy opens if our Compensation Committee approved the award while the stock trading window was closed. Our insider trading policy prohibits all of our directors and named executive officers from making short sales of our stock, engaging in hedging transactions and other derivative securities involving our stock, using our securities as collateral for loans, and holding our securities in margin accounts.

Perquisites and Other Personal Benefits

Our Compensation Committee did not believe that providing an executive perquisite is consistent with our pay-for-performance compensation philosophy. In this regard, it should be noted that we have not provided defined benefit pension arrangements, post-retirement health coverage, or similar benefits for our executives or employees.

We provided employee benefits including a 401(k) plan without any matching contributions prior to the sale of our operations and the termination of our employees, and coverage under health and insurance plans, which were the same for all employees. We also offered life insurance for all employees that provides coverage up to an employee’s salary, with a maximum of $200,000. For all other compensation, see the “Summary Compensation Table.”

Employment Arrangements with Executive Officers

In connection with their initial employment, each named executive officer executed an offer letter and entered into a severance agreement. Please refer to the information under “Potential Payments Upon Termination or Change in Control” for information regarding other employment agreements in place with our named executive officers.

Mr. Ascolese’s offer letter provides that he will be paid an annual base salary of $450,000 and, beginning with fiscal year 2014, would be eligible to earn a bonus of up to 100% of his base salary at the target objective, subject to the terms and conditions of our executive bonus program. The offer letter also provides for vacation and health benefits and further provides that Mr. Ascolese will, subject to requisite approval, serve on our board of directors for as long as he is employed as our Chief Executive Officer.

Mr. Powers’ offer letter provides that he will be paid an annual base salary of $280,000 and would be eligible to participate in our executive bonus program with an annual target of 60% of base salary. The offer letter also provides for vacation and health benefits.

The following table of “Outstanding Equity Awards at Fiscal Year End” shows the equity awards held by our named executive officers as of December 31, 2016.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END - 2016



	Option Awards
Name	Number of securities underlying unexercised options (#) Exercisable	Number of securities underlying unexercised options (#) Unexercisable	Option exercise price ($)	Option expiration date	Number of options vested as of 12/31/16

Mark A. Ascolese, President and Chief Executive Officer	340,000	—	2.91	11/21/2023	340,000	[1]
Mark A. Ascolese, President and Chief Executive Officer	300,000	—	2.00	2/25/2025	300,000	[3]
	150,000	—	0.99	2/25/2026	150,000	[4]

James A. Powers, Chief Financial Officer and Vice President of Finance	175,000	—	3.39	12/4/2023	175,000	[2]
	100,000	—	2.00	2/25/2025	100,000	[3]

[1] These options vested over a four-year period from November 21, 2013, with 25% of the award vesting on November 21, 2014 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with us. The vesting of these options automatically vested upon the closing of the sale of substantially all of our assets to Langley on November 19, 2016.

[2] These options vested over a four-year period from December 4, 2013, with 25% of the award vesting on December 4, 2014 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with us. The vesting of these options automatically vested upon the closing of the sale of substantially all of our assets to Langley on November 19, 2016.

[3] These options vested over a four-year period from February 25, 2015, with 25% of the award vesting on February 25, 2016 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with us. The vesting of these options automatically vested upon the closing of the sale of substantially all of our assets to Langley on November 19, 2016.

[4] These options vested over a four-year period from February 25, 2016, with 25% of the award vesting on February 25, 2017 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with us. The vesting of these options automatically vested upon the closing of the sale of substantially all of our assets to Langley on November 19, 2016.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

Amended and Restated 2010 Equity Incentive Plan

Under our Amended and Restated 2010 Equity Incentive Plan, which we refer to as the 2010 Plan, in the event of a Change in Control (as defined in the 2010 Plan), each outstanding Award (as defined in the 2010 Plan) will be treated as the Administrator (as defined in the 2010 Plan) determines without a participant’s consent, including, without limitation, that (i) Awards will be assumed, or substantially equivalent Awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s Awards will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an Award will lapse, in whole or in part, prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger or Change in Control; (iv) (A) the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the participant’s rights as of the date of the occurrence of the transaction, or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing.

For purposes of the 2010 Plan, “Change in Control” means the occurrence of any of the following events: (i) a change in the ownership of us which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of our stock that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of our stock; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any

one Person, who is considered to own more than fifty percent (50%) of the total voting power of our stock will not be considered a Change in Control; (ii) if we have a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control of us that occurs on the date that a majority of members of our board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors prior to the date of the appointment or election (for purposes of this subsection (ii), if any Person is considered to be in effective control of us, the acquisition of additional control of us by the same Person will not be considered a Change in Control); or, (iii) a change in the ownership of a substantial portion of our assets that occurs on the date that any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from us that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of our assets immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of our assets: (A) a transfer to an entity that is controlled by our stockholders immediately after the transfer, or (B) a transfer of our assets to: (1) a stockholder of us (immediately before the asset transfer) in exchange for or with respect to our stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by us, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all of our outstanding stock, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of our assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with us. Notwithstanding the foregoing, a transaction shall not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Internal Revenue Code of 1986, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time. The sale of substantially all of our assets to Langley constituted a “Change in Control” under the 2010 Plan.

In the event that the successor corporation does not assume or substitute for an Award (or portion thereof), then (i) all of an named executive officer's outstanding options and stock appreciation rights that are not assumed or substituted for will vest and become immediately exercisable (including shares as to which such Awards would not otherwise be vested or exercisable), (ii) all restrictions on Restricted Stock, Restricted Stock Units, and Performance Shares/Units (each as defined in the 2010 Plan) not assumed or substituted for will lapse and, (iii) with respect to Awards with performance-based vesting not assumed or substituted for, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions with respect to such Awards will be deemed satisfied. In addition, if an option or stock appreciation right is not assumed or substituted for in the event of a Change in Control, the Administrator will notify the participant in writing or electronically that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period. Langley did not assume or substitute any Awards. On November 17, 2016, our board of directors, as Administrator, determined to accelerate the vesting of all Awards, and set the exercise period for all outstanding options held by employees whose service with us terminated at ten days after the closing of the asset sale.

Termination and Change in Control Agreements

Each of Messrs. Ascolese and Powers has entered into a severance agreement (“Severance Agreements”). Upon termination without Cause (as defined in the Severance Agreements) or resignation for Good Reason (as defined in the Severance Agreements), Mr. Ascolese and Mr. Powers are each entitled to severance equal to twelve months of his respective then-current base salary, as well as reimbursement of health benefits during such period and vesting of all unvested options and restricted stock would be accelerated by twelve months. The Severance Agreements further provide that each executive execute a release of claims in favor of us, and the Severance Agreement signed by Mr. Powers includes noncompetition and non-solicitation covenants for a period of up to six months following his termination of employment. Mr. Ascolese’s Severance Agreement includes noncompetition and non-solicitation covenants for a period of up to twelve months following his termination of employment.

Each of the Severance Agreements also provides that if within twelve months following a Change in Control (as defined in the Severance Agreements) the executive officer’s employment is terminated for reasons other than Cause, or by the executive for Good Reason, then any unvested options or shares of restricted stock held by the executive on the date of such Change in Control would accelerate and vest in full as of the date of the termination. The sale of substantially all of our assets to Langley constituted a “Change in Control” under the Severance Agreements.

The table set forth below sets forth the payments for which each named executive officer would be eligible if his employment had been terminated on December 31, 2016 by us for reasons other than Cause or by the executive for Good Reason. The values in the table below include amounts earned through the time of termination and are only estimates of the amounts that

would be paid to these executives upon their termination. The actual amounts to be paid can only be determined at the time of a named executive officer’s separation from us. The benefits payable to the named executive officers in connection with a termination following a Change in Control as of December 31, 2016, would have been the same as if there was no Change in Control since, as set forth in footnote 1 below, the exercise price of all outstanding equity awards were higher than the fair market value of a share of our common stock at such time.

POTENTIAL PAYMENTS UNDER TERMINATION ARRANGEMENTS AND CHANGE IN CONTROL



	Salary ($)		Benefits ($)		Accrued Vacation Pay		Accelerated Vesting of Restricted Stock		Accelerated Vesting of Stock Options [1]		Total ($)

Mark A. Ascolese	$	450,000	$	18,143	$	—	$	—	$	—	$	468,143

James A. Powers	$	280,000	$	18,143	$	—	$	—	$	—	$	298,143

[1] Accelerated vesting has no value because the vesting of all options granted were already accelerated on the date of the Change in Control resulting from the sale of our discontinued operations to Langley. In general, options may be exercised only within three months of termination of employment.

DIRECTOR COMPENSATION - 2016

In 2016, each of our non-employee directors received the following fees for their service as a director:



Name	Fees earned or paid in cash $		Option awards ($)		Total compensation ($)
			[2]
T. Patrick Kelly	$	41,000	$	9,153	$	50,153

James E. J. deVenny III	$	32,000	$	9,153	$	41,153

Robert S. Greenberg	$	37,000	$	9,153	$	46,153

Stephen J. Clearman [1]	$	—	$	—	$	—

Daryl Dulaney	$	37,000	$	17,103	$	54,103

Peter Gross	$	30,000	$	9,153	$	39,153

Steven Sams	$	30,000	$	17,103	$	47,103

Total - all directors	$	207,000	$	70,818	$	277,818

[1] Mr. Clearman declined to receive director compensation (cash or equity) in 2016. The value of the relinquished compensation was $37,000 in fees and $9,153 in option awards (calculated as described in note 2 below).

[2] Reflects aggregate grant date fair value of option awards for the fiscal year ended December 31, 2016, calculated in accordance with the FASB ASC 718 (“ASC 718”), excluding the impact of estimated forfeitures related to service-based vesting. Refer to the section titled “Stock-Based Compensation Expense” under Note 1, “Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our stock option awards.

The following table shows the aggregate number of unexercised option awards (whether or not exercisable) outstanding for each of our non-employee directors who served in the year ended December 31, 2016, as well as the number of shares underlying option awards during 2016 and the grant date fair value of option grants made to directors during 2016:



	Aggregate number of unexercised options outstanding as of December 31, 2016


Ake Almgren (Retired Chairman)	96,000

T. Patrick Kelly	—

James E. J. deVenny III	—

Robert S. Greenberg	—

Stephen J. Clearman [1]	—

Daryl Dulaney	45,000
Peter Gross	—

Total - all directors	141,000

[1] Mr. Clearman declined to receive director compensation (cash or equity) in 2016.

Overview of Director Compensation and Procedures

We have used a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our board of directors. In setting director compensation, we considered the amount of time that directors expend in fulfilling their duties to us as well as the skill level required to serve as a member of our board of directors.



Service	Annual Fee ($)
Director fee	$	30,000
Chairman of the Board fee	$	20,000
Audit Committee participation fee	$	4,000
Audit Committee chairperson (in addition to fee for serving on the Audit Committee)	$	8,000
Compensation Committee participation fee	$	4,000
Compensation Committee chairperson (in addition to fee for serving on the Compensation Committee)	$	6,000
Nominating & Corporate Governance Committee participation fee	$	2,000
Nominating & Corporate Governance Committee chairperson (in addition to fee for serving on the Nominating & Corporate Governance Committee)	$	1,000

All of the above fees were paid to directors on a quarterly basis in arrears. When our board of directors appointed a special committee, additional compensation could be paid to those directors who serve on the special committees. We paid each director’s reasonable travel, lodging, meals and other expenses connected with their service on our board of directors.

On the date of our 2016 Annual Meeting of Stockholders, each non-employee director who continued to serve as a non-employee director was automatically granted an option to purchase 30,000 shares of our common stock. Under this program, on April 25, 2016 (the first day after the Annual Meeting when our stock trading window opened), each of Messrs. Dulaney, deVenny, Greenberg, Gross, Kelly and Sams received an option to purchase 30,000 shares of common stock with an exercise price of $0.57 per share, the closing sale price of our common stock on The NASDAQ Capital Market on the date of our 2016 Annual Meeting. Mr. Clearman declined to receive director compensation (cash or equity) for 2016. Annual awards fully vest on the day immediately prior to the next annual meeting of stockholders.

New non-employee directors were automatically awarded an option to purchase a pro-rata portion of 30,000 shares under our Amended and Restated 2010 Equity Incentive Plan upon joining our board of directors. However, because payment of the 2016 director cash fees is being deferred by the Compensation Committee to conserve cash, the Compensation Committee determined to award options to purchase 15,000 shares of our common stock to each of the new directors appointed at the beginning of 2016 for their initial grant. On February 25, 2016 (when our stock trading window opened), Mr. Dulaney and Mr. Sams each received an option to purchase 15,000 shares of common stock with an exercise price of $0.99 per share, the closing sale price of our common stock on The NASDAQ Capital Market on February 25, 2016. Options granted to new directors have an exercise price per share equal to the fair market value per share of the underlying shares of common stock at the date of grant and fully vest on the one year anniversary of the date of grant. No changes were made to the amount of cash compensation for the non-

employee members of our board of directors. However, the Compensation Committee determined to defer all cash compensation earned in 2016 until a time to be determined in the Compensation Committee's discretion.

Directors who are also our employees do not receive cash or equity compensation for service on the Board in addition to their compensation payable for their service as our employees.

Stock Ownership Guidelines

We have had a stock ownership policy that requires our non-executive directors to obtain a minimum level of ownership in our stock within five years after their appointment to our board of directors. The stock ownership policy requires the following for our non-executive directors:


•	With respect to all individuals who were non-executive directors on February 1, 2007 (the date of the initial adoption of our equity ownership policy), by February 1, 2012 the directors should own stock with a value equal to three times the annual retainer paid to members of our board of directors.


•	With respect to non-executive directors first appointed or elected to our board of directors after February 1, 2007, by the fifth-year anniversary of the date of each director's initial appointment or election, the director should own stock with a value equal to three times the annual retainer paid to the director.


•	The value of such stock is measured by the higher of the original purchase price or the current fair market value of the shares at the time of evaluation.

All of our non-executive directors were in compliance with this policy as of December 31, 2016. We do not have in place stock ownership guidelines for our named executive officers.

Indemnification Agreements

Our certificate of incorporation limits the liability of our directors to us and our stockholders for breaches of the directors’ fiduciary duties to the fullest extent permitted by Delaware law. In addition, our certificate of incorporation and bylaws provide for mandatory indemnification of our directors and officers to the fullest extent permitted by Delaware law. We also maintain directors’ and officers’ liability insurance and have entered into indemnification agreements with all of our directors and named executive officers.

Certain Relationships

In accordance with our Audit Committee charter, our Audit Committee has been responsible for reviewing and approving the terms and conditions of all related party transactions, including all transactions with directors, immediate family members of our directors and executive officers, or any entities with which such persons may have ownership or employment relationships. A report has been made annually to our Audit Committee disclosing all related parties that are employed by us and related party transactions or relationships that occurred during the year, if any. There were no reportable related party transactions or relationships during 2016.


ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

~~The information required by this Item will be included under the sections captioned “Ownership of Securities,” “~~Equity Compensation Plan Information” and “Potential Payments upon Termination or Change of Control” in our definitive Proxy Statement for the 2016 Annual Meeting of Stockholders, which information is incorporated into this Annual Report by reference.

The following table provides information about our common stock that, as of December 31, 2016, may be issued upon the exercise of options and rights under the following existing equity compensation plans (which are all of our equity compensation plans as of December 31, 2016):



Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options	Weighted Average Exercise Price of Outstanding Options ($)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A)
Equity Compensation Plans Approved by Stockholders	1,206,000	$	2.44	4,425,781
Equity Compensation Plans Not Approved by Stockholders	—	—		—
Total	1,206,000	$	2.44	4,425,781

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of March14, 2017, concerning “beneficial” ownership of our common stock, as that term is defined in the rules and regulations of the SEC, by: (i) all persons known by us to be beneficial owners of more than 5% of our outstanding common stock; (ii) each director; (iii) each “named executive officer,” as that term is defined in Item 402(a)(3) of SEC Regulation S-K; and (iv) all executive officers and directors as a group. Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities, including shares of common stock issuable upon the exercise of vested options that are immediately exercisable or exercisable within sixty (60) days, restricted stock units and shares of our restricted stock. Shares issuable pursuant to options that are exercisable, or convertible securities that are convertible, within 60 days of March 14, 2017 are deemed outstanding for the purposes of computing the percentage of shares owned by the beneficial owner, but are not deemed outstanding for purposes of computing the percentage of shares owned by any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. Percentage ownership calculations are based on 23,421,922 shares outstanding of our common stock as of March 14, 2017. Also, unless otherwise noted, the business address for each person is c/o P10 Industries, Inc., 2128 W. Braker Lane, BK 12, Austin, Texas 78758.



Beneficial Owner	Shares Beneficially Owned	Percentage of Shares Beneficially Owned
Named Executive Officers and Directors
Mark A. Ascolese	835,400	3.5	%
James A. Powers	347,840	1.5	%
Daryl Dulaney	85,000	*
Stephen Clearman (inclusive of shares held by Kinderhook Partners, L.P.)	3,530,597	15.1	%

All current directors and executives as a group (4 persons)	4,798,837	19.6	%

Other 5% stockholders:
Kinderhook Partners, L.P. (inclusive of shares held by Stephen Clearman)	3,526,597	15.1	%
R. Scott Asen	1,796,374	7.7	%
Joshua Ruch	1,286,429	5.5	%

* Less than one percent of the outstanding common stock.

Notes Regarding Beneficial Ownership Table:

Mark A. Ascolese. Includes 45,400 shares of outstanding common stock held indirectly and 790,000 shares of common stock issuable upon exercise of options.

James A. Powers. Includes 58,840 shares of outstanding common stock held directly and 14,000 shares of outstanding common stock held indirectly and 275,000 shares of common stock issuable upon exercise of options.

Daryl Dulaney. Includes 40,000 shares of outstanding common stock held directly and 45,000 shares of common stock issuable upon exercise of options.

Stephen J. Clearman. Consists of 3,526,597 shares of common stock held of record by Kinderhook Partners, LP and 4,000 shares of outstanding common stock held directly by Mr. Clearman. Mr. Clearman agreed to remit any proceeds from the sale of the 4,000 shares to Kinderhook Partners. Accordingly, Mr. Clearman disclaims beneficial ownership of all shares except to the extent of his pecuniary interest, if any, therein.

All current directors and executive officers as a group. Includes 3,688,837 shares of outstanding common stock and 1,110,000 shares of common stock issuable upon exercise of options.

Kinderhook Partners, LP. Based on a Schedule 13D/A filed with the SEC on February 26, 2013, reported that it had shared voting power and shared dispositive power with Kinderhook GP, LLC, Kinderhook Partners, LLC, Stephen J. Clearman, and Tushar Shah over 3,526,597 shares of common stock as of January 3, 2013, and that each reporting person’s address was 2 Executive Drive, Suite 585, Fort Lee, NJ 07024. Mr. Clearman is the chief principal at Kinderhook Partners, LP and therefore his total shares shown also include the shares of Kinderhook Partners, L.P.

R. Scott Asen. Pursuant to a Schedule 13G filed with the SEC on February 1, 2017, Mr. Asen reported that he had sole voting and dispositive power over 1,000,000 shares held by Mr. Asen directly and 100,000 shares held by The Asen Foundation, a not-for-profit foundation for which Mr. Asen is trustee, and shares voting and dispositive power over 696,374 shares held by certain accounts for which Asen and Co, for which Mr. Asen is the President, provides advisory service, which shares Mr. Asen disclaims beneficial ownership for purposes of Section 13(d) of the Exchange Act. Mr. Asen’s business address is 222 ½ East 49^th Street, New York, New York 10017.

Joshua Ruch. Pursuant to a Schedule 13G/A filed with the SEC on February 5, 2013, Mr. Ruch reported that, as Managing Member of Atlas Capital Holding L.L.C., in its capacity as general partner of Pinnacle Management Partners L.P., he had that he had sole voting power and sole dispositive power over 1,286,429 shares of common stock as of February 5, 2013. Mr. Ruch is a citizen of the United States and of the Republic of South Africa. Mr. Ruch business address is 4 Dune Road, East Quogue, New York 11942.


ITEM 13.	Certain Relationships and Related Transactions, and Director Independence.

~~The~~In ~~information~~accordance ~~required~~with byour ~~this~~Audit ~~Item~~Committee ~~will~~charter, beour ~~included~~Audit ~~under~~Committee ~~the~~has ~~sections~~been ~~captioned~~responsible ~~“Certain~~for ~~Transactions”~~reviewing and ~~“Director~~approving ~~Independence”~~the interms ~~our~~and ~~definitive~~conditions ~~Proxy~~of ~~Statement~~all ~~for~~related ~~the~~party ~~2016~~transactions, ~~Annual~~including ~~Meeting~~all transactions with directors, immediate family members of ~~Stockholders~~our directors and executive officers, or any entities with which ~~information~~such persons may have ownership or employment relationships. A report is ~~incorporated~~made ~~into~~annually ~~this~~to ~~Annual~~our ~~Report~~Audit Committee disclosing all related parties that are employed by ~~reference~~us and related party transactions or relationships that occurred during the year, if any. There were no reportable related party transactions or relationships during 2016.


ITEM 14.	Principal Accounting Fees and Services.

~~The~~Principal ~~information required by this Item will be included under the section captioned “Proposal Three: Ratification of Appointment of Independent Registered Public~~ Accounting ~~Firm” in our definitive Proxy Statement for the 2016 Annual Meeting of Stockholders, which information is incorporated into this Annual Report by reference.~~Fees

36For the fiscal year ended December 31, 2015, Grant Thornton LLP was our auditor. Grant Thornton resigned as our auditor in December 2016. In December 2016, we engaged PMB Helin Donovan LLP, Certified Public Accountants, as our auditor, and requested that they perform an audit of our financial statements for the fiscal year ended December 31, 2016. The following table presents fees for professional services rendered by Grant Thornton LLP and billed to us for the audit of our annual financial statements for the year ended December 31, 2015 and review of our interim quarterly financial statements for the years ended December 31, 2016 and 2015, respectively. There were no fees billed or paid in 2016 for professional services rendered by PMB Helin Donovan LLP for the audit of our annual financial statements for the year ended December 31, 2016.

Table of Contents



Fees	2016		2015

Audit fees	$	145,654	$	250,900

Audit-related fees	$	—	$	—

Tax fees	$	—	$	—

All other fees	$	—	$	—

Total	$	145,654	$	250,900

Audit Fees. Annual audit fees relate to services rendered in connection with the audit of the annual financial statements included in our Annual Report on Form 10-K, the quarterly reviews of financial statements included in our quarterly reports on Form 10-Q, registration statements on Form S-8 and Form S-3 consent procedures and audit and testing of our internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

Audit-Related Fees. Audit-related services include fees for consultations concerning financial accounting and reporting matters and responding to SEC comments. Audit-related fees are disclosed as those audit-related fees paid during the specified fiscal year.

All Other Fees. All other fees include amounts billed by Grant Thornton LLP in connection with consultation on accounting matters addressed during the audit or interim reviews.

Pre-Approval Policies

Our Audit Committee has pre-approved all audit and non-audit services provided by our independent auditors prior to the engagement of the independent auditors with respect to such services, including those set forth in the table above. The Chairman of our Audit Committee had the authority to approve any additional audit services and permissible non-audit services, provided the Chairman informs our Audit Committee of such approval at its next regularly scheduled meeting. Our independent registered public accounting firm and management had been required to report to our Audit Committee periodically regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. There were no services in 2015 or 2016 which required the pre-approval of our Audit Committee.

PART IV.


ITEM 15.	Exhibits, Financial Statement Schedules.

(a) The following documents are filed as a part of this report:

1. Financial Statements.

The following financial statements of P10 Industries, Inc. formerly Active Power, Inc., were filed as a part of ~~the~~this Annual Report on Form 10-K for the fiscal year ending December 31, ~~2015~~2016:

	Page
Reports of Independent Registered Public Accounting Firm	42
Reports of Independent Registered Public Accounting Firm - PMB Helin Donovan, LLP	33
Reports of Independent Registered Public Accounting Firm - Grant Thornton, LLP	34
Financial Statements:
Consolidated Balance Sheets	4335
Consolidated Statements of Operations and Comprehensive Loss	4436
Consolidated Statements of Stockholders’ Equity	4537
Consolidated Statements of Cash Flows	4638
Notes to Financial Statements	47
Notes to Consolidated Financial Statements	39

2. Schedules.

All schedules have been omitted since the information required by the schedule is not applicable, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Financial Statements and notes thereto.

3. Exhibits.

The exhibits listed on the accompanying index to exhibits immediately following the financial statements are filed herewith, or are incorporated by reference as indicated below.

(b) Exhibits

See the Exhibit Index beginning on page 3929 of this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	ACTIVE POWER, INC.
	P10 INDUSTRIES, INC.
Dated: February 23, 2016	By:	/s/ MARK A. ASCOLESE
Dated: March 14, 2017	By:	/s/ MARK A. ASCOLESE
		President and Chief Executive Officer

Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints, Mark A. Ascolese and James A. Powers, and each or any of them, his true and lawful attorney-in-fact and agent, each with the power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

3730

Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ MARK A. ASCOLESE	President and Chief Executive Officer (principal executive officer)	~~February~~March 2314, ~~2016~~2017
Mark A. Ascolese
/s/ JAMES A. POWERS	Vice President—Finance, Chief Financial Officer (principal financial and accounting officer)	~~February~~March 2314, ~~2016~~2017
James A. Powers
/s/ AKE ALMGREN	Chairman of the Board, Director	February 23, 2016
/s/ DARYL DULANEY	Chairman of the Board, Director	March 14, 2017
Ake Almgren
Daryl Dulaney
/s/ JAMES E. DEVENNY III	Director	February 23, 2016
/s/ STEPHEN J. CLEARMAN	Director	March 14, 2017
James E. deVenny III
/s/ ROBERT S. GREENBERG	Director	February 23, 2016
Robert S. Greenberg
/s/ STEPHEN J. CLEARMAN	Director	February 23, 2016
Stephen J. Clearman
/s/ T. PATRICK KELLY	Director	February 23, 2016
T. Patrick Kelly
/s/ PETER GROSS	Director	February 23, 2016
Peter Gross

INDEX TO EXHIBITS



Exhibit Number		Description
2.1*		Asset Purchase Agreement, dated September 30, 2016 by and among the Company, Langley Holdings plc and Piller USA, Inc. (filed as Exhibit 2.1 to Company's Current Report on Form 8-K filed November 30, 2016)
3.1*		Restated Certificate of Incorporation of Active Power, Inc., as amended (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 1, 2014)
3.2*		Second Amended and Restated Bylaws of Active Power, Inc., as amended (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on April 26, 2016)
3.3*		Certificate of Designations of Series B Junior Participating Preferred Stock of Active Power, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 17, 2016)
3.4*		Certificate of Ownership and Merger of P10 Industries, Inc. into Active Power, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 23, 2016)
4.1*		Specimen certificate for shares of Common Stock (filed as Exhibit 4.1 to Active Power’s IPO Registration Statement on Form S-1 (SEC File No. 333-36946) (the “IPO Registration Statement"))
4.2*		See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the registrant defining the rights of holders of common stock
4.3*		Rights Agreement dated June 15, 2016 between Active Power, Inc. and American Stock Transfer & Trust Company, LLC (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 17, 2016)
10.1*		Form of Indemnity Agreement (filed as Exhibit 10.1 to the IPO Registration Statement)
10.2*†		Active Power, Inc. 2000 Stock Incentive Plan (filed as Exhibit 10.2 to the IPO Registration Statement)
10.3*†		Active Power, Inc. 2010 Equity Incentive Plan, as amended (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 3, 2012)
10.4*†		Form of Standard Stock Option Agreement (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 18, 2010)
10.5*†		Form of Standard Restricted Stock Agreement Stock Agreement (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on May 18, 2010)
10.6*†		Form of Standard Restricted Stock Unit Agreement (filed as Exhibit 10.4 to Active Power's Current Report on Form 8-K filed on May 18, 2010)
10.7*		Lease Agreement between Active Power, Inc. and BC12 99, Ltd. (filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 16, 2001)
10.8*		First Amendment to Lease Agreement between Active Power, Inc. and BC 12 99, Ltd. (filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on February 27, 2015)

~~Table of Contents~~31

ExhibitNumber		Description
10.9*		Second Amendment to Lease Agreement between Active Power, Inc. and BC 12 99, LTD. (filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed on February 27, 2015)
3.1*		Restated Certificate of Incorporation of Active Power, Inc., as amended (filed as Exhibit 3.1 to Active Power’s Quarterly Report on Form 10-Q filed on August 1, 2014)
10.10*		Third Amendment to Lease Agreement between Active Power, Inc. and BC 12 99, LTD. (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed on February 27, 2015)
3.2*		Second Amended and Restated Bylaws of Active Power, Inc., as amended (filed as Exhibit 3.2 to Active Power’s Quarterly Report on Form 10-Q filed on May 1, 2014)
10.11*		Fourth Amendment to Lease Agreement between Active Power, Inc. and Levy Braker 12 Associates, LLC (successor in interest to BC 12 99, LTD.) (filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed on February 27, 2015)
4.1*		Specimen certificate for shares of Common Stock (filed as Exhibit 4.1 to Active Power’s IPO Registration Statement on Form S-1 (SEC File No. 333-36946) (the “IPO Registration Statement"))
10.12*		Fifth Amendment to Lease Agreement between Levy Braker 12 Associates, LLC and Active Power, Inc. (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on October 27, 2015)
4.2*		See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the registrant defining the rights of holders of common stock
10.13*†		Separation Agreement and Release of Claims between Active Power, Inc. and Randall Adleman (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 26, 2016)
10.1*		Form of Indemnity Agreement (filed as Exhibit 10.1 to the IPO Registration Statement)
10.14*†		Form of Severance Benefits Agreement (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on April 27, 2010)
10.2*†		Active Power, Inc. 2000 Stock Incentive Plan (filed as Exhibit 10.2 to the IPO Registration Statement)
10.15*†		Offer Letter, effective September 26, 2013, between Active Power, Inc. and Mark A. Ascolese (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 18, 2013)
10.3*†		Active Power, Inc. 2010 Equity Incentive Plan, as amended (filed as Exhibit 10.1 to Active Power's Quarterly Report on Form 10-Q filed on August 3, 2012)
10.16*†		Severance Benefits Agreement, effective September 26, 2013, between Active Power, Inc. and Mark A. Ascolese (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 18, 2013)
10.4*†		Form of Standard Stock Option Agreement (filed as Exhibit 10.2 to Active Power's Current Report on Form 8-K filed on May 18, 2010)
10.17*†		Offer Letter, dated November 14, 2013, between Active Power, Inc. and James A. Powers (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on March 4, 2014)
10.5*†		Form of Standard Restricted Stock Agreement Stock Agreement (filed as Exhibit 10.3 to Active Power's Current Report on Form 8-K filed on May 18, 2010)
10.18*†		Severance Benefits Agreement, dated November 14, 2013, between Active Power, Inc. and James A. Powers (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on March 4, 2014)
10.6*†		Form of Standard Restricted Stock Unit Agreement (filed as Exhibit 10.4 to Active Power's Current Report on Form 8-K filed on May 18, 2010)
10.7*		Lease Agreement between Active Power, Inc. and Braker Phase III, Ltd. (filed as Exhibit 10.9 to the IPO Registration Statement)
10.8*		First Amendment to Lease Agreement between Active Power, Inc. and Braker Phase III, Ltd. (filed as Exhibit 10.10 to the IPO Registration Statement)
10.9*		Second Amendment to Lease Agreement between Active Power, Inc. and Braker Phase III, Ltd. (filed as Exhibit 10.11 to the IPO Registration Statement)
10.10*		Third Amendment to Lease Agreement between Active Power, Inc. and Braker Phase III, Ltd. (filed as Exhibit 10.12 to the IPO Registration Statement)
10.11*		Fourth Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.13 to the IPO Registration Statement)
10.12*		Fifth Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.14 to the IPO Registration Statement)
10.13*		Sixth Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.18 to Active Power’s Annual Report on Form 10-K filed on March 16, 2001)
10.14*		Seventh Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.19 to Active Power’s Annual Report on Form 10-K filed on March 16, 2001)
10.15*		Eight Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.15 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.16*		Ninth Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.16 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.17*		Tenth Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.17 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.18*		Eleventh Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.18 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.19*		Twelfth Amendment to Lease Agreement between Active Power, Inc. and Metropolitan Life Insurance Company (filed as Exhibit 10.19 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.20*		Thirteenth Amendment to Lease Agreement between Active Power, Inc. and Braker-Stonehollow, Ltd. (successor to Metropolitan Life Insurance Company) (filed as Exhibit 10.20 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.21*		Fourteenth Amendment to Lease Agreement between Active Power, Inc. and Windsor at Stonehollow, LP (successor to Braker-Stonehollow, Ltd.) (filed as Exhibit 10.21 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.22*		Fifteenth Amendment to Lease Agreement between Active Power, Inc. and Windsor at Stonehollow, LP (filed as Exhibit 10.22 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)



10.19*†		2015 Management Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2015)
10.20*†		Cash Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 16, 2016)

Table of Contents



21.1		Subsidiaries of the Registrant
24.1		Power of Attorney, pursuant to which amendments to this Form 10-K may be filed, is included on the signature page contained in Part IV of this Annual Report on Form 10-K
31.1		Certification of Principal Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statement of Operations and Comprehensive Loss, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

10.23*		Sixteenth Amendment to Lease Agreement between Active Power, Inc. and Stonehollow Industrial Investors, LLC (filed as Exhibit 10.23 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.24*		Seventeenth Amendment to Lease between TR Stonehollow Corp. (successor-in-interest to Stonehollow Industrial Investors, LLC) and Active Power, Inc. (filed as Exhibit 10.1 to Active Power's Quarterly Report on Form 10-Q filed on October 27, 2015)
10.25*		Lease Agreement between Active Power, Inc. and BC12 99, Ltd. (filed as Exhibit 10.17 to Active Power’s Annual Report on Form 10-K filed on March 16, 2001)
10.26*		First Amendment to Lease Agreement between Active Power, Inc. and BC 12 99, LTD. (filed as Exhibit 10.25 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.27*		Second Amendment to Lease Agreement between Active Power, Inc. and BC 12 99, LTD. (filed as Exhibit 10.26 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.28*		Third Amendment to Lease Agreement between Active Power, Inc. and BC 12 99, LTD. (filed as Exhibit 10.27 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.29*		Fourth Amendment to Lease Agreement between Active Power, Inc. and Levy Braker 12 Associates, LLC (successor in interest to BC 12 99, LTD.) (filed as Exhibit 10.28 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.30*		Fifth Amendment to Lease Agreement between Levy Braker 12 Associates, LLC and Active Power, Inc. (filed as Exhibit 10.2 to Active Power's Quarterly Report on Form 10-Q filed on October 27, 2015)
10.31*†		2015 Adleman Incentive Plan (filed as Exhibit 10.29 to Active Power’s Annual Report on Form 10-K filed on February 27, 2015)
10.32*†		Form of Severance Benefits Agreement (filed as Exhibit 10.4 to Active Power's Quarterly Report on Form 10-Q filed on April 27, 2010)
10.33*†		Offer Letter, effective September 26, 2013, between Active Power, Inc. and Mark A. Ascolese (filed as Exhibit 10.1 to Active Power’s Quarterly Report on Form 10-Q filed on November 18, 2013)
10.34*†		Severance Benefits Agreement, effective September 26, 2013, between Active Power, Inc. and Mark A. Ascolese (filed as Exhibit 10.2 to Active Power’s Quarterly Report on Form 10-Q filed on November 18, 2013)
10.35*†		Offer Letter, effective November 4, 2013, between Active Power, Inc. and Randall J. Adleman (filed as Exhibit 10.3 to Active Power’s Quarterly Report on Form 10-Q filed on November 18, 2013)
10.36*†		Severance Benefits Agreement, effective November 4, 2013, between Active Power, Inc. and Randall J. Adleman (filed as Exhibit 10.4 to Active Power’s Quarterly Report on Form 10-Q filed on November 18, 2013)
10.37*†		Offer Letter, dated November 14, 2013, between Active Power, Inc. and James A. Powers (filed as Exhibit 10.21 to Active Power’s Annual Report on Form 10-K filed on March 4, 2014)
10.38*†		Severance Benefits Agreement, dated November 14, 2013, between Active Power, Inc. and James A. Powers (filed as Exhibit 10.22 to Active Power’s Annual Report on Form 10-K filed on March 4, 2014)
10.39*		Second Amended and Restated Loan and Security Agreement dated as of August 5, 2010 between Active Power, Inc. and Silicon Valley Bank (filed as Exhibit 10.1 to Active Power's Quarterly Report on Form 10-Q filed on October 27, 2010)
10.40*		First Amendment to Second Amended and Restated Loan and Security Agreement, dated March 5, 2012, between Active Power, Inc. and Silicon Valley Bank (filed as Exhibit 10.3 to Active Power's Quarterly Report on Form 10-Q filed on August 3, 2012)
10.41*		Second Amendment to Second Amended and Restated Loan and Security Agreement dated August 15, 2012 between Active Power, Inc. and Silicon Valley Bank (filed as Exhibit 10.1 to Active Power’s Current Report on Form 8-K filed on August 20, 2012)
10.42*		Third Amendment to Second Amended and Restated Loan and Security Agreement dated July 28, 2014 between Active Power, Inc. and Silicon Valley Bank (filed as Exhibit 10.1 to Active Power’s Current Report on Form 8-K filed on July 29, 2014)
10.43*		Guarantee and Debenture Agreement, dated as of August 5, 2010 between Active Power Solutions Limited and Silicon Valley Bank(filed as Exhibit 10.2 to Active Power's Quarterly Report on Form 10-Q filed on October 27, 2010)
10.44*+		Purchase Agreement effective as of June 1, 2011 between Active Power, Inc. and Caterpillar, Inc. (filed as Exhibit 10.6 to Active Power’s Quarterly Report on Form 10-Q filed on April 30, 2012)

Table of Contents

10.45*†		2015 Management Incentive Plan (filed as Exhibit 10.1 to Active Power’s Current Report on Form 8-K filed on February 17, 2015)
10.46*†		Cash Incentive Plan (filed as Exhibit 10.1 to Active Power’s Current Report on Form 8-K filed on February 16, 2016)
10.47*+		Hardware Product Purchase Agreement, dated April 30, 2010 between Active Power, Inc. and Hewlett-Packard Company (filed as Exhibit 10.25 to Active Power's Annual Report on Form 10-K filed on March 1, 2012)
10.48++		Amendment 1, dated January 1, 2014, to Hardware Product Purchase Agreement between Active Power, Inc. and Hewlett-Packard Company
10.49++		Amendment 2, dated April 1, 2015, to Hardware Product Purchase Agreement between Active Power, Inc. and Hewlett-Packard Company
21.1		Subsidiaries of the Registrant
23.1		Consent of Grant Thornton LLP
24.1		Power of Attorney, pursuant to which amendments to this Form 10-K may be filed, is included on the signature page contained in Part IV of this Form 10-K
31.1		Certification of Principal Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial statements from Active Power's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statement of Operations and Comprehensive Loss, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.



*	Incorporated by reference to the indicated filing.
+	Portions of this exhibit have been omitted pursuant to a confidential treatment previously granted.
++	Confidential treatment has been requested with respect to certain portions of this exhibit.
†	Management contract or compensatory plan or arrangement.

4132

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

~~Active~~P10 ~~Power~~Industries, Inc.

We have audited the accompanying consolidated balance sheets of ~~Active~~P10 ~~Power~~Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31, ~~2015 and 2014~~2016, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for ~~each of~~ the ~~three~~year ~~years in the period~~ ended December 31, ~~2015~~2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our ~~audits~~audit.

We conducted our ~~audits~~audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our ~~audits~~audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our ~~audits~~audit ~~provide~~provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ~~Active~~P10 ~~Power~~Industries, Inc. and subsidiaries as of December 31, ~~2015 and 2014~~2016, and the results of their operations and their cash flows for ~~each of~~ the ~~three~~year ~~years in the period~~ ended December 31, ~~2015~~2016, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2015 financial statements to retrospectively apply the application of accounting for discontinued operations, as described in Note 3. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2015 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2015 financial statements taken as a whole.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has sustained net losses from operations and has an accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



	/s/ PMB Helin Donovan, LLP
Austin, Texas
March 14, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Active Power, Inc. and subsidiaries

We have audited, before the effects of the adjustments to present discontinued operations described in Note 3, the consolidated balance sheet of Active Power Inc. (a Delaware corporation) and subsidiaries as of December 31, 2015, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended (the 2015 consolidated financial statements before the effects of the adjustments discussed in Note 3 are not presented herein). These 2015 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2015 consolidated financial statements referred to above, which are before the effects of the adjustments to present discontinued operations described in Note 3, present fairly, in all material respects, the financial position of Active Power, Inc. and subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to present discontinued operations described in Note 3, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by PMB Helin Donovan, LLP.



	/s/ Grant Thornton LLP
Dallas, Texas
February 23, 2016

4234

~~Table~~P10 ofIndustries, ~~Contents~~Inc.

Active Power, Inc.

Consolidated Balance Sheets

(in thousands, except par value)

	December 31, 2015			December 31, 2014
	December 31, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	121,~~260~~569		$	1412,~~824~~260
Restricted cash	36			40
Accounts receivable, net	41			—
Accounts receivable, net of allowance for doubtful accounts of $70 and $212 at December 31, 2015 and December 31, 2014, respectively	8,849			11,222
Prepaid expenses and other	65			—
Inventories, net	6,466			6,845
Current assets of discontinued operations	—			16,143
Prepaid expenses and other	792			800
Total current assets	1,675			28,403
Total current assets	28,403			33,731
Property and equipment, net	4			2
Property and equipment, net	1,914			2,076
Deposits and other	173			173
Deposits and other	278			291
Non-current assets of discontinued operations	—			2,017
Total assets	$	301,~~595~~852		$	3630,~~098~~595
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	~~2,852~~31		$	~~4,044~~—
Accrued expenses	41,~~494~~639			~~4,134~~388
Deferred revenue	3,576			2,771
Current liabilities of discontinued operations	—			16,069
Revolving line of credit	5,535			5,535
Total current liabilities	1,670			16,457
Total current liabilities	16,457			16,484
Non-current liabilities of discontinued operations	—			583
Long-term liabilities	583			821
Commitments and contingencies
Stockholders' equity
Preferred stock - $0.001 par value; 2,000 shares authorized	—			—
Common stock - $0.001 par value; 40,000 shares authorized; 23,171 and 23,162 issued and 23,109 and 23,094 outstanding at December 31, 2015 and 2014, respectively	23			23
Common stock - $0.001 par value; 40,000 shares authorized; 23,474 and 23,171 issued and 23,297 and 23,109 outstanding at December 31, 2016 and 2015, respectively	23			23
Treasury stock	(~~240~~273		)	(~~231~~240		)
Additional paid-in capital	~~304~~306,~~094~~752			~~302~~304,~~667~~094
Accumulated deficit	(~~290~~306,~~454~~320		)	(~~283~~290,~~995~~454		)
Other accumulated comprehensive income	~~132~~—			~~329~~132
Total stockholders' equity	~~13,555~~182			1813,~~793~~555
Total liabilities and stockholders' equity	$	301,~~595~~852		$	3630,~~098~~595

See accompanying notes.

4335

~~Table~~P10 ofIndustries, ~~Contents~~Inc.

Active Power, Inc.

Consolidated Statement of Operations and Comprehensive Loss

(in thousands, except per share amounts)

	Year Ended December 31,
	2015			2014			2013
	2016			2015
Revenues:
Revenue	$	—		$	—
Product revenue	$	43,247		$	36,211		$	44,158
Cost of goods sold	—			—
Service and other revenue	14,174			12,925			17,541
Gross profit	—			—
Total revenue	57,421			49,136			61,699
Operating expenses:
Cost of goods sold:
Research and development	—			—
Cost of product revenue	32,017			29,182			32,825
Selling and marketing	—			—
Cost of service and other revenue	8,587			7,302			9,478
General and administrative	1,447			1,325
Total cost of goods sold	40,604			36,484			42,303
Total operating expenses	1,447			1,325
Gross profit	16,817			12,652			19,396
Loss from operations	(1,447		)	(1,325		)
Operating expenses:
Interest expense	—			—
Research and development	5,723			6,689			7,430
Other expense, net	1			—
Selling and marketing	10,589			11,940			12,032
Loss before income taxes	(1,446		)	(1,325		)
General and administrative	6,565			6,043			7,551
Income tax expense	—			—
Total operating expenses	22,877			24,672			27,013
Loss from continuing operations	(1,446		)	(1,325		)
Loss from Operations	(6,060		)	(12,020		)	(7,617		)
Loss from discontinued operations	(7,823		)	(5,134		)
Interest expense	(375		)	(395		)	(370		)
Loss on sale of discontinued operations	(6,597		)	—
Other expense, net	(24		)	(160		)	(364		)
Net loss from discontinued operations	(14,420		)	(5,134		)
Loss before income taxes	(6,459		)	(12,575		)	(8,351		)
Net Loss	$	(15,866	)	$	(6,459	)
Income tax expense	—			(252		)	—
Net Loss per share from continuing operations, basic and diluted	$	(0.06	)	$	(0.06	)
Net Loss	$	(6,459	)	$	(12,827	)	$	(8,351	)
Net Loss per share from discontinued operations, basic and diluted	$	(0.62	)	$	(0.22	)
Net Loss per share, basic and diluted	$	(0.28	)	$	(0.57	)	$	(0.43	)
Shares used in computing net loss per share, basic and diluted	23,211			23,167
Shares used in computing net loss per share, basic and diluted	23,134			22,494			19,329
Comprehensive loss:
Comprehensive loss:
Net loss	$	(15,866	)	$	(6,459	)
Net loss	$	(6,459	)	$	(12,827	)	$	(8,351	)
Translation loss on subsidiaries denominated in foreign currencies	(132		)	(197		)
Translation gain (loss) on subsidiaries denominated in foreign currencies	(197		)	(377		)	384
Comprehensive loss	$	(15,998	)	$	(6,656	)
Comprehensive loss	$	(6,656	)	$	(13,204	)	$	(7,967	)

See accompanying notes.

4436

~~Table~~P10 ofIndustries, ~~Contents~~Inc.

Active Power, Inc.

Consolidated Statement of Stockholders' Equity

(in thousands, except per share amounts)

	Common Stock			Treasury Stock
	Number ofShares	ParValue		Number ofShares	At Cost			AdditionalPaid-InCapital			AccumulatedDeficit			OtherAccumulated Comprehen-sive Income(Loss)			TotalStockholders'Equity
Balance at December 31, 2012	19,171	$	19	33	$	(144	)	$	288,619		$	(262,817	)	$	322		$	25,999
Employee stock option exercises	200	—		—	—			711			—			—			711
Release of Restricted Stock	81	—		—	—			4			—			—			4
Shares held in treasury	—	—		18	(71		)	—			—			—			(71		)
Net translation gain on foreign subsidiaries	—	—		—	—			—			—			384			384
Stock-based compensation								1,689						—			1,689
Issuance costs, shelf registration	—	—		—	—			(59		)	—			—			(59		)
Net Loss	—	—		—	—			—			(8,351		)	—			(8,351		)
Balance at December 31, 2013	19,452	$	19	51	$	(215	)	$	290,964		$	(271,168	)	$	706		$	20,306
Employee stock option exercises	43	—		—	—			129			—			—			129
Sale of common stock, less issuance costs	3,651	4						10,434									10,438
Release of Restricted Stock	16	—									—			—			—
Shares held in treasury	—	—		5	(16		)	—			—			—			(16		)
Net translation loss on foreign subsidiaries	—	—		—	—			—			—			(377		)	(377		)
Stock-based compensation	—	—		—	—			1,140			—			—			1,140
Net Loss	—	—		—	—			—			(12,827		)	—			(12,827		)
Balance at December 31, 2014	23,162	$	23	56	$	(231	)	$	302,667		$	(283,995	)	$	329		$	18,793
Release of Restricted Stock	9	—									—			—			—
Shares held in treasury	—	—		6	(9		)	—			—			—			(9		)
Net translation loss on foreign subsidiaries	—	—		—	—			—			—			(197		)	(197		)
Stock-based compensation	—	—		—	—			1,427			—			—			1,427
Net Loss	—	—		—	—			—			(6,459		)	—			(6,459		)
Balance at December 31, 2015	23,171	$	23	62	$	(240	)	$	304,094		$	(290,454	)	$	132		$	13,555
Release of Restricted Stock	303	—									—			—			—
Shares held in treasury	—	—		114	(33		)	—			—			—			(33		)
Net translation loss on foreign subsidiaries	—	—		—	—			—			—			(132		)	(132		)
Stock-based compensation	—	—		—	—			2,658			—			—			2,658
Net Loss	—	—		—	—			—			(15,866		)	—			(15,866		)
Balance at December 31, 2016	23,474	$	23	176	$	(273	)	$	306,752		$	(306,320	)	$	—		$	182

See accompanying notes.

4537

~~Table~~P10 ofIndustries, ~~Contents~~Inc.

~~Active~~Consolidated ~~Power,~~Statements ~~Inc.~~of Cash Flows

Consolidated Statement of Cash Flows

(in thousands)

	Year ended December 31,
	2015			2014			2013
	2016			2015
Operating activities
Net Loss	$	(6,459	)	$	(12,827	)	$	(8,351	)
Net loss	$	(15,866	)	$	(6,459	)
Adjustments to reconcile net loss to cash used in operating activities:
Adjustment for net loss from discontinued operations (including loss on disposal of $6,597)	14,420			5,134
Depreciation expense	997			1,220			1,084
Net loss from continuing operations	(1,446		)	(1,325		)
Change to allowance for doubtful accounts	(142		)	(101		)	(175		)
Adjustments to reconcile net loss to cash used in operating activities:
Loss on disposal of fixed assets	7			4			30
Depreciation expense	1			1
Impairment on fixed assets	—			57			69
Changes in operating assets and liabilities:
Stock-based compensation	1,427			1,140			1,700
Accounts receivable	(41		)	—
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(65		)	—
Restricted cash	4			480			(520		)
Accounts payable	31			—
Accounts receivable	2,515			(2,046		)	8,962
Accrued expenses	48			—
Inventories	283			5,257			(1,796		)
Net cash used in operating activities in continuing operations	(1,472		)	(1,324		)
Prepaid expenses and other assets	22			(116		)	(99		)
Net cash used in operating activities from discontinued operations	(5,697		)	(255		)
Accounts payable	(1,192		)	1,051			(1,043		)
Net cash used in operating activities	(7,169		)	(1,579		)
Accrued expenses	360			(1,449		)	623
Investing activities
Deferred revenue	805			22			(1,819		)
Purchases of property and equipment	(3		)	(2		)
Long term liabilities	(238		)	80			28
Net cash used in investing activities from continuing operations	(3		)	(2		)
Net cash used in operating activities	(1,611		)	(7,228		)	(1,307		)
Net cash used in investing activities from discontinued operations	(3,163		)	(777		)
Investing activities
Net cash used in investing activities	(3,166		)	(779		)
Purchases of property and equipment	(779		)	(343		)	(996		)
Financing activities
Proceeds from sale of fixed assets	—			19			71
Taxes paid related to the net share settlement of equity awards	(33		)	(9		)
Net cash used in investing activities	(779		)	(324		)	(925		)
Net cash used in financing activities from continuing operations	(33		)	(9		)
Financing activities
Net cash provided by (used in) financing activities	(33		)	(9		)
Proceeds from public offering of common stock, net of issuance cost	—			10,438			—
Effects of exchange rates on cash	(323		)	(197		)
Proceeds from employee stock option exercises	—			129			711
Change in cash and cash equivalents	(10,691		)	(2,564		)
Issuance costs, shelf registration	—			—			(59		)
Cash and cash equivalents, beginning of period	12,260			14,824
Taxes paid related to the net share settlement of equity awards	(9		)	(16		)	(67		)
Cash and cash equivalents, end of period	$	1,569		$	12,260
Net cash (used in) provided by financing activities	(9		)	10,551			585
Supplemental Cash Flow Information:
Effects of exchange rates on cash	(165		)	(436		)	384
Interest Paid	$	332		$	354
Change in cash and cash equivalents	(2,564		)	2,563			(1,263		)
Income Tax Paid	$	—		$	—
Cash and cash equivalents, beginning of period	14,824			12,261			13,524
Cash and cash equivalents, end of period	$	12,260		$	14,824		$	12,261
Supplemental Cash Flow Information:
Interest Paid	$	354		$	401		$	380
Income Tax Paid	$	—		$	252		$	—

See accompanying notes.

4638

~~Table~~P10 ofINDUSTRIES, ~~Contents~~INC.

ACTIVE POWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2015~~2016

(in thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies

Description of Business

~~Active~~As ~~Power~~of November 19, 2016, P10 Industries, Inc., ~~and~~formerly ~~its~~Active ~~subsidiaries~~Power Inc. (collectively, “we”, “us”, “~~Active~~P10 ~~Power~~Industries” or “Company”) ~~design~~, ~~manufacture,~~became ~~sell,~~a ~~and service flywheel~~non-~~based~~operating ~~uninterruptible~~public ~~power~~shell ~~supply~~company. Our ~~(“UPS”)~~assets ~~products~~primarily ~~that~~consist ~~use~~of ~~kinetic~~cash, ~~energy~~certain toretained ~~provide~~intellectual ~~short-term~~property ~~power~~assets asand aour ~~cleaner~~net ~~alternative~~operating tolosses ~~conventional~~and ~~electro-chemical~~other ~~battery-based~~tax ~~energy storage~~benefits. We ~~also~~were ~~design,~~founded ~~manufacture, sell, and service modular infrastructure solutions (“MIS”) that integrate critical power components into a pre-packaged, purpose-built enclosure that may include our UPS products~~ as a ~~component.~~Texas Incorporation ~~2015,~~in ~~72%~~1992 ~~of our product revenue came from the sale of UPS systems~~ and ~~28%~~reincorporated ~~from~~in ~~the~~Delaware ~~sale~~in ~~of MIS products~~2000. Our ~~products~~headquarters ~~and~~is ~~solutions are based on our patented flywheel and power electronics technology and are designed to ensure continuity for data centers and other mission critical operations~~ in ~~the~~Austin, ~~event of power disturbances~~Texas.

~~Our~~Prior ~~products~~to ~~and~~November ~~solutions~~19, ~~are~~2016, we designed, tomanufactured, ~~deliver~~sold, ~~continuous~~and ~~conditioned~~serviced ~~power~~flywheel-based ~~during~~uninterruptible power ~~disturbances~~supply ~~such~~(“UPS”) asproducts ~~voltage~~that ~~sags~~use ~~and~~kinetic ~~surges,~~energy ~~and~~ to provide ~~ride~~short-~~through~~term power inas ~~the~~a ~~event~~cleaner ofalternative ato ~~brief~~conventional ~~utility~~electro-chemical ~~failure,~~battery-based ~~supporting~~energy ~~operations~~storage. We ~~until~~also ~~utility~~designed, ~~power~~manufactured, issold, ~~restored~~and orserviced amodular ~~longer~~infrastructure ~~term~~solutions ~~alternative~~(“MIS”) ~~power~~that ~~source,~~integrate ~~such~~critical aspower acomponents ~~diesel~~into ~~generator~~a pre-packaged, ispurpose-built ~~started.~~enclosure Wethat ~~sell~~may include our UPS products ~~globally~~as ~~through~~a ~~our~~component. Our ~~direct~~products ~~sales~~and ~~force,~~solutions ~~manufacturer’s~~were ~~representatives,~~based ~~distributors,~~on ~~original~~our ~~equipment~~patented ~~manufacturers~~flywheel ~~(“OEM”),~~ and ITpower ~~channel~~electronics ~~partners~~technology inand ~~the~~were ~~Americas,~~designed into ~~Europe,~~ensure ~~the~~continuity ~~Middle~~for ~~East,~~data centers and ~~Africa~~other ~~(“EMEA”),~~mission ~~and~~critical operations in the ~~Asia~~event ~~Pacific~~of ~~region~~power ~~(“APAC”)~~disturbances.

WeOn ~~also~~September ~~offer~~29, ~~services~~2016, ~~including~~we ~~hardware~~entered into an Asset Purchase Agreement with Langley Holdings plc, a United Kingdom public limited company, and ~~software~~Piller ~~maintenance~~USA, onInc., ~~all~~a ~~Active~~Delaware corporation and a wholly owned subsidiary of Langley, which changed its name to Piller Power ~~products~~Systems, Inc. prior to closing. We refer to Langley and its subsidiaries, collectively, as "Langley". The agreement provided, among other ~~professional~~things, ~~services~~that ~~such~~Langley aswould ~~assessment~~purchase from us substantially all of our assets and ~~implementation,~~operations for a nominal purchase price plus the assumption of all of our ~~customers’~~indebtedness, ~~infrastructure~~including ~~projects~~bank debt, liabilities and customer, employee and purchase commitments going forward. The sale of substantially all of our assets was approved by holders of a majority of our outstanding shares of common stock at a special meeting of our stockholders held on November 16, 2016.

WeOn ~~were~~November ~~founded~~19, as2016, awe ~~Texas~~completed ~~corporation~~the insale ~~1992~~of ~~and~~substantially ~~reincorporated~~all inof ~~Delaware~~our inassets ~~2000~~and operations to Langley. Pursuant ~~Our~~to ~~headquarters~~the ~~are~~terms inof ~~Austin~~the purchase agreement, ~~Texas~~after the closing of the disposition of our assets, ~~with~~we ~~international~~retained ~~offices~~approximately $1.6 million in cash, which equaled the ~~United~~amount ~~Kingdom~~by which the value of the acquired assets exceeded the assumed liabilities on our balance sheet by more than $5.0 million at closing. We also retained our net operating losses and other tax benefits and certain intellectual property rights related to our patents that are not related to the purchased assets. Following the asset sale, ~~Germany~~we changed our name from Active Power, ~~and~~Inc. ~~China~~to P10 Industries, Inc.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

The accompanying consolidated financial statements have also been prepared on the assumption that the Company will continue to operate as a going concern. Accordingly, assets and liabilities are recorded on the basis that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company’s history of operating losses and use of cash, in the absence of other factors, may cause uncertainty as to its ability to continue as a going concern. We have reviewed the current and prospective sources of liquidity, significant conditions and events and forecast financial results and concluded that we have adequate resources to continue to operate as a going concern. Our business plan and our assumptions around the adequacy of our liquidity are based on estimates regarding expected revenues and future costs. However, our revenues may not meet our projections or our costs may exceed our estimates. Further, our estimates may change and future events or developments may also affect our estimates. Any of these factors may change our expectation of cash usage in 2016 or significantly affect our level of liquidity, which may require us to seek additional financing or take other measures to reduce our operating costs in order to continue operating. These financial statements do not include any adjustments that might result from the Company not being able to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Changes in the estimates or assumptions used by management could have a material impact upon reported amounts and our results of operations.

47Revenue Recognition - Discontinued Operations

~~Table~~We have recognized revenue when four criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. In general, we have recognized revenue when revenue-generating transactions fall into one of ~~Contents~~the following categories of revenue recognition:

~~Revenue~~• ~~Recognition~~We recognized product revenue at the time of shipment for a significant portion of all products sold directly to customers and through distributors because title and risk of loss pass on delivery to the common carrier. Our customers and distributors did not have the right to return products. We may have entered into bill-and-hold arrangements and when this occurred delivery may not be present, but other criteria were reviewed to determine proper timing of revenue recognition.

We recognize revenue when four criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. In general, revenue is recognized when revenue-generating transactions fall into one of the following categories of revenue recognition:39

• WeUnless ~~recognize~~performed ~~product~~under ~~revenue at the time of shipment for~~ a ~~significant~~maintenance ~~portion~~contract, ofwe ~~all~~recognized ~~products~~installation, ~~sold~~service ~~directly to customers~~ and ~~through~~maintenance ~~distributors~~revenue ~~because~~at ~~title and risk of loss pass on delivery to~~ the ~~common~~time ~~carrier. Our customers and distributors do not have~~ the ~~right~~service tois ~~return products~~performed. ~~We may enter into bill-and-hold arrangements and when this occurs delivery may not be present, but other criteria are reviewed to determine proper timing of revenue recognition.~~

• ~~Unless~~We ~~performed~~recognized ~~under~~revenue aassociated with maintenance ~~contract,~~agreements weover ~~recognize~~the ~~installation~~life of the contracts using the straight-line method, ~~service~~which ~~and~~approximates ~~maintenance~~the expected timing in which applicable services are performed. Amounts collected in advance of revenue atrecognition were recorded as a current liability in the deferred revenue line of the consolidated balance sheet or long-term liability based on the time from the ~~service~~balance issheet ~~performed~~date to the future date of revenue recognition.

• We ~~recognize~~recognized revenue ~~associated~~on ~~with~~certain ~~maintenance~~rental ~~agreements~~programs over the life of the ~~contracts~~rental agreement using the straight-line method~~, which approximates the expected timing in which applicable services are performed~~. Amounts collected in advance of revenue recognition ~~are~~were recorded as a current ~~liability in the deferred revenue line of the consolidated balance sheet~~ or long-term liability based on the time from the balance sheet date to the future date of revenue recognition.

•When Wecollectability ~~recognize~~was ~~revenue~~not onreasonably ~~certain~~assured, ~~rental~~we ~~programs~~deferred ~~over~~revenue ~~the~~and ~~life~~recognized ~~of the rental agreement using the straight-line method. Amounts collected in advance of~~ revenue ~~recognition are recorded~~ as apayments ~~current~~were ~~or long-term liability based on the time from the balance sheet date to the future date of revenue recognition~~received.

~~When~~Multiple ~~collectability~~element isarrangements (“MEAs”) are arrangements to sell products to customers that frequently include multiple deliverables. Our most significant MEAs included the sale of one or more of our CleanSource® UPS or CleanSource PowerHouse products, combined with one or more of the following products or services: design services, project management, commissioning and installation services, spare parts or consumables, and maintenance agreements. Delivery of the various products or performance of services within the arrangement may or may not ~~reasonably~~coincide. ~~assured~~Certain services related to design and consulting may occur prior to product delivery. Commissioning and installation typically take place within six months of product delivery, wedepending ~~defer~~upon ~~revenue~~customer requirements. Maintenance agreements, consumables, and ~~will~~repair, ~~recognize~~maintenance ~~revenue~~or asconsulting ~~payments~~services are ~~received~~generally delivered over a period of one to five years.

~~Multiple~~When ~~element~~ arrangements ~~(“MEAs”)~~included ~~are~~multiple ~~arrangements~~elements, towe ~~sell~~allocated ~~products~~revenue to ~~customers~~each ~~that~~element ~~frequently~~based ~~include~~on ~~multiple~~the ~~deliverables.~~relative ~~Our~~selling ~~most~~price ~~significant~~and ~~MEAs~~recognized ~~include~~revenue when the ~~sale~~elements ofhad ~~one~~standalone orvalue ~~more~~and ofthe ~~our~~four ~~CleanSource®~~criteria ~~UPS~~for orrevenue ~~CleanSource~~recognition ~~PowerHouse~~had ~~products,~~been ~~combined~~met. We ~~with~~establish ~~one~~the orselling ~~more~~price of ~~the~~each ~~following~~element ~~products~~based oron ~~services:~~Vendor ~~design~~Specific ~~services,~~Objective ~~project~~Evidence ~~management~~(“VSOE”) if available, ~~commissioning~~Third ~~and~~Party ~~installation~~Evidence ~~services,~~(“TPE”) ~~spare~~if ~~parts~~VSOE oris ~~consumables~~not available, ~~and~~or ~~maintenance~~best ~~agreements.~~estimate ~~Delivery~~ of ~~the~~selling ~~various~~price ~~products~~(“BESP”) orif ~~performance~~neither ofVSOE ~~services~~nor ~~within~~TPE ~~the~~is ~~arrangement~~available. We ~~may~~generally ordetermined ~~may~~selling ~~not~~price ~~coincide.~~based ~~Certain~~on ~~services~~amounts ~~related~~charged toseparately ~~design~~for ~~and~~the ~~consulting~~delivered ~~may~~and ~~occur~~undelivered ~~prior~~elements to ~~product~~similar ~~delivery. Commissioning~~customers ~~and~~in ~~installation~~standalone ~~typically~~sales ~~take~~of ~~place~~the ~~within~~specific ~~six~~elements. When ~~months~~arrangements ofinclude ~~product~~a ~~delivery~~maintenance agreement, ~~depending~~we ~~upon~~recognized ~~customer~~revenue ~~requirements.~~related ~~Maintenance~~to ~~agreements,~~the ~~consumables,~~maintenance ~~and~~agreement ~~repair,~~at ~~maintenance~~the orrelative ~~consulting~~selling ~~services~~price ~~are~~on ~~generally~~a ~~delivered~~straight-line basis over athe ~~period~~life of ~~one~~the ~~to five years~~agreement.

When arrangements include multiple elements, we allocate revenue to each element based on the relative selling price and recognize revenue when the elements have standalone value and the four criteria for revenue recognition have been met. We establish the selling price of each element based on Vendor Specific Objective Evidence (“VSOE”) if available, Third Party Evidence (“TPE”) if VSOE is not available, or best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. We generally determine selling price based on amounts charged separately for the delivered and undelivered elements to similar customers in standalone sales of the specific elements. When arrangements include a maintenance agreement, we recognize revenue related to the maintenance agreement at the relative selling price on a straight-line basis over the life of the agreement.

Any taxes imposed by governmental authorities on our revenue-producing transactions with customers are shown in our consolidated statements of operations on a net-basis; that is, excluded from our reported revenues.

Shipping and Handling Costs - Discontinued Operations

We ~~classify~~classified shipping and handling costs related to product sales as cost of revenue, and any payments from customers for shipping and handling ~~are~~were categorized in revenue. We ~~classify~~classified shipping and handling costs associated with receiving production inventory as cost of product revenue. Any materials received or shipped which ~~are~~were related to our engineering, sales, marketing and administrative functions ~~are~~were classified as operating expenses.

Cash and Cash Equivalents

Investments with a contractual maturity of three months or less when purchased are classified as cash equivalents.

48Fair Value of Financial Instruments - Discontinued Operations

~~Table~~We ofmeasure ~~Contents~~fair value based on an exit price, representing the amount that we would receive to sell an asset or pay to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows:

Fair Value of Financial Instruments

Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Significant observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3—One or more significant inputs that are unobservable and supported by little or no market data.

Highest priority is given for Level 1 input and lower propriety to Level 3 inputs. A financial instruments level is based on the lowest level of any input that is significant to the fair value measurement. No changes were made to our methodology.

Our Level 1 assets consist of cash equivalents, which are primarily invested in money-market funds. These assets are classified as Level 1 because they are valued using quoted prices in active markets and other relevant information generated by market transactions involving identical assets and liabilities. The fair value of Level 1 assets was $0 and $3.1 million as of December 31, ~~2015~~2016 and ~~2014~~2015, respectively.

For cash and cash equivalents, accounts receivable, accounts payable and our revolving line of credit, the carrying amount approximates fair value because of the relative short maturity of those instruments.

Allowance for Doubtful Accounts - Discontinued Operations

We ~~estimate~~estimated an allowance for doubtful accounts based on factors related to the credit risk of each customer. Historically, credit losses ~~have~~were ~~been~~ minimal, primarily because the majority of our revenues were generated from large customers, such as Caterpillar, Inc. (“Caterpillar”) and Hewlett Packard Enterprise (“HPE”). We ~~perform~~performed credit evaluations of new customers and when necessary we ~~require~~required deposits, prepayments or use of bank instruments such as trade letters of credit to mitigate our credit risk. We ~~write~~wrote off uncollectible trade receivables, and ~~record~~recorded any recoveries of previous write offs against the allowance. Our standard payment terms ~~are~~were net 30 days; however, we ~~may~~could have agreements with certain larger customers and certain distributors that allow for more extended terms at or above net 60 days.

The following table summarizes the annual changes in our allowance for doubtful accounts (in thousands):

Balance at December 31, 2012	$	488
Change in provision credited to expense, net	(139		)
Write-off of uncollectible accounts, net of recoveries	(36		)
Balance at December 31, 2013	$	313
Change in provision credited to expense, net	(67		)
Write-off of uncollectible accounts, net of recoveries	(34		)
Balance at December 31, 2014	$	212
Change in provision credited to expense, net	(142		)
Write-off of uncollectible accounts	—
Write-off of uncollectible accounts, net of recoveries	—
Balance at December 31, 2015	$	70
Change in provision credited to expense, net	(36		)
Purchased by Langley	(34		)
Balance at December 31, 2016	$	—

49Inventories, net - Discontinued Operations

~~Table~~Inventories are stated at the lower of ~~Contents~~cost or market, using the first-in-first-out method, and consist of the following at December 31 (in thousands, net of allowances of $0 and $0.8 million in 2016 and 2015, respectively):

Inventories, net



	2016		2015
Raw materials	$	—	$	4,748
Work in progress	—		1,425
Finished goods	—		293
Net Inventory of Discontinued Operations	$	—	$	6,466

~~Inventories~~All ~~are~~inventory ~~stated~~was atsold ~~the~~to ~~lower~~Langley ofon ~~cost~~November ~~or market~~19, ~~using the first-in-first-out method, and consist of the following at December 31 (in thousands, net of allowances of $0~~2016.~~8 million in both 2015 and 2014):~~

	2015		2014
Raw materials	$	4,748	$	5,440
Work in progress	1,425		473
Finished goods	293		932
	$	6,466	$	6,845

Property and Equipment - Discontinued Operations

Property and ~~Equipment~~equipment is stated at cost and was depreciated using the straight-line method over the estimated useful lives of the assets, as follows (in years):

Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the assets, as follows (in years):



Equipment	2 - 10
Demonstration units	3 - 5
Computers and purchased software	2 - 3
Furnitures and fixtures	2 - 5

Leasehold improvements are depreciated over the shorter of the life of the improvement or the remainder of the property lease term, including renewal options, generally three to five years. Repairs and maintenance is expensed as incurred.41

~~Long-Lived~~Leasehold ~~Assets~~improvements were depreciated over the shorter of the life of the improvement or the remainder of the property lease term, including renewal options, generally three to five years. Repairs and maintenance was expensed as incurred. All leasehold improvements were transferred to Langley or have been abandoned.

Long-~~lived~~Lived ~~assets~~Assets ~~held~~- ~~and~~Discontinued used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets and is recorded in the period in which the determination was made.Operations

Long-lived assets held and used by us were reviewed for impairment whenever events or changes in circumstances indicated that their net book value may not be recoverable. When such factors and circumstances exist, we compared the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amounts. Impairment, if any, was based on the excess of the carrying amount over the fair value of those assets and was recorded in the period in which the determination was made.

Accrued Expenses

Accrued expenses from our discontinued operations consist of the following at December 31 (in thousands):

	2015		2014
	2016		2015
Compensation, severance and benefits	$	~~727~~—	$	~~1,296~~727
Management incentive bonus	~~1,282~~—		—1,041
Warranty liability	~~531~~—		~~475~~531
Taxes, other than income	~~518~~—		~~1,080~~497
Professional fees	~~441~~—		~~463~~441
Other	~~995~~—		~~820~~869
	$	4,494	$	4,134
Total Accrued Liabilities of Discontinued Operations	$	—	$	4,106

~~Warranty~~Accrued ~~Liability~~expenses from our continuing operations consist of the following at December 31 (in thousands):

Generally, the warranty period for our products is 12 months from the date of commissioning or 18 months from the date of shipment from Active Power, whichever period is shorter. Occasionally, we provide longer warranty periods to certain customers. The warranty period for products sold to our primary OEM customer, Caterpillar, is 12 months from the date of shipment to the end-user, or up to 36 months from shipment from Active Power, whichever period is shorter. This is dependent upon Caterpillar complying with our storage requirements for our products in order to preserve this warranty period beyond the standard 18-month



	2016		2015
Compensation, severance and benefits	$	2	$	—
Management incentive bonus	241		241
Taxes, other than income	10		21
Provision for lease settlement	1,203		—
Other	183		126
Total Accrued Liabilities of Continued Operations	$	1,639	$	388

50On November 19, 2016, Langley assumed approximately $0.5 million, $0.4 million, $0.2 million, $0.1 million and $0.3 million of our accrued compensation, severance and benefits, accrued warranty, accrued taxes, accrued professional fees, and other accruals, respectively.

~~Table~~Warranty ofLiability ~~Contents~~- Discontinued Operations

Generally, the warranty period for our products was 12 months from the date of commissioning or 18 months from the date of shipment from us, whichever period is shorter. Occasionally, we provided longer warranty periods to certain customers. The warranty period for products sold to our primary OEM customer, Caterpillar, was 12 months from the date of shipment to the end-user, or up to 36 months from shipment from us, whichever period is shorter. This was dependent upon Caterpillar complying with our storage requirements for our products in order to preserve this warranty period beyond the standard 18-month limit. We ~~provide~~provided for the estimated cost of product warranties at the time revenue is recognized, and this accrual iswas included in accrued expenses and long-term liabilities on the accompanying consolidated balance sheet.

Changes in our warranty liability are as follows (in thousands):

Balance at December 31, 2012	$	755
Warranty expense	589
Payments	(782		)
Balance at December 31, 2013	$	562
Warranty expense	660
Payments	(695		)
Balance at December 31, 2014	$	527
Warranty expense	580
Payments	(535		)
Balance at December 31, 2015	$	572

	2015			2014
Balance at December 31, 2014	$	527
Warranty liability included in accrued expenses	$	531		$	475
Warranty expense	580
Long term warranty liability	41			52
Payments	(535		)
	$	572		$	527
Balance at December 31, 2015	$	572
Warranty expense	210
Payments	(397		)
Purchased by Langley	(385		)
Balance at December 31, 2016	$	—

Long-Term Liabilities



	2016		2015
Warranty liability included in accrued expenses	$	—	$	531
Long term warranty liability	—		41
	$	—	$	572

Both the current and long term warranty liabilities were assumed by Langley on November 19, 2016.

Long-Term Liabilities - Discontinued Operations

Long-term liabilities consist of the following at December 31 (in thousands):

	2015		2014
	2016		2015
Deferred revenue	$	~~542~~—	$	~~751~~542
Warranty liability	41—		5241
Sublease deposits	—		18
	$	—	$	583
	$	583	$	821

~~Stock~~All long-~~Based~~term ~~Compensation~~liabilities ~~Expense~~were assumed by Langley on November 19, 2016.

Stock-Based Compensation Expense - Discontinued Operations

We account for our stock-based compensation using the Black Scholes option valuation model. Stock-based compensation cost is estimated at the grant date based on the fair-value of the award and is recognized as expense ratably over the requisite service period of the award, generally four years. We develop our estimates of expected life and forfeitures based on historical data. We estimate stock price volatility based on historical volatilities. The risk-free rates are based on the U.S. Treasury yield in effect at the time of grant. Details of our stock-based compensation include the following (in thousands):



	2016		2015
Stock-based compensation expense by caption:
Cost of product revenue	$	126	$	111
Cost of service and other revenue	187		73
Research and development	277		125
Selling and marketing	596		402
General and administrative	1,461		716
	$	2,647	$	1,427
Stock-based compensation expense by type of award:
Stock options	$	2,234	$	1,366
Restricted stock awards	413		61
	$	2,647	$	1,427

~~Table of Contents~~43

	2015		2014		2013
Stock-based compensation expense by caption:
Cost of product revenue	$	111	$	110	$	254
Cost of service and other revenue	73		111		116
Research and development	125		207		204
Selling and marketing	402		370		587
General and administrative	716		342		539
	$	1,427	$	1,140	$	1,700
Stock-based compensation expense by type of award:
Stock options	$	1,366	$	1,068	$	1,488
Restricted stock awards	61		72		212
	$	1,427	$	1,140	$	1,700

The sale of our business on November 19, 2016 generated the change in control provision of our stock compensation plans, which resulted in the accelerated vesting of all outstanding stock options and restricted stock units. This resulted in the accelerated expense recognition of all outstanding grants.

Assumptions used in the Black-Scholes model for our stock plans are presented below:

	2015		2014		2013
	2016		2015
Weighted average expected life in years	6.2527 years		6.2725 years		~~6.35 years~~
Weighted average expected volatility	6555	%	7565	%	76	%
Volatility Range	5854%-7155%		7358%-7671%		~~75%-76%~~
Risk-free interest rate range	1.8923%-12.9501%		1.9689%-21.1295%		~~1.13%-2.38%~~
Weighted average forfeiture rate	28.53	%	2928.75	%	~~18.9~~	%

Income Taxes

We account for income taxes using the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

We recognize the financial statement benefit of a tax position that does not meet the more-likely-than-not threshold only after expiration of the statute of limitations ~~expire~~ of the relevant tax authority sustains ~~the~~our ~~Company’s~~ position following an audit. For tax positions meeting the more likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon the ultimate settlement with the relevant tax authority. At December 31, ~~2015~~2016 and ~~2014~~2015, ~~the~~we ~~Company~~ had no material unrecognized tax benefits.

~~The~~We ~~Company~~recognize ~~recognizes~~ interest and penalties related to uncertain tax positions in income tax expense. As of December 31, ~~2015~~2016 and ~~2014~~2015, ~~the~~we ~~Company~~ had no accrued or expensed interest or penalties related to uncertain tax positions.

Segment Reporting

~~The~~We ~~Company~~operated ~~operates~~ as a single operating segment. According to the FASB ASC Topic Disclosures about Segments of an Enterprise and Related Information , operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. Our ~~The Company’s~~ CODM is the Chief Executive Officer, who evaluates ~~the~~our ~~Company’s~~ financial information and resources and assesses performance on a consolidated basis.

Concentration of Credit Risk

Financial instruments ~~which~~that potentially subject ~~Active~~us ~~Power~~ to concentrations of credit risk consist of cash and cash equivalents, investments and accounts receivable. Our ~~Active Power’s~~ cash and cash equivalents and investments are placed with high credit quality financial institutions and issuers. From time to time, we may have amounts on deposit with financial institutions that are in excess of the federally insured limit. We have not experienced any losses on deposits of cash and cash equivalents.

52We performed credit evaluations of our customers’ financial condition prior to entering into commercial transactions. We generally required letters of credit or prepayments from higher-risk customers as deemed necessary to ensure collection. Our allowance for doubtful accounts was estimated based on factors related to the credit risk of each customer. Individual receivables were written off after they were deemed uncollectible. We also purchased several components from sole source or limited source suppliers.

Table of Contents

Active Power performs credit evaluations of its customers’ financial condition prior to entering into commercial transactions. We generally require letters of credit or prepayments from higher-risk customers as deemed necessary to ensure collection. Our allowance for doubtful accounts is estimated based on factors related to the credit risk of each customer. Individual receivables are written off after they have been deemed uncollectible. We also purchase several components from sole source or limited source suppliers.

Economic Dependence

We are significantly dependent on our relationships with HPE and Caterpillar. If these relationships are unsuccessful or discontinue, our business and revenue may suffer. The loss of, or a significant reduction in, orders from HPE or Caterpillar, or the failure to provide adequate service and support to the end-users of our products by HPE or Caterpillar, could significantly reduce our revenue. Our operating results in the foreseeable future will continue to depend on the sales made by a relatively small number of customers, including HPE and Caterpillar.

The following customers accounted for a significant percentage of our total revenue during each of the years ended December 31:

	2015		2014		2013
Caterpillar	25	%	18	%	14	%
HPE	18	%	1	%	22	%

No other customer represented more than 10% of our revenues in any of the years reported. Caterpillar represented 17% and 18% of our outstanding accounts receivable at December 31, 2015 and 2014, respectively. Electronic Keyboards, Inc. and Piet Brouwer Elektrotechniek B.V. represented 24% and 12% of our outstanding receivables at December 31, 2015, respectively.

Advertising Costs

We ~~expense~~expensed advertising costs as incurred. These expenses were immaterial in ~~2015,~~2016 ~~2014,~~ and ~~2013~~2015, respectively.

Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data) for the years ended December 31:

	2015			2014			2013
	2016			2015
Net loss	$	(6,459	)	$	(12,827	)	$	(8,351	)
Net loss from continuing operations	$	(1,446	)	$	(1,325	)
Basic and diluted:
Net loss from discontinued operations	$	(14,420	)	$	(5,134	)
Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share	23,134			22,494			19,329
Basic and diluted:
Basic and diluted net loss per share	$	(0.28	)	$	(0.57	)	$	(0.43	)
Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share	23,211			23,167
Basic and diluted net loss per share before discontinued operations	$	(0.06	)	$	(0.06	)
Basic and diluted net loss per share after discontinued operations	$	(0.62	)	$	(0.22	)

The calculation of diluted net loss per share excludes 31,~~461~~206,~~737~~000, ~~2,399,890,~~ and 23,~~407~~461,~~664~~737 shares of common stock issuable upon exercise of employee stock options as of December 31, ~~2015,~~2016 ~~2014,~~ and ~~2013~~2015, respectively, and ~~7,121,~~0 ~~21,994,~~ and 537,~~038~~121 non-vested shares of restricted stock units issuable upon vesting as of December 31, ~~2015,~~2016 ~~2014,~~ and ~~2013~~2015, respectively, because their inclusion in the calculation would be anti-dilutive.

Recent Accounting Pronouncements

In ~~November~~January ~~2015~~2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("“ASU"”) No. ~~2015~~2017-1701, ("ASU ~~2015~~2017-1701"), ~~Income~~Business ~~Taxes~~Combinations (Topic ~~740~~805): Clarifying ~~Balance~~the ~~Sheet~~Definition ~~Classification~~ of ~~Deferred~~a ~~Taxes.~~Business, ~~The~~which ~~amendments~~provides ina ~~this~~screen ~~update~~to ~~simplify~~determine ~~the~~when ~~presentation~~an asset acquired or group of ~~deferred~~assets ~~income~~acquired ~~taxes~~is ~~and~~not ~~require~~a business. The screen requires that ~~deferred~~when ~~tax~~substantially ~~liabilities~~all ~~and~~of the fair value of the gross assets beacquired ~~classified~~(or asdisposed ~~noncurrent~~of) is concentrated in a ~~classified~~single ~~statement~~identifiable ofasset ~~financial~~or ~~position.~~a ~~This~~group ~~update~~of ~~applies~~similar toidentifiable ~~all~~assets, ~~entities~~the ~~that~~set ~~present~~is not a ~~classified~~business. ~~statement~~This ofscreen ~~financial~~reduces ~~position.~~the ~~These~~number ~~amendments~~of ~~may~~transactions that need to be ~~applied~~further ~~either~~evaluated. ~~prospectively~~For topublic ~~all~~entities, ~~deferred~~ASU ~~tax~~2017-01 ~~liabilities~~is ~~and~~effective ~~assets~~for orinterim ~~retrospectively~~and toannual ~~all~~reporting periods ~~presented.~~in Iffiscal ~~the~~years ~~guidance~~beginning isafter ~~applied~~December ~~prospectively~~15, ~~disclosure~~2017. For isall ~~made~~other inentities, the ~~first~~amendments ~~interim~~are ~~and~~effective ~~first~~for ~~annual~~fiscal ~~period~~years ofbeginning ~~change,~~after ~~the~~December ~~nature~~15, of2018, and ~~reason~~interim ~~for~~periods within fiscal years beginning after December 15, 2018. We do not expect the ~~change~~adoption inof ~~accounting~~this ~~principle~~standard ~~and~~will have a ~~statement~~material ~~that~~effect ~~prior~~on ~~periods~~our ~~were~~consolidated financial statements.

53In November 2016, the FASB issued ASU No. 2016-18, ("ASU 2016-18"), Statement of Cash Flows (Topic 230): Restricted Cash, which requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period balances on the statement of cash flows upon adoption of this standard. For public entities, ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.

~~Table~~In October 2016, FASB issued ASU No. 2016-16, ("ASU 2016-16"), Income Taxes (Topic 740): Intra-Entity Transfer of ~~Contents~~Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. For public entities, ASU 2016-16 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2019. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.

~~not~~In ~~retrospectively~~August ~~adjusted.~~2016, If the ~~guidance~~FASB isASU ~~applied~~No. ~~retrospectively~~2016-15, ~~disclosure~~(“ASU is2016-15”), ~~made~~Statement inof ~~the~~Cash ~~first~~Flows ~~interim~~(Topic 230): Classification of Certain Cash Receipts and ~~first~~Cash ~~annual~~Payments. ~~period~~This ofamendment ~~change,~~eliminates the ~~nature~~diversity ofin ~~and~~practice ~~reason~~related ~~for~~to the ~~change~~classification inof ~~accounting~~certain ~~principle~~cash receipts and ~~quantitative~~payments ~~information~~for ~~about~~debt prepayment or extinguishment costs, the ~~effects~~maturing of a zero coupon bond, the ~~accounting~~settlement ~~change~~of oncontingent ~~prior~~liabilities ~~periods.~~arising ~~The~~from ~~amendments~~a ~~are~~business ~~effective~~combination, ~~for~~proceeds ~~financial~~from ~~statements~~insurance ~~issued~~settlements, ~~for~~distributions ~~annual~~from ~~periods~~certain ~~beginning~~equity ~~after~~method ~~December~~investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, ~~2016~~including requirements to allocate certain components of these cash receipts and payments among operating, investing and ~~interim~~financing ~~periods~~activities. ~~within~~The ~~those~~retrospective ~~annual~~transition method, requiring adjustment to all comparative periods. Wepresented, dois ~~not~~required ~~expect~~unless ~~the~~it ~~adoption~~is impracticable for some of ~~this~~the ~~standard~~amendments, ~~will~~in ~~have~~which acase ~~material~~those ~~effect~~amendments onwould ~~our~~be ~~consolidated~~prospectively ~~financial~~as ~~statements~~of the earliest date practicable. We are evaluating the new guidance to determine the impact that adopting this new accounting standard

In July 2015, the FASB issued ASU No. 2015-11, (“ASU 2015-11”), “Inventory (Topic 330): Simplifying the Measurement of Inventory”. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using the last-in, first-out or the retail inventory method. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and is to be applied prospectively. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.45

Inwill ~~April~~have ~~2015,~~on ~~the~~our ~~FASB~~consolidated ~~issued~~financial ~~ASU~~statements ~~No.~~and ~~2015-03,~~footnote ~~(“ASU 2015-03”), “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”~~disclosures. ASU ~~2015~~2016-0315 ~~requires~~if ~~that~~effective ~~debt~~for ~~issuance~~public ~~costs~~business ~~related~~entities tofor afiscal ~~recognized~~years ~~debt~~beginning ~~liability~~after beDecember ~~presented~~15, in2017, ~~the~~and ~~balance~~interim ~~sheet~~periods aswithin athose ~~direct~~fiscal ~~deduction from the carrying amount of that debt liability, consistent with debt discounts~~years. For ~~public~~all other entities, ~~ASU~~the ~~2015-03~~amendments isare effective for fiscal years beginning after December 15, ~~2015~~2018, and interim periods within ~~those~~ fiscal years. ~~Early~~beginning ~~adoption~~after isDecember ~~permitted~~15, ~~for financial statements that have not been previously issued~~2019. ~~ASU~~Early ~~2015-03~~application is topermitted, beincluding ~~applied~~adoption ~~on a retrospective basis and represents a change~~ in ~~accounting~~an ~~principle.~~interim ~~We do not expect the adoption of this standard will have a material effect on our consolidated financial statements~~period.

In ~~August~~March ~~2014~~2016, the FASB issued ASU No. ~~2014~~2016-1509, (“ASU ~~2014~~2016-1509”), ~~“Disclosure~~Compensation of- ~~Uncertainties~~Stock ~~About~~Compensation an(Topic ~~Entity’s~~718): ~~Ability~~Improvements to ~~Continue~~Employee asShare-Based aPayment ~~Going Concern”~~Accounting. ~~ASU~~The ~~2014-15~~amendments ~~requires~~in ~~management~~this toupdate ~~perform~~simplify ~~interim~~several ~~and~~aspects ~~annual~~of ~~assessments~~the ofaccounting anfor ~~entity’s~~share-based ~~ability~~payment toaward ~~continue~~transactions asincluding: (a) ~~going~~income ~~concern~~tax ~~within~~consequences; ~~one~~(b) ~~year~~classification of ~~the~~awards ~~date~~as ~~the~~either ~~financial~~equity ~~statements~~or ~~are~~liabilities; ~~issued~~ and ~~provides~~(c) ~~guidance~~classification on ~~determining~~the ~~when~~statement ~~and~~of ~~how~~cash ~~to disclose going concern uncertainties in the financial statements~~flows. ~~Certain~~For ~~disclosures~~public ~~will~~entities, ~~be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern.~~ ASU ~~2014~~2016-1509 ~~applies to all entities and~~ is effective for ~~annual~~financial ~~and~~statements ~~interim~~issued ~~reporting~~for annual periods ~~ending~~beginning after December 15, 2016, ~~with~~and ~~early~~interim ~~adoption~~periods ~~permitted.~~within ~~The~~those ~~Company~~annual ~~does~~periods. We do not expect ~~that~~ the adoption of this standard will have a material effect on ~~its~~our consolidated financial statements.

In ~~May~~February ~~2014~~2016, ~~the~~ FASB issued ASU ~~2014~~No. 2016-0902, (“~~Revenue~~ASU ~~from Contracts with Customers~~2016-02”), “Leases (Topic ~~606”~~842). ~~This~~The ~~ASU~~amendments ~~will~~in ~~supersede~~this ~~the~~update ~~revenue~~require ~~recognition~~lessees ~~requirements~~to inrecognize ~~Topic~~a ~~605,~~lease ~~Revenue~~liability ~~Recognition,~~measured on a discounted basis and ~~most~~a ~~industry~~right-~~specific~~of-use ~~guidance~~asset for all leases at the commencement date. For public entities, ~~and~~ASU ~~creates~~2016-02 ais ~~Topic~~effective ~~606~~for ~~Revenue~~fiscal ~~from~~years ~~Contracts~~beginning ~~with~~after ~~Customers.~~December ~~The~~15, ~~core~~2018, ~~principle~~and ofinterim ~~the~~periods ~~guidance~~within those fiscal years, and is ~~that~~to anbe ~~entity~~applied ~~should~~using ~~recognize~~a ~~revenue~~modified toretrospective ~~depict~~transition ~~the~~approach ~~transfer~~for ofleases ~~promised~~existing ~~goods~~at, or ~~services~~entered tointo ~~customers~~after, inthe anbeginning ~~amount~~of ~~that~~the ~~reflects~~earliest comparative period presented in the ~~consideration~~financial tostatements. ~~which~~We are evaluating the ~~entity~~new ~~expects~~guidelines to besee ~~entitled~~if inthey ~~exchange~~will ~~for~~have ~~those~~a ~~goods~~significant orimpact ~~services.~~on Inour ~~August~~consolidated ~~2015,~~results ~~the~~of ~~FASB~~operation, ~~issued~~financial ~~ASU~~condition ~~2015-14,~~or ~~Revenue~~cash flows.

~~from~~In ~~Contracts~~November ~~with~~2015, ~~Customers~~the FASB issued ASU No. 2015-17, (“ASU 2015-17”), Income Taxes (Topic ~~606~~740): ~~Deferral~~Balance Sheet Classification of ~~the~~Deferred ~~Effective~~Taxes. ~~Date",~~The ~~which~~amendments ~~defers~~in this update simplify the ~~effective~~presentation ~~date~~of deferred income taxes and require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of ~~its~~financial ~~new~~position. This ~~revenue~~update ~~recognition~~applies ~~standard~~to byall ~~one~~entities ~~year~~that present a classified statement of financial position. WeThese ~~will~~amendments ~~adopt~~may ~~this~~be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. If the guidance ~~January~~is 1applied prospectively, ~~2018.~~disclosure Weis ~~are~~made ~~evaluating~~in the ~~new~~first ~~guidelines~~interim toand ~~determine~~first ifannual ~~they~~period ~~will~~of ~~have~~change, the nature of and reason for the change in accounting principle and a ~~significant~~statement ~~impact~~that onprior ~~our~~periods ~~consolidated~~were ~~results~~not retrospectively adjusted. If the guidance is applied retrospectively, disclosure is made in the first interim and first annual period of ~~operation~~change, the nature of and reason for the change in accounting principle and quantitative information about the effects of the accounting change on prior periods. ASU 2015-17 is effective for financial ~~condition~~statements orissued ~~cash~~for ~~flows~~annual periods beginning after December 15, 2016, and interim periods within those annual periods. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.

2In July 2015, the FASB issued ASU No. ~~Property~~2015-11, (“ASU 2015-11”), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and ~~Equipment~~net realizable value. The amendment does not apply to inventory that is measured using the last-in, first-out or the retail inventory method. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and is to be applied prospectively. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.

~~Property~~In August 2014, the FASB issued ASU No. 2014-15, (“ASU 2014-15”), Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to perform interim and ~~equipment~~annual ~~consists~~assessments of an entity’s ability to continue as a going concern within one year of the ~~following~~date atthe ~~December~~financial 31statements (are issued and provides guidance on determining when and how to disclose going concern uncertainties in ~~thousands):~~the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. This will have an impact to future filings and disclosures going forward.

	2015			2014
Equipment	$	9,040		$	9,122
Demonstration units	1,657			1,836
Computers and purchased software	2,582			3,321
Furnitures and fixtures	367			366
Leasehold improvements	7,362			7,225
Construction in progress	192			19
	21,200			21,889
Accumulated depreciation	(19,286		)	(19,813		)
	$	1,914		$	2,076

In May 2014, the FASB issued ASU No. 2014-09, (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of its new revenue recognition standard by one year. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples.

~~In 2015, we reclassified $0.1 million of inventory into demonstration units. In 2014, we reclassified $44,000 of inventory into demonstration units.~~46

54In April 2016, the FASB issued ASU No. 2016-10, (“ASU 2016-10”) Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which adds further guidance on identifying performance obligations and improves the operability and understanding of the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which rescinds SEC paragraphs pursuant to the SEC Staff Announcement, “Rescission of Certain SEC Staff Observer Comments upon Adoption of Topic 606,” and the SEC Staff Announcement, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or Equity”. The FASB also issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. We will adopt this guidance beginning January 1, 2018. We are evaluating the new guidelines to determine if they will have a significant impact on our consolidated results of operation, financial condition or cash flows.

~~Table~~2. ofGoing ~~Contents~~Concern

3Our accountants have expressed substantial doubt about our ability to continue as a going concern as a result of our history of net operating losses, and continuing obligations under our operating lease. ~~Stockholders’~~Our ~~Equity~~ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully obtain financing to acquire profitable business operations and revenue that can generate cash flow to meet operating requirements. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue our business.

As reflected in the accompanying consolidated financial statements, we had a net loss of $15.9 million in 2016; and working capital of $5,000 ($5 thousand) and a stockholders’ equity of $0.2 million at December 31, 2016.

Our ability to continue as a going concern is dependent on management's plans, which include the raising of capital through debt and/or equity financings. We will require additional funding during the next twelve months to finance and achieve strategic objectives. Additionally, we will need to continually generate revenues through our anticipated business operations in order to generate enough cash flow to fund our operations through 2017.

We are also dependent on assigning its remaining operating lease on our former headquarter facility in Austin, Texas and being relieved from future lease obligation thereunder.

We believe our current available cash, may be insufficient to meet our cash needs for the near future. There can be no assurance that any financing will be available in amounts or terms acceptable to us, if at all.

3. Discontinued Operations

On November 19, 2016, we completed the sale of substantially all of our assets and operations to Langley and recorded an approximately $6.6 million loss on the sale of the discontinued operations. Pursuant to the terms of the purchase agreement, after the closing of the disposition of our assets, we retained approximately $1.6 million in cash, which equaled the amount by which the value of the acquired assets exceeded the assumed liabilities on our balance sheet by more than $5.0 million at closing. We also retained our net operating losses and other tax benefits and certain intellectual property rights related to our patents that are not related to the purchased assets.

The results of operations and the assets and liabilities for this sold business have been classified as “discontinued operations” in the consolidated balance sheet, the consolidated statements of operations and cash flows for the fiscal years presented. The loss from continuing operations presented in our financial statements for the period ending December 31, 2016 represent the costs of expenses of maintaining our corporate structure as a shell company subsequent to the November 19, 2016 sale. These costs include payroll costs for the two executives, legal costs, consulting costs to monetize our intellectual property and other general and administrative expenses.

Certain items were reclassified as part of discontinued operations for comparative purposes. The below table presents the amounts by balance sheet classification related to our discontinued operations (in thousands):



	December 31, 2016		December 31, 2015
Assets
Current assets:
Restricted cash	$	—	$	36
Accounts receivable, net	—		8,849
Inventories, net	—		6,466
Prepaid expenses and other	—		792
Total current assets of discontinued operations	—		16,143
Property and equipment, net	—		1,912
Deposits and other	—		105
Total assets of discontinued operations	$	—	$	18,160
Liabilities
Current liabilities:
Accounts payable	$	—	$	2,852
Accrued expenses	—		4,106
Deferred revenue	—		3,576
Revolving line of credit	—		5,535
Total current liabilities of discontinued operations	—		16,069
Long-term liabilities	—		583
Total liabilities of discontinued operations	$	—	$	16,652

The amounts in the statement of operations that are included in discontinued operations are summarized in the following table (in thousands):



	Period from January 1, 2016 to November 18, 2016			Year Ended December 31, 2015
	Period from January 1, 2016 to November 18, 2016			Year Ended December 31, 2015

Revenue	$	31,753		$	57,421

Cost of goods sold	23,782			40,604

Gross profit	7,971			16,817
Operating expenses:
Research and development	4,135			5,723
Selling and marketing	7,349			10,589
General and administrative	3,979			5,240
Total operating expenses	15,463			21,552
Loss on sale of discontinued operations	(6,597		)	—
Loss from operations from discontinued operations	(14,089		)	(4,735		)
Interest expense, net	(312		)	(375		)
Other income (expense), net	(19		)	(24		)

Loss before income taxes	(14,420		)	(5,134		)
Income tax expense	—			—
Loss from discontinued operations	$	(14,420	)	$	(5,134	)

The amounts in the statement of operations that are included in the loss on sale of discontinued operations are summarized in the following table (in thousands):



	As of November 18, 2016

Assets sold
Accounts receivable, net	$	6,484
Inventories, net	6,933
Other current assets	376
Property and equipment, net	1,236
Deposits and other assets	90
	15,119

Liabilities assumed
Accounts payable	1,598
Accrued expenses	1,401
Deferred revenue	4,550
Line of credit	5,535
Other long term liabilities	359
	13,443

Excess of assets over liabilities sold	1,676
Cash paid to complete sale	3,324
	5,000
Provision for lease settlement	1,203
Write off of cumulative translation adjustment	211
Other costs to close the sale, net of shared expenses with Langley	183
Loss on sale of discontinued operations	$	6,597

4. Property and Equipment

Property and equipment included in our discontinued operations consists of the following at December 31 (in thousands):



	2016		2015
Equipment	$	—	$	9,040
Demonstration units	—		1,657
Computers and purchased software	—		2,579
Furnitures and fixtures	—		367
Leasehold improvements	—		7,362
Construction in progress	—		192
	—		21,197
Accumulated depreciation	—		(19,285		)
Net Property and Equipment of Discontinued Operations	$	—	$	1,912

Property and equipment included in our continuing operations consists of the following at December 31 (in thousands):



	2016			2015
Computers and purchased software	$	5		$	3
	5			3
Accumulated depreciation	(1		)	(1		)
Net Property and Equipment of Continued Operations	$	4		$	2

In 2016, we reclassified $0.1 million of demonstration units into inventory. In 2015, we reclassified $0.1 million of inventory into demonstration units.

5. Stockholders’ Equity

Common Stock

Common stock reserved for future issuance at December 31, ~~2015~~2016 consisted of 65,~~333~~631,~~714~~781 shares of common stock reserved under our 2010 Stock Incentive Plan, of which 31,~~461~~206,~~737~~000 shares were subject to outstanding options and ~~restricted shares and 2~~4,~~871~~425,~~977~~781 shares were available for future grants of awards.

On May 28, 2014, our stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 30 million shares to 40 million shares.

InStock ~~March~~Option 2014, we sold approximately 3.7 million shares of common stock at a purchase price of $3.15 per share in a public underwritten offering made under a shelf registration statement that we had filed with the SEC and that had been declared effective in June 2013. This offering resulted in proceeds, net of expenses including underwriting discounts, commissions and fees of $0.8 million and professional service expenses of $0.2 million, of approximately $10.4 million. The proceeds from this offering were used by us to help fund our working capital requirements and for general corporate purposes.Plans

InSince ~~April~~its ~~2015~~inception, ~~our~~we ~~Board~~have authorized 8,682,296 shares of ~~Directors~~common ~~approved~~stock ~~the~~for ~~addition~~issuance ofunder ~~3.0~~our ~~million~~2000 and 2010 Stock Incentive Plans, however, we are only issuing new shares of ~~our~~ common stock tounder beour ~~issued~~2010 inStock ~~accordance~~Incentive ~~with~~Plan. ~~our~~The ~~2010~~2000 ~~Equity~~Stock Incentive Plan, ~~and~~has ~~such~~no ~~addition~~remaining ~~was~~shares ~~subsequently~~reserved ~~approved~~for byissuance. ~~our~~We ~~stockholders~~grant options under these plans that vest over periods of up to four years. ~~Options~~The ~~are~~term ~~subject~~of each option is no more than ten years from the date of grant. Our policy is to ~~terms~~issue new shares when required to issue shares upon option exercises. The sale of the business to Langley generated the change in control provisions of the stock incentive plans which resulted in the accelerated vesting of all outstanding stock options and ~~conditions~~restricted asstock ~~determined~~units. byThis resulted in the ~~Compensation~~accelerated ~~Committee~~expense recognition of ~~our~~all ~~Board~~outstanding grants. The total fair value of ~~Directors~~options vested in 2016 and 2015 was $3.4 million and $1.2 million, respectively.

Stock Option Plan

Since its inception, we have authorized 8,682,296 shares of common stock for issuance under our 2000 and 2010 Stock Incentive Plans, however, we are only issuing new shares of common stock under our 2010 Stock Incentive Plan. The 2000 Stock Incentive Plan has no common stock remaining to issue. We grant options under these plans that vest over periods of up to four years. The term of each option is no more than ten years from the date of grant. Our policy is to issue new shares when required to issue shares upon option exercises. The total fair value of options vested in the year was $1.2 million, $1.8 million, and $1.4 million in 2015, 2014, and 2013 respectively.

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A summary of common stock option activity is as follows:

	Number ofShares		Weighted-AverageExercisePrice		Weighted-AverageContractual Life(in years)	AggregateIntrinsic Value(whole dollars)
Outstanding at December 31, 2014	2,399,890		$	4.30
Outstanding at December 31, 2015	3,461,737		$	3.36
Granted	1360,~~294,200~~000		10.9978
Exercised	—		—
Canceled	(~~232~~2,~~353~~615,737	)	53.3544
Outstanding at December 31, 2015	3,461,737		$	3.36	7.81	$	—
Outstanding at December 31, 2016	1,206,000		$	2.44	7.66	$	—
Vested and expected to vest at December 31, 2015	2,857,574		$	3.59	7.58	$	—
Vested and expected to vest at December 31, 2016	1,206,000		$	2.44	7.66	$	—
Exercisable at December 31, 2015	1,405,295		$	4.80	6.33	$	—
Exercisable at December 31, 2016	1,206,000		$	2.44	7.66	$	—

The weighted average grant date fair value per share of options granted during ~~2015,~~2016 ~~2014,~~ and ~~2013~~2015 was $10.~~25,~~42 ~~$2.03,~~ and $21.6025, respectively. The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options at the date of exercise) during the years ended December 31, 2014 and 2013 was $14,000 and $0.1 million, respectively. There were no options exercised during the year ended December 31, 2016 and 2015.

As of December 31, ~~2015~~2016, there was $~~2.7~~0 ~~million~~ of total unrecognized compensation cost, related to non-vested stock options~~, that is expected to be recognized over a weighted-average vesting period of 2~~.~~5 years.~~

Restricted (non-vested) Shares

In 2016, 2013 and 2012, we issued approximately 476,000, 6,000 and 248,000 restricted shares, respectively, to our directors and employees ~~of the Company~~. The restrictions lapse as the shares vest in equal quarterly installments over a four year period from the ~~date of issuance. We recorded stock compensation expense related to restricted share units of $0.1 million in 2015. A summary of our restricted, non-vested, shares is as follows:~~

	Number ofShares		Weighted-AverageGrant DateFair Value
Outstanding at December 31, 2014	21,994		$	4.00
Granted	—		—
Vested	(13,528	)	4.00
Canceled	(1,345	)	4.00
Outstanding at December 31, 2015	7,121		$	4.01

Asdate of ~~December 31,~~issuance. ~~2015,~~We ~~there~~recorded ~~was~~stock ~~$7,000 of total unrecognized~~ compensation ~~cost~~expense related to restricted ~~shares~~share ~~that~~units ~~is expected to be recognized over a weighted-average vesting period~~ of $0.14 ~~years.~~million ~~The~~in ~~total~~2016. ~~fair~~A ~~value~~summary of our restricted, ~~share units~~ non-vested, inshares ~~2015~~is ~~and~~as ~~2014 was $0.1 million and $0.1 million, respectively.~~follows:

4. Revolving Credit Facility



	Number of Shares		Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2015	7,165		$	4.01
Granted	476,200		0.99
Vested	(417,334	)	1.04
Canceled	(66,031	)	0.99
Outstanding at December 31, 2016	—		$	—

~~Our~~As ~~Second~~of ~~Amended and Restated Loan and Security Agreement dated August 5~~December 31, ~~2010 (as amended on March 5~~2016, ~~2012,~~there ~~August~~was 15, 2012, and July 28, 2014, the “Loan Agreement”) with Silicon Valley Bank (“SVB”) gives us flexibility to help fund our business operations and manage our working capital requirements. The Loan Agreement provides for a secured revolving line of credit with a maturity date of August 5, 2017. We may borrow an aggregate amount of up to eighty percent (80%) of the facility amount of $~~18.8 million, or $15.~~0 ~~million, subject to certain borrowing bases. We may also request that SVB issue letters~~ of ~~credit~~total onunrecognized ~~our~~compensation ~~behalf,~~cost ofrelated up to ~~$1.5~~restricted ~~million, as a portion of the total facility amount~~shares. The ~~facility~~total ~~allows~~fair usvalue toof ~~borrow~~restricted ~~against~~share ~~our~~units ~~U.S.,~~that ~~U.K.~~vested ~~and~~in ~~German~~2016 ~~accounts receivables~~ and ~~also~~2015 ~~allows~~was ~~us to borrow against our eligible inventory and purchase orders. Purchase orders and eligible inventory are subject to a borrowing sublimit of~~ $3.0.7 million and $4.0.1 million, respectively~~, and accounts receivable for UK and Germany have a $5~~.0 million sublimit. However, if we maintain our liquidity ratio at or above 2.50:1.00 for the immediately preceding two reconciliation periods the sublimits will be uncapped. The liquidity ratio is defined as unrestricted

566. Revolving Credit Facility - Discontinued Operations

~~Table~~Our Second Amended and Restated Loan and Security Agreement dated August 5, 2010 (as amended on March 5, 2012, August 15, 2012, and July 28, 2014, the “Loan Agreement”) with Silicon Valley Bank (“SVB”) gave us flexibility to help fund our business operations and manage our working capital requirements. The Loan Agreement provided for a secured revolving line of ~~Contents~~credit with a maturity date of August 5, 2017. We were able borrow an aggregate amount of up to eighty percent (80%) of the facility amount of $18.8 million, or $15.0 million, subject to certain borrowing bases. We were able to also request that SVB issue letters of credit on our behalf, of up to $1.5 million, as a portion of the total facility amount. The facility allowed us to borrow against our U.S., U.K. and German accounts receivables and also allowed us to borrow against our eligible inventory and purchase orders. Purchase orders and eligible inventory were subject to a borrowing sublimit of $3.0 million and $4.0 million, respectively, and accounts receivable for UK and Germany had a $5.0 million sublimit. However, if we maintained our liquidity ratio at or above 2.50:1.00 for the immediately preceding two reconciliation periods the sublimits would be uncapped. The liquidity ratio was defined as unrestricted cash, cash equivalents and marketable securities on which SVB had a perfected security interest, plus the aggregate amount of eligible accounts receivable accounts divided by all obligations we owed to SVB. The finance charge was a per annum rate equal to SVB's prime rate, subject to a minimum prime rate of 4.00%, plus (a) 0.50% for eligible accounts, inventory and purchase orders when we were Borrowing Base Eligible, or (b) 1.20% for eligible accounts when we were not Borrowing Base Eligible. We were "Borrowing Base Eligible" when our liquidity ratio was equal to or greater than 1.75:1.00 at all times for the preceding sixty consecutive days.

~~cash,~~The ~~cash~~revolving ~~equivalents~~loans ~~and~~made ~~marketable~~to ~~securities~~us onunder ~~which~~this ~~bank~~loan ~~has~~facility awere ~~perfected~~secured ~~security~~by ~~interest,~~a ~~plus~~lien ~~the~~on ~~aggregate~~substantially ~~amount~~all of ~~eligible~~our ~~accounts~~assets, ~~receivable~~including ~~accounts~~the ~~divided~~assets byof ~~all~~Active ~~obligations~~Power weSolutions ~~owe~~Limited, toour ~~SVB.~~wholly-owned ~~The~~United ~~finance~~Kingdom ~~charge~~subsidiary, isand athe ~~per~~assets ~~annum~~of ~~rate~~Active ~~equal~~Power to(Germany) ~~Silicon Valley Bank's prime rate~~GmbH, ~~subject~~our toindirect awholly-owned ~~minimum~~German ~~prime~~subsidiary. ~~rate~~The ofonly ~~4.00%,~~direct ~~plus~~or ~~(a)~~indirect ~~0.50%~~subsidiaries ~~for~~of ~~eligible~~ours ~~accounts,~~which ~~inventory~~were ~~and~~not ~~purchase~~guarantors ~~orders~~under ~~when~~the weLoan ~~are~~Agreement ~~Borrowing~~were ~~Base~~Active ~~Eligible,~~Power orChina (bBeijing) 1Co.~~20%~~ ~~for~~Ltd. ~~eligible~~and ~~accounts~~immaterial ~~when~~subsidiaries wethat ~~are~~were not ~~Borrowing~~operating ~~Base Eligible~~companies. We There ~~are~~were ~~"Borrowing~~no ~~Base~~restrictions ~~Eligible"~~on ~~when~~the ~~our~~ability ~~liquidity~~of ~~ratio~~any isof ~~equal~~the subsidiary guarantors to ortransfer ~~greater~~funds ~~than~~to ~~1.75:1.00~~us atin ~~all~~the ~~times~~form ~~for~~of atloans, ~~least~~advances ~~sixty~~or ~~consecutive~~dividends, ~~days~~except as provided by applicable law.

The ~~revolving~~Loan ~~loans~~Agreement ~~made~~included tocustomary usaffirmative ~~under~~covenants ~~this~~for ~~loan facility are secured by~~ a ~~lien~~credit onfacility ~~substantially~~of ~~all~~this ofsize ~~our~~and ~~assets~~type, including ~~the~~delivery ~~assets~~ of ~~Active~~financial ~~Power Solutions Limited~~statements, ~~our~~compliance ~~wholly-owned~~with ~~United~~laws, ~~Kingdom~~maintenance ~~subsidiary~~of insurance, and ~~the~~protection ~~assets~~ of ~~Active~~intellectual ~~Power~~property ~~(Germany)~~rights. ~~GmbH~~Further, ~~our~~the ~~indirect~~Loan ~~wholly-owned~~Agreement ~~German~~contained ~~subsidiary.~~customary ~~The~~negative ~~only~~covenants ~~direct~~for ora ~~indirect~~credit ~~subsidiaries~~facility of ~~Active~~this ~~Power,~~size ~~Inc.~~and ~~that~~type, ~~are~~including ~~not~~covenants ~~guarantors~~that ~~under~~limited ~~the~~or ~~Loan~~restricted ~~Agreement~~our ~~are~~ability, ~~Active~~among ~~Power~~other ~~China~~things, ~~(Beijing)~~to ~~Co.~~dispose ~~Ltd.~~of ~~and~~assets, ~~immaterial~~change ~~subsidiaries~~our ~~that~~business, ~~are~~change ~~not~~our ~~operating~~CEO ~~companies. There~~or ~~are~~CFO nowithout ~~restrictions~~replacing onsuch ~~the~~person ~~ability~~within of120 ~~any~~days, ofhave ~~the~~a ~~subsidiary~~change ~~guarantors~~in tocontrol, ~~transfer~~make ~~funds~~acquisitions, tobe ~~Active Power~~acquired, ~~Inc.~~incur inindebtedness, ~~the~~grant ~~form~~liens, ofmake ~~loans~~investments, ~~advances~~make ordistributions, ~~dividends~~repurchase stock, ~~except~~and asenter ~~provided~~into bycertain ~~applicable~~transactions ~~law~~with affiliates.

The Loan Agreement ~~includes~~contained customary ~~affirmative~~events ~~covenants~~of ~~for~~default athat ~~credit~~included, ~~facility~~among ofother ~~this~~things, ~~size~~non-payment ~~and~~defaults, ~~type~~covenant defaults, ~~including~~material ~~delivery~~adverse ofchange ~~financial~~defaults, ~~statements~~insolvency defaults, ~~compliance~~material ~~with~~judgment ~~laws,~~defaults ~~maintenance~~and inaccuracy of ~~insurance,~~representations and ~~protection~~warranty ofdefaults. ~~intellectual~~The ~~property~~financial ~~rights~~covenant required us to maintain a liquidity ratio equal to or greater than 1.25:1.00. ~~Further,~~The ~~the~~occurrence ~~Loan~~of ~~Agreement~~an ~~contains~~event ~~customary~~of ~~negative~~default ~~covenants~~could ~~for~~have aresulted ~~credit~~in ~~facility~~the acceleration of ~~this~~obligations ~~size~~under ~~and~~the ~~type~~Loan Agreement, ~~including~~in ~~covenants~~which ~~that~~case ~~limit~~we orwould ~~restrict~~have ~~our~~been ~~ability,~~required ~~among~~repay ~~other~~all ~~things,~~loans toand ~~dispose~~pay ofrelated ~~assets~~charges, ~~change~~fees ~~our~~and ~~business~~amounts then due and payable, ~~change~~and our ~~CEO~~subsidiary orwould ~~CFO~~have ~~without~~been ~~replacing~~required to pay any such ~~person~~amounts ~~within~~under ~~120~~the ~~days,~~Guarantee ~~have~~and aDebenture. ~~change~~At inthe ~~control,~~election ~~make~~of ~~acquisitions~~SVB, beupon ~~acquired,~~the ~~incur~~occurrence ~~indebtedness,~~and ~~grant~~during ~~liens,~~the ~~make~~continuance ~~investments,~~of ~~make~~an ~~distributions,~~event ~~repurchase~~of ~~stock~~default, ~~and~~finance ~~enter~~charges ~~into~~or ~~certain~~interest ~~transactions~~rates, ~~with~~as ~~affiliates.~~applicable, would have

The Loan Agreement contains customary events of default that include, among other things, non-payment defaults, covenant defaults, material adverse change defaults, insolvency defaults, material judgment defaults and inaccuracy of representations and warranty defaults. The financial covenant requires us to maintain a liquidity ratio equal to or greater than 1.25:1.00. The occurrence of an event of default could result in the acceleration of obligations under the Loan Agreement, in which case we must repay all loans and related charges, fees and amounts then due and payable, and our subsidiary may be required to pay any such amounts under the Guarantee and Debenture. At the election of SVB, upon the occurrence and during the continuance of an event of default, finance charges or interest rates, as applicable, will increase an additional five percentage points (5.00%) per annum above the rate that is otherwise applicable thereto upon the occurrence of such event of default, and the collateral handling fees will increase by one-half percent (0.50%).51

Weincreased ~~believe~~an weadditional ~~are~~five inpercentage ~~and~~points ~~expect~~(5.00%) toper ~~remain~~annum inabove ~~compliance with~~ the ~~covenants~~rate ~~and~~that ~~restrictions~~was ~~under~~otherwise ~~the~~applicable ~~Loan~~thereto ~~Agreement~~upon ~~as of~~ the ~~date~~occurrence of ~~this~~such ~~report. If we fail to stay in compliance with our covenants or experience some other~~ event of default, weand ~~may~~the becollateral ~~forced~~handling tofees ~~repay~~would ~~the~~have ~~outstanding~~increased ~~borrowings~~by ~~under~~one-half ~~this~~percent ~~credit facility~~(0.50%).

During 2012, we borrowed $5.5 million under this credit facility based on our short term liquidity requirements, and ~~have~~did not ~~borrowed~~borrow any additional amounts after ~~this~~that initial borrowing. AsPursuant ofto ~~December 31,~~the ~~2015,~~asset wepurchase ~~had~~agreement ~~outstanding~~we ~~borrowings~~executed ofwith ~~$5.5~~Langley ~~million~~regarding ~~under~~the ~~this~~sale ~~loan~~of ~~facility.~~our ~~Based~~existing onoperations, at the ~~borrowing~~closing ~~base~~Langley ~~formula~~repaid ~~subsequent~~our toborrowings under the ~~amendment,~~Loan ~~the~~Agreement ~~additional~~in ~~amount~~full ~~available~~and ~~for~~the ~~use~~Loan atAgreement was terminated. At December 31, ~~2015~~2016 ~~was~~we ~~approximately~~did ~~$5.9~~not ~~million~~have a credit facility in place to provide any borrowing capacity.

57. Income Taxes

~~The~~Our ~~Company’s~~ pretax loss for the ~~three~~two years ended December 31, ~~2015, 2014,~~2016 and ~~2013~~ 2015 were allocated between domestic and foreign operations as follows:

	Year Ended December 31,
	2015			2014			2013
	2016			2015
Domestic	$	(515,~~261~~198	)	$	(155,~~909~~261	)	$	~~(9,105~~	)
Foreign	(~~1,198~~668		)	3(1,~~334~~198		)	~~754~~
Total	$	(615,~~459~~866	)	$	(126,~~575~~459	)	$	~~(8,351~~	)

InAs ~~September~~of ~~2014~~December 31, 2016, we ~~settled~~had afederal ~~tax~~net ~~examination~~operating loss carry-forwards, or NOL's, of ~~our~~approximately ~~German~~$274.6 ~~subsidiary~~million ~~for~~and ~~years~~research ~~2007~~and ~~through~~development ~~2011~~credit carry-forwards of approximately $4. In1 ~~the~~million. ~~settlement,~~The wenet ~~agreed~~operating toloss ~~transfer~~and ~~pricing~~credit ~~adjustments~~carry-forwards ~~for~~will ~~the~~expire ~~period~~beginning ~~under~~in ~~examination~~2018, ~~resulting~~if not utilized. We are currently in athe ~~reduction~~process of ~~loss~~analyzing ~~carryovers~~potential ~~and~~limitations aon ~~deemed~~the ~~distribution~~future ~~subject~~utilization toof ~~withholding~~the ~~taxes~~net ~~under~~operating ~~German~~losses ~~law. We~~and ~~recorded~~credit acarryforwards ~~provision~~due ~~for~~to ~~foreign~~the ~~income~~"change ~~taxes~~ of ~~$0.3~~ownership" ~~million~~provisions inof the ~~quarter~~Internal ~~ended~~Revenue ~~September~~Code ~~30,~~of ~~2014~~1986. ~~related~~Any toannual limitations may result in the ~~settlement~~expiration of ~~the~~net ~~German~~operating ~~tax~~losses ~~examination~~and credit carry-forwards before utilization.

57Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred taxes as of December 31 are as follows (in thousands):

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	2016			2015
Deferred tax assets:
Current deferred tax assets
Reserves and allowances	$	516		$	698
Deferred rent	65			45
Deferred revenue	—			269
Valuation allowance for current deferred tax assets	(581		)	(1,011		)
Net current deferred tax assets	$	—		$	1
Noncurrent deferred tax assets
Acquired technology	—			452
Capital expenses	—			1,688
Stock compensation	242			695
Net operating loss and tax credit carryforwards	95,196			84,436
Valuation allowance for noncurrent deferred tax assets	(95,438		)	(87,108		)
Net noncurrent deferred tax assets	$	—		$	163
Deferred tax liabilities:
Current deferred tax liabilities
Prepaid expenses	—			(164		)
Total current deferred tax liabilities	$	—		$	(164	)
Total net deferred taxes	$	—		$	—

As of December 31, 2015, the Company had federal and state net operating loss carry-forwards of approximately $235.5 million and $277.3 million, respectively and research and development credit carry-forwards of approximately $4.1 million. The net operating loss and credit carry-forwards will expire beginning in 2018, if not utilized. Utilization of the federal and state net operating losses and credit carryforwards may be subject to a substantial annual limitation due to the “change of ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization. The Company also has net operating loss carry-forwards related to international operations of approximately $11.7 million. 52

~~Deferred~~We ~~income~~established ~~taxes~~a ~~reflect~~valuation allowance equal to the net deferred tax ~~effects~~asset ofdue ~~temporary~~to ~~differences~~uncertainties ~~between~~regarding the ~~carrying~~realization ~~amounts~~ of ~~assets~~deferred ~~and~~tax ~~liabilities~~assets ~~for~~based ~~financial~~on ~~reporting~~our ~~purposes~~lack ~~and~~of ~~the~~earnings ~~amounts used for income tax purposes~~history. ~~Significant~~The ~~components~~valuation ofallowance ~~the~~decreased ~~Company’s~~by ~~deferred~~approximately ~~taxes~~$7.5 asmillion ofduring ~~December~~2016. ~~31 are as follows (in thousands):~~

	2015			2014
Deferred tax assets:
Current deferred tax assets
Reserves and allowances	$	698		$	751
Deferred Rent	45			45
Deferred revenue	269			255
Valuation allowance for current deferred tax assets	(1,011		)	(1,049		)
Net current deferred tax assets	$	1		$	2
Noncurrent deferred tax assets
Acquired technology	452			571
Capital expenses	1,688			1,652
Stock compensation	695			594
Net operating loss and tax credit carryforwards	84,436			84,047
Valuation allowance for noncurrent deferred tax assets	(87,108		)	(86,687		)
Net noncurrent deferred tax assets	$	163		$	177
Deferred tax liabilities:
Current deferred tax liabilities
Prepaid expenses	(164		)	(179		)
Total current deferred tax liabilities	$	(164	)	$	(179	)
Total net deferred taxes	$	—		$	—

Our provision for income taxes differs from the expected tax expense (benefit) amount computed by applying the statutory federal income tax rate of 34% to income before taxes due to the following:

The Company has established a valuation allowance equal to the net deferred tax asset due to uncertainties regarding the realization of deferred tax assets based on the Company’s lack of earnings history. The valuation allowance increased by approximately $0.4 million during 2015. The Company’s deferred tax asset related to NOL carryforwards is net of $2.9 million of unrealized excess tax benefits related to stock based compensation. The impact of the excess tax benefit will be recognized in additional paid-in-capital upon utilization of the Company’s NOL and tax credits carryforward.



	Year Ended December 31,
	2016		2015
Federal statutory rate	(34.0	)%	(34.0	)%
State taxes, net of federal benefit	(2.9	)	(0.8	)
R&D credits	(0.1	)	(2.2	)
Stock compensation	8.4		6.0
Effect of current foreign operations	19.4		20.5
Expiration and adjustment of net operating losses	1.5		2.4
Impact of sale of business	(42.2	)	—
Permanent items and other	0.1		2.2
Change in valuation allowance	49.8		5.9
	—	%	—	%

58We recognized no material adjustment in the liability for unrecognized income tax benefits. The reconciliation of our unrecognized tax benefits at the beginning and end of the year is as follows:

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Balance at December 31, 2015	$	2,351
Additions based on tax positions related to the current year	37
Additions for tax positions of prior years	—
Balance at December 31, 2016	$	2,388

~~The~~Due ~~Company’s~~to ~~provision~~the ~~for~~existence ~~income~~of ~~taxes~~the ~~differs~~valuation ~~from~~allowance, ~~the~~future ~~expected~~changes ~~tax~~in ~~expense~~our ~~(benefit)~~unrecognized ~~amount~~tax ~~computed~~benefits bywill ~~applying~~not ~~the~~materially ~~statutory~~impact ~~federal~~our ~~income~~effective tax rate. Our assessment of ~~34%~~our tounrecognized ~~income~~tax ~~before~~benefits ~~taxes~~is ~~due~~subject to change as a function of the ~~following:~~audit of our financial statements.

	Year Ended December 31,
	2015		2014		2013
Federal statutory rate	(34.0	)%	(34.0	)%	(34.0	)%
State taxes, net of federal benefit	(0.8	)	(1.0	)	(13.5	)
R&D credits	(2.2	)	(1.8	)	(5.6	)
Stock compensation	6.0		3.8		6.2
Effect of current foreign operations	20.5		5.5		(20.5	)
Expiration and adjustment of net operating losses	2.4		26.7		—
Foreign tax audit settlement	—		2.0		—
Loss carryforward adjustments due to tax audit methodologies	—		9.1		—
Permanent items and other	2.2		0.3		(1.9	)
Change in valuation allowance	5.9		(8.6	)	69.3
	—	%	2.0	%	—	%

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2016, we had no accrued interest or penalties related to uncertain tax positions.

The ~~Company recognized no material adjustment in the liability for unrecognized income~~ tax ~~benefits.~~years ~~The~~2011 ~~reconciliation~~through of2016 ~~the~~remain ~~Company’s~~open ~~unrecognized~~to ~~tax~~examination ~~benefits~~by at the ~~beginning~~major ~~and~~taxing ~~end~~jurisdictions ofto ~~the~~which ~~year~~we isare ~~as follows:~~subject.

Balance at December 31, 2013	$	1,990
Additions based on tax positions related to the current year	257
Additions for tax positions of prior years	24
Balance at December 31, 2014	$	2,271
Additions based on tax positions related to the current year	80
Additions for tax positions of prior years	—
Balance at December 31, 2015	$	2,351

8. Commitments

~~Due~~Our corporate headquarters facility is a 127,000 square foot building we lease in Austin, Texas. We lease this building pursuant to a lease agreement that expires in December 2021. Our discontinued manufacturing, administrative, information systems, sales and service groups utilized this facility. We currently have an arrangement with Langley for Langley to use our corporate headquarters facility. The purchase agreement with Langley contemplated that the ~~existence~~parties would execute a sublease under which Langley would assume the full lease obligations for the facility for one year and for one third of the ~~valuation~~space ~~allowance~~and obligations for the remaining term of the lease. The landlord of that facility refused to consent to the sublease, ~~future~~and ~~changes~~Langley inagreed ~~our~~to ~~unrecognized~~close ~~tax~~on ~~benefits~~the ~~will~~sale ~~not~~without ~~materially~~the ~~impact~~sublease of that facility. Langley has been paying us the ~~Company’s~~full ~~effective~~amount ~~tax~~of ~~rate~~the rent and we have been making the lease payments to the landlord. We are negotiating with the landlord to approve a sublease of the facility to Langley. The ~~Company's~~landlord ~~assessment~~has notified us that it considers us in breach of ~~its~~the ~~unrecognized~~lease ~~tax~~agreement ~~benefits~~for isthe ~~subject~~facility. If we are unable to ~~change~~negotiate asa sublease with the landlord and Langley, we will continue to be responsible for the rent payments under the lease agreement. We have recorded a ~~function~~provision in our December 31, 2016 results for vacating the lease in an amount equal to one year of lease payments amount to approximately $1.2 million as our best estimate of the ~~Company's~~likely ~~financial~~exposure ~~statement~~to ~~audit~~settle our outstanding lease obligation. This amount includes one year of lease costs including common area maintenance, insurance and property taxes. Our leases for the equipment, our engineering facilities and our foreign sales offices were fully assumed by Langley at the closing of the sale.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2015, the Company had no accrued interest or penalties related to uncertain tax positions.53

~~The~~Rent ~~tax~~expense ~~years~~for ~~2010~~leases ~~through~~with ~~2015~~escalating ~~remain~~or ~~open~~de-escalating torent ~~examination~~payments byare recorded on a straight-line basis over the ~~major~~period ~~taxing~~of ~~jurisdictions~~the tolease. ~~which~~Net deferred rent on the ~~Company~~consolidated isbalance ~~subject~~sheet as of December 31, 2016 and 2015 was $0.2 million and $0.1 million, respectively. Rent expense was $1.5 million for both of the years ended December 31, 2016 and 2015.

6.Future ~~Commitments~~minimum payments under these leases at December 31, 2016 are as follows (in thousands):

We lease our office, manufacturing and engineering facilities and our foreign sales offices under operating lease agreements. These facilities’ leases are non-cancelable and obligate us to pay taxes and maintenance costs. In addition, we lease certain equipment such as copiers and phone systems under non-cancelable leases. Our leases expire at various dates through 2021. Rent expense for leases with escalating or de-escalating rent payments are recorded on a straight-line basis over the period of the lease. Net deferred rent on the consolidated balance sheet as of December 31, 2015 and 2014 was $0.1 million and $0.1 million, respectively. Rent expense was $1.5 million, $1.5 million, and $1.7 million for the years ended December 31, 2015, 2014, and 2013, respectively.



	Rental payments
2017	$	1,203
2018	1,224
2019	1,247
2020	1,270
2021

Filing Compare · P10 Industries, Inc.