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Our products and 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 event of power disturbances. </div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">Our products and solutions are designed to deliver continuous conditioned power during power disturbances such as voltage sags and surges, and to provide ride-through power in the event of a brief utility failure, supporting operations until utility power is restored or a longer term alternative power source, such as a diesel generator, is started. We sell our products globally through our direct sales force, manufacturer&#8217;s representatives, distributors, Original Equipment Manufacturer (&#8220;OEM&#8221;) channel, and IT partners in the Americas, in Europe, Middle East, and Africa (&#8220;EMEA&#8221;), and in the Asia Pacific region (&#8220;APAC&#8221;).</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">We also offer services, including hardware and software maintenance, on all Active Power products, and other professional services such as assessment and implementation, for our customers&#8217; infrastructure projects.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">We were founded as a Texas Corporation in 1992 and reincorporated in Delaware in 2000. Our headquarters are in Austin, Texas, with international offices in the United Kingdom, Germany, and China.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">The accompanying condensed consolidated balance sheet as of December 31, 2013, which has been derived from our audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (&#8220;US GAAP&#8221;) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (&#8220;SEC&#8221;) for interim reporting, and include the accounts of the Company and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations and cash flows. These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company&#8217;s Annual Report on Form 10-K for the year ended December 31, 2013. </div></div> 728000 1543000 13804000 12261000 13524000 14252000 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt;"><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-weight: bold; color: #000000; text-align: justify;">Restricted Cash</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; margin: 0.1pt; text-indent: 36pt;">Our restricted cash balance of $42,000 as of September 30, 2014 consists of a $7,000 deposit guarantee for our building lease in the United Kingdom, which expired in October 2014 and a $35,000 performance guarantee outstanding for a term of 24 months to a customer that was secured with a letter of credit. As of December 31, 2013, our restricted cash balance was $0.5 million which consisted primarily of secured performance and deposit guarantees. As of the period ended September 30, 2014, all of these guarantees were satisfied.</div></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt;"><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">8.</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">Commitments and Contingencies</td></tr></table></div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">The Company 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 time in the ordinary course of its business.&#160; In evaluating whether a contingency should be disclosed, the Company considers if there is at least a reasonable possibility that a loss or an additional loss may have been incurred, and either an accrual is not made because any of the conditions, or an exposure to loss exists in excess of the amount accrued.&#160; The Company evaluated all potentially significant litigation, government investigations, claims or assessments in which the Company is involved and determined there were no contingent losses, either accrued or reasonably possible of loss that could materially effect its results of operations, financial condition, or cash flows.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">The Company records an accrual with respect to a claim, suit, investigation or proceeding when it is reasonably probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Any recorded liabilities, including any changes to such liabilities for the quarter ended September 30, 2014, were not material to the Consolidated Financial Statements.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; text-align: left; text-indent: 36pt;">The following is a summary of the more significant legal matters involving the Company.</div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-weight: bold; text-align: left; text-indent: 36pt;">&#160;</div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-weight: bold; text-align: left; text-indent: 36pt;">SEC Inquiry</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">By letter dated September 30, 2013, the SEC Division of Enforcement notified us that it is conducting an investigation regarding us, including matters relating to our public statements regarding Digital China Information Services Company Limited (&#8220;Digital China&#8221;) and our distribution relationships in China. We have been and intend to continue cooperating fully with the SEC.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-weight: bold; color: #000000; text-align: justify; text-indent: 36pt;">Audit Committee Internal Investigation</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">The audit committee of our Board of Directors, with the assistance of independent counsel, conducted an investigation into the facts and circumstances surrounding our agreements and transactions with Qiyuan Network Systems Limited (&#8220;Qiyuan&#8221;), including the statements made regarding Qiyuan&#8217;s affiliation with Digital China. This investigation was completed in February 2014. The audit committee of our Board of Directors and the Company reviewed the results of the investigation and concluded that the investigation had not uncovered any relevant material information not disclosed in our various filings with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2013.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-weight: bold; color: #000000; text-align: justify; text-indent: 36pt;">Stockholder Litigation</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; font-style: italic; text-align: justify; margin-left: 0.2pt; text-indent: 35.9pt;">Class action complaint</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">On September 10, 2013, a purported class action complaint was filed in the United States District Court for the Western District of Texas against us and certain of our former executives. The case is captioned Don Lee v. Active Power, Inc., et. al. (Civil Action No. 1:13-cv-00797-SS). As amended, the complaint alleges that on February 19, 2013, we reported that we had begun working with an unnamed Chinese distributor partner, and that on April 30, 2013, we announced in press releases and conference calls that we had entered into a strategic distribution partnership with Digital China. However, on September 5, 2013, after the close of trading, we disclosed that our partnership was with Qiyuan Network System Limited, which is neither an affiliate nor a subsidiary of Digital China. The amended complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and seeks unspecified damages on behalf of all stockholders who purchased common stock between February 19 and September 5, 2013.&#160; On March 7, 2014, we filed a motion to dismiss the class action complaint.&#160; Our motion was denied by the Court on July 2, 2014.&#160; On August 11, 2014, we filed an answer to the class action complaint, and on September 2, 2014, the Court declined to certify its order of July 2, 2014 for an interlocutory appeal to the United States Court of Appeals for the Fifth Circuit.&#160; </div><div style="margin-bottom: 12pt; font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; font-style: italic; text-align: left; margin-top: 12pt; text-indent: 36pt;">Derivative actions</div><div style="margin-bottom: 12pt; font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; margin-top: 12pt; text-indent: 36pt;">On September 13, 2013 and October 14, 2013, two separate stockholders filed complaints in the District Court of Travis County, Texas, purporting to bring derivative actions on behalf of us against certain current and former officers and directors of the Company. The first derivative action is captioned Okumura v. Almgren, et. al. (Cause No. D-1-GN-13-003230), and the second derivative action is captioned Shaev v. Milner, et. al. (Cause No. D-1-GN-13-003557). The allegations of each derivative complaint mirror those of the class action complaint, and they assert claims for breach of fiduciary duty, unjust enrichment, and/or abuse of control and seek damages on our behalf.&#160; These derivative actions were stayed by agreement pending resolution of the motion to dismiss in the securities class action. The stay was lifted and on August 4, 2014, the parties filed a joint motion to consolidate the two derivative cases.&#160; <font style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif;">On September 18, 2014, the District Court appointed lead counsel in the consolidated derivative action.</font></div><div style="margin-bottom: 12pt; font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; font-style: italic; text-align: left; margin-top: 12pt; text-indent: 36pt;">Proposed settlements</div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">On September 23, 2014, we reached agreements in principle and entered into memorandums of understanding to settle both the class action complaint and the consolidated derivative actions.&#160; The proposed settlements would resolve for all defendants all of the issues that are pending in the class action complaint and in the consolidated derivative actions.&#160; If completed, the class action settlement would result in a payment of $1.5 million to the settlement class, inclusive of fees and expenses.&#160; The proposed consolidated derivative settlement includes, among other things, certain governance improvements by us.&#160; We anticipate that the total settlement amounts and related expenses would be paid from insurance proceeds.&#160; The proposed settlements are not yet consummated, and are subject to a number of conditions. The terms outlined in the memorandums of understanding are subject to the parties concluding definitive settlement agreements. The proposed settlements are also subject to final approval by our insurance carrier and by the Courts following completion of a fairness hearing. Hearing dates have not yet been set on final approval of the proposed settlements.</div></div> 0.001 0.001 19000 23000 19452000 23160000 40000000 30000000 30000000 23091000 19388000 -2591000 -4185000 -2897000 -10858000 19747000 7490000 25373000 6784000 25181000 32553000 9210000 8932000 7180000 1442000 2426000 5434000 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt;"><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">6.</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">Revolving Line of Credit</td></tr></table></div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; margin: 0.1pt 0.1pt 0.1pt 0.2pt; text-indent: 36pt;">On July 28, 2014, we entered into a Third Amended and Restated Loan and Security Agreement (&#8220;Loan Agreement&#8221;) with Silicon Valley Bank (&#8220;SVB&#8221;). This amended three-year loan facility provides for a secured revolving line of credit in an aggregate amount of up to eighty percent (80%) of the facility amount of $18.75 million, or $15.0 million, and increased our inventory and purchase order availability from $3.5 million to $7.0 million, subject to certain borrowing bases. 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padding-bottom: 4px; text-align: left; width: 1%; background-color: #cceeff;">&#160;</td></tr></table></div><div style="clear: both;">&#160;</div><div style="font-weight: bold; clear: both;">Revenue Recognition</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">In general, 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. Our revenue-generating transactions generally fall into one of the following categories of revenue recognition:</div><div><br /></div><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="width: 20.25pt;"></td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">&#9679;</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">We recognize 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 do not have the right to return products. If title and risk of loss pass at some other point in time, we recognize such revenue for our customers when the product is delivered to the customer and title and risk of loss have passed.&#160; We may enter into bill-and-hold arrangements and when this happens delivery may not occur, but other criteria are reviewed to determine proper timing of revenue recognition.</td></tr></table></div><div><br /></div><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="width: 20.25pt;"></td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">&#9679;</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">We recognize installation, service and maintenance revenue at the time the service is performed.</td></tr></table></div><div><br /></div><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="width: 20.25pt;"></td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">&#9679;</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">We recognize revenue associated with extended maintenance agreements (&#8220;EMAs&#8221;) 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 recorded as a current liability in the deferred revenue line of the consolidated balance sheet or as a long-term liability based on the time from the balance sheet date to the future date of revenue recognition.</td></tr></table></div><div><br /></div><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="width: 20.25pt;"></td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">&#9679;</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">We recognize revenue on certain rental programs over the life of the rental agreement 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.</td></tr></table></div><div><br /></div><div style="text-align: justify;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; width: 100%;"><tr><td style="width: 20.25pt;"></td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; width: 27pt; align: right;">&#9679;</td><td style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; vertical-align: top; color: #000000; text-align: justify; width: auto;">Shipping costs reimbursed by the customer are included in revenue.</td></tr></table></div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">When collectability is not reasonably assured, we defer revenue and will recognize revenue on a cost recovery basis as payments are received.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; margin: 0.1pt; text-indent: 36pt;">Multiple element arrangements (&#8220;MEAs&#8221;) are arrangements to sell products to customers that frequently include multiple deliverables. Our most significant MEAs include the sale of one or more of our CleanSource&#174; UPS or CleanSource PowerHouse products, combined with one or more of the following products: design services, project management, commissioning and installation services, spare parts or consumables, and EMAs. 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. EMAs, consumables, and repair, maintenance or consulting services generally are delivered over a period of one to five years. In certain arrangements revenue recognized is limited to the amount invoiced or received that is not contingent on the delivery of future products and services.</div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">&#160;</div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">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 (&#8220;VSOE&#8221;) if available, Third Party Evidence (&#8220;TPE&#8221;) if VSOE is not available, or Best Estimate of Selling Price (&#8220;BESP&#8221;) 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 an EMA, we recognize revenue related to the EMA at the stated contractual price on a straight-line basis over the life of the agreement.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;">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.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-weight: bold; color: #000000; text-align: left; text-indent: 27pt;">Recently issued accounting pronouncements not yet adopted</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; margin-left: 0.1pt; text-indent: 27pt;">In August 2014, the Financial Accounting Standards Board (the &#8220;FASB&#8221;) issued Accounting Standards Update (&#8220;ASU&#8221;) No. 2014-15, (&#8220;ASU 2014-15&#8221;), &#8220;<font style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-style: italic;">Disclosure of Uncertainties About an Entity&#8217;s Ability to Continue as a Going Concern</font>&#8221;. ASU 2014-15 requires management to perform interim and annual assessments of an entity&#8217;s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity&#8217;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. The Company does not expect that the adoption of this standard will have a material effect on its financial statements.</div><div><br /></div><div style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; color: #000000; text-align: justify; text-indent: 36pt;"><font style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif;">In May 2014, the FASB issued ASU 2014-09, &#8220;</font><font style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-style: italic;">Revenue from Contracts with Customers</font><font style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif;">&#8221;, &#8220;</font><font style="font-size: 10pt; font-family: ''Times New Roman'', Times, serif; font-style: italic;">Topic 606&#8221;. </font>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. The Company will adopt this guidance January 1, 2017. We are evaluating the new guidelines to see if they will have a significant impact on our consolidated results of operation, financial condition or cash flows.</div></div> P36M P12M P12M P5Y 1 1 4 P18M P6M P1Y -50000 49000 14000 0 20000