UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 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: 333-179460

Aspirity Holdings, LLC

(Exact name of registrant as specified in its charter)

Minnesota		27-1658449
(State of organization)		(IRS Employer Identification Number)

701 Xenia Avenue, Suite 475

Minneapolis, Minnesota 55416

(Address of principal executive offices, zip code)

(763) 432-1500

(Registrant’s telephone number, including area code)

Securities registered under Sections 12(b) or 12(g) of the Act		Name of each exchange on which registered
None		None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

$75,000,000

3 and 6 Month and 1, 2, 3, 4, 5 and 10 Year Renewable Unsecured Subordinated Notes

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. Yes [X] 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 ST (§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). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition 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 [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

TABLE OF CONTENTS

Part I	4
Item 1 - Business	4
Definitions	4
Terms Specific to the Company	4
Industry Terms	5
Finance & Accounting Terms	7
Company Overview	8
Industry Background	8
Key Strategies	10
Sales & Marketing	12
Energy Supply	14
Credit Risk Management	15
Financial Services	15
Item 1A – Risk Factors	16
Item 1B – Unresolved Staff Comments	24
Item 2 – Properties	24
Item 3 – Legal Proceedings	24
Item 4 – Mine Safety Disclosures	24
Part II	25
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6 – Selected Consolidated Financial Data	25
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation	26
Forward Looking Statements	26
The Company	27
Results of Operations	28
Liquidity, Capital Resources, and Cash Flow	32
Financing	36
Non-GAAP Financial Measures	37
Critical Accounting Policies and Estimates	37
Item 7A - Quantitative and Qualitative Disclosures about Market Risk	39
Item 8 – Financial Statements and Supplementary Data	40
Reports of Independent Registered Public Accounting Firm	40
Reports of Independent Registered Public Accounting Firms	41
Consolidated Balance Sheets	42
Consolidated Statements of Comprehensive Income	43
Consolidated Statements of Cash Flows	44
Consolidated Statements of Changes in Members’ Deficit	46
Notes to Consolidated Financial Statements	47
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	70
Item 9B – Other Information	72

Part III	73
Item 10 – Directors, Executive Officers, and Corporate Governance	73
Directors and Executive Officers	73
Board Composition, Election of Directors, and Committees	74
Audit Committee	75
Compensation Committee	75
Investment Committee	75
Item 11 - Executive Compensation	76
Summary Compensation Table	76
Outstanding Equity Awards	77
Director Compensation	77
Retirement Plans	77
Potential Payments Upon Termination or Change-in-Control	78
Employment Agreements	78
Compensation Policies and Practices as They Relate to Risk Management	79
Indemnification of Directors and Executive Officers and Limitations of Liability	79
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	80
Item 13 – Certain Relationships, Related Transactions, and Director Independence	81
Item 14 – Principal Accountants’ Fees and Services	83
Audit and Non-Audit Fees	83
Audit Committee Pre-Approval Policies	83
Part IV	84
Item 15 – Exhibits, Financial Statement Schedules	84
Signatures	86
Exhibit 12.1 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 12.2 - Computation of Ratio of Earnings to Fixed Charges and Preferred Distributions
Exhibit 21 - List of Subsidiaries of Registrant

iii

Part I

Item 1 - Business

Definitions

Terms Specific to the Company
Abbreviation or acronym		Definition
Aspirity or the Company		Aspirity Holdings, LLC and its subsidiaries, formerly known as Twin Cities Power Holdings, LLC or “TCPH”

Aspirity Energy		Aspirity Energy, LLC, a first-tier subsidiary of Aspirity

AES		Aspirity Energy South, LLC, a first-tier subsidiary of Aspirity Energy and a second-tier subsidiary of the Company

Aspirity Financial		Aspirity Financial, LLC, a first-tier subsidiary of Aspirity

Enterprises		Krieger Enterprises, LLC, a former first-tier subsidiary of Aspirity, the equity interests of which were distributed to the then members of the Company effective November 1, 2015

Apollo		Apollo Energy Services, LLC, a former first-tier subsidiary of the Company, then a first-tier subsidiary of Enterprises

REH		Retail Energy Holdings, LLC, a former first-tier subsidiary of the Company, then a first-tier subsidiary of Enterprises. On November 2, 2016, Enterprises sold 100% of the equity interests of REH to Genie Retail Energy, a division of Genie Energy Ltd. (GNE - NYSE) for cash

Distribution; Spinoff		The distribution of 100% of the equity of Enterprises to the then members of Aspirity – Timothy S. Krieger and Summer Enterprises, LLC. The date of the Distribution, also known as the “Spinoff”, is the date that the registration statement was declared effective by the SEC (November 12, 2015); for tax and accounting purposes, November 1, 2015.

Exelon; PSA		Exelon Generation Company, LLC, a Pennsylvania limited liability company and wholly-owned subsidiary of Exelon Corporation. Exelon is the operator of the second largest electricity generation fleet in the U.S. On March 30, 2016, Exelon and Aspirity Energy entered into a 3 year, full requirements preferred supply agreement (“PSA”).

Legacy Businesses		The wholesale energy trading, real estate investments, investments in private companies, and legacy retail energy business operated by Enterprises, a former first-tier subsidiary of the Company.

Notes; Notes Offering		The Company’s Renewable Unsecured Subordinated Notes issued pursuant to its ongoing “Notes Offering” or the direct public offering of the Company’s Notes pursuant to Registration Statements on Form S-1

Operating Agreement		Aspirity’s Amended and Restated Operating Agreement dated March 30, 2016, as amended

Restructuring		The restructuring of the Company that was approved by the Board on May 27, 2015 and that effected the legal separation of the Legacy Businesses from the Company

Terms Specific to the Company
Abbreviation or acronym		Definition
S-1; Old and New		The Company’s Registration Statements on Form S-1. The statement declared effective by the SEC on November 12, 2015 is defined as the “New S-1”, while that declared effective on May 10, 2012 is defined as the “Old S-1”

Term Loan		Term Loan Agreement between Aspirity Financial as lender and Enterprises as borrower dated July 1, 2015, as amended on November 1, 2015, January 27, 2016, and November 1, 2016. Pursuant to the Term Loan, Enterprises borrowed $22,206,000 from Aspirity Financial with final maturity date of December 30, 2019

Term Loan Notes		Each of the Company’s Notes outstanding as of June 30, 2015, including any renewals thereof

Industry Terms
Abbreviation or acronym		Definition
Btu; therm; MMBtu		A “Btu” or British thermal unit is a measure of thermal energy or the amount of heat needed to raise the temperature of one pound of water from 39°F to 40°F. A “therm” is one hundred thousand Btu. One “MMBtu” is one million Btu

EDC; LDC		“Electric distribution company” or “energy distribution company”; may also be known as a “local distribution company”; see also “electric utility”

EDI compliant		For a licensed competitive electricity supplier to sell to, bill, and collect from retail customers within a given utility’s service territory, it must establish an electronic connection or become “EDI compliant” with such utility

EIA		Energy Information Administration, an independent agency within the U.S. Department of Energy

Electric utility; IOU; muni; POU, co-op		A corporation, person, agency, authority, or other legal entity or instrumentality aligned with distribution facilities for delivery of electric energy for use primarily by the public such as investor-owned utilities (“IOUs”), municipally-owned utilities (“munis”), utilities owned by states or political subdivisions thereof (“POUs”), federal utilities, and rural electric cooperatives (“co-ops”). A few entities that are tariff based and corporately aligned with companies that own distribution facilities are also included

Electric supplier		A natural person or legal entity licensed by a governmental authority to sell electricity on a competitive basis within its jurisdiction; depending upon the jurisdiction may also be known as an Alternative Retail Electric Supplier (“ARES”), Competitive Electricity Provider (“CEP”), Competitive Retail Electric Service Provider (“CRES”), Electric Generation Supplier (“EGS”), Energy Service Company (“ESCO”), Generation and Transmission Supplier (“G&T Supplier”), Non-regulated Power Producer (“NPP”), Retail Electric Provider (“REP”), Retail Electric Supplier (“RES”), or Third Party Supplier (“TPS”)

Industry Terms
Abbreviation or acronym		Definition
ERCOT		Electric Reliability Council of Texas, an ISO managing 85% of the electric Load of Texas and subject to oversight by the Public Utility Commission of Texas and the Texas Legislature but not FERC

FERC; DOE		Federal Energy Regulatory Commission, an independent regulatory agency within the U.S. Department of Energy (“DOE”)

ISO; RTO		Independent System Operator, a non-profit organization formed at the direction or recommendation of FERC that coordinates, controls, and monitors the operation of a bulk electric power system, usually within a single U.S. state, but sometimes encompassing multiple states. A Regional Transmission Organization (“RTO”) typically performs the same functions as an ISO, but covers a larger area. ISOs and RTOs may also operate centrally cleared wholesale markets for electric power quoted on both a “real-time” and “day ahead” basis.

ISO-NE		ISO New England Inc., an RTO serving Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont

MISO		Midcontinent Independent System Operator, Inc., (formerly the Midwest Independent Transmission System Operator, Inc.), an RTO serving all or part of Arkansas, Illinois, Indiana, Iowa, Louisiana, Manitoba, Michigan, Minnesota, Mississippi, Missouri, Montana, North Dakota, South Dakota, Texas, and Wisconsin

NYISO		New York Independent System Operator, an ISO serving New York state

PJM		PJM Interconnection, a RTO serving all or part of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia.

POR; non-POR		All states with restructured retail markets have implemented laws and regulations with respect to permitted billing, credit, and collections practices. Some of these states require an EDC billing customers in their service territory on behalf of suppliers operating there to purchase the receivables generated as a result of energy sales, generally at a modest discount to reflect bad debt experience. These states are known as “purchase of receivables” or “POR” jurisdictions while those without this provision are known as “non-POR” areas.

PURPA		Public Utilities Regulatory Policy Act of 1978

RECs		“Renewable energy certificates” represent the property rights to the environmental, social, and other non-power qualities of renewable electricity generation and can be sold separately from the underlying physical electricity. As renewable generators produce electricity, they create one REC per megawatt-hour. If the physical electricity and the associated RECs are sold to separate buyers, the electricity is no longer considered “renewable” or “green” as the REC is what conveys the attributes and benefits of the renewable electricity, not the electricity itself

Finance & Accounting Terms
Abbreviation or acronym		Definition
ASC		Accounting Standards Codification

ASU		Accounting Standards Update

CFTC		Commodity Futures Trading Commission, an independent agency of the United States government with primary responsibility for regulating futures and options markets

FASB		Financial Accounting Standards Board

GAAP		Generally accepted accounting principles in the United States

SEC		U.S. Securities and Exchange Commission, an independent agency of the United States government with primary responsibility for enforcing federal securities laws and regulating the securities industry and stock exchanges

Company Overview

Aspirity is a holding company that conducts its operations principally through wholly-owned subsidiaries. Our roots go back to 2005 and in 2015 we restructured. This restructuring included the sale of a subsidiary and the spinoff of Enterprises and its legacy business segments of wholesale trading, diversified investments, and the retail business operated by REH.

Today, we have two first-tier operating subsidiaries - Aspirity Energy in retail energy services and Aspirity Financial which provides energy-related financial services to businesses and households. Even though the Company has existed since 2005, since the restructuring in 2015 the Company has operated as a start-up and our financial results for 2015 and 2016 reflect that status.

Industry Background

By virtually any measure, the electric power industry in the U.S. is substantial. Per preliminary EIA data released on February 24, 2017 in the Electric Power Monthly, in 2016, the industry sold 3,710 TWh (down 1.3% from 3,759 TWh in 2015) for more than $381.4 billion (down 2.5% from $391.3 billion) to over 150.0 million residential, commercial, and industrial customers (up 0.7% from 149.8 million) for an average price of 10.28 cents/kWh, down 1.2% from 10.41 cents/kWh in 2015.

Electric power in commercial quantities, unlike other energy commodities such as coal or natural gas, cannot be stored, i.e., the supply must be produced or generated exactly when used or demanded by customers. Further, the laws of physics dictate that power flows within a network along the lines of least resistance, not necessarily where we may want it to go. These facts, coupled with the essential nature of the service to modern life, have obvious implications for electricity market structures and regulations.

Today, the industry includes any entity producing, distributing, trading, or selling electricity. Power marketers and retail energy providers do not own any generation, transmission, or distribution assets, but buy and sell in wholesale and retail markets. Finally, participants in wholesale power markets include investment banks, hedge funds, private equity firms, and proprietary traders.

Net Summer Capacity in Gigawatts of U.S. Utility Scale Generating Units by Technology
	At				Year-to-year change
Technology	Dec 2016		Dec 2015		Units			Percent

Renewable sources		199.4		182.5		16.9			9.2	%
Fossil fuels		755.9		758.5		(2.6	)		-0.3	%
Hydroelectric pumped storage		22.7		22.6		0.1			0.4	%
Other energy storage		0.6		0.3		0.2			74.7	%
Nuclear		99.3		98.7		0.6			0.7	%
All other sources		1.5		1.5		0.0			1.6	%

All sources		1,079.4		1,064.1		15.3			1.4	%

Source: EIA, Electric Power Monthly, published February 24, 2017.

Physically, the nation’s power system includes generation, transmission, and distribution systems. Participants in the generation segment include investor-owned, publicly-owned, cooperative, and federal utilities, and non-utility power producers, including independent power producers and commercial and industrial entities that operate co-generation facilities. As of the end of 2016, the net summer capacity of the nation’s utility-scale generating units was 1,079.4 GW, up 1.4% from December 31, 2015. In addition to generation, the nation’s bulk power system also includes about 200,000 miles of high-voltage (over 144kV) transmission lines. The retail distribution network includes substations, wires, poles, metering, billing, and related support systems.

The investor-owned portion of the industry, including utilities, competitive retail energy providers, and non-utility generators, constitutes over 70% of the industry’s revenues, unit sales, and customers. Since the passage of the Public Utilities Regulatory Policy Act of 1978, the industry has been undergoing a massive restructuring process that has had particular impact on investor-owned utilities.

Since PURPA, the nation has moved from a system of vertically integrated monopolies providing retail service at state-determined, cost-based rates to one where the ownership of generation assets is no longer regulated and many of the nation’s bulk power systems are operated under the supervision of FERC, an independent agency within the DOE. Furthermore, while some states have restructured their markets such that individual consumers may choose their electricity supplier, most state public utility commissions continue to regulate their utilities under the traditional cost-based framework.

Today, wholesale prices are subject to a federal regulatory framework focused on ensuring fair competition and reliability of supply. At the state level, under the traditional system which most states continue to employ, a vertically integrated utility is responsible for serving all consumers in a defined territory and customers are obligated to pay the regulated rate for their class of service.

However, in a state with a restructured or deregulated market, the generation, transmission, distribution, and retail marketing functions of the industry are legally separated and pricing of energy is unbundled from delivery services to bring the benefits of competition to retail customers. The regulated portions of these formerly vertically-integrated utilities, now generally known as EDCs or LDCs, are responsible for delivering power, billing consumers, and resolving any service issues, but customers can shop around and buy power from any licensed supplier or broker doing business in the state, hence retail choice.

Today, years after Massachusetts and Rhode Island became the first states to effectively implement choice in 1998, 14 full choice jurisdictions - 13 states plus the District of Columbia - allow all residential, commercial, and industrial customers served by investor-owned utilities to choose their energy provider. Generally, only customers of IOUs are eligible to choose their electric supplier while those served by a municipal, cooperative, or other type of non-investor owned utility are ineligible. However, there are certain areas where customers of specific cooperatives and public utilities may have choice but these instances are rare.

Per analysis of EIA data for states with restructured markets, on average between 2002 and 2014, energy and delivery costs accounted for about 67% and 33%, respectively, of the average retail electricity price. Of course, these percentages fluctuate from year to year and state to state, primarily due to wholesale energy market conditions, weather, and state rules.

In any case, restructuring created new business opportunities in an established industry. In general, there are two types of non-utility businesses participating in the deregulated retail energy marketing function in the U.S. today – brokers and suppliers – but each state licenses these businesses in a different way. For example, not every jurisdiction makes a broker/supplier distinction and some divide licenses based on potential customer categories such as “residential” or “non-residential” while other states divide their markets based on historical utility service territories and license an entity to only provide services in a specific area. Overall, as of January 2014, there were about 700 of these licensed retail energy businesses in the U.S.

Brokers, also known as aggregators, negotiate supply agreements between retail customers, typically large commercial or industrial entities, and wholesale suppliers. Brokers collect commissions from the supplier that wins a piece of business. Brokers do not bill customers directly and never take title to energy; they work for the customer. Their major expense is signing up new customers. As a result, brokers generally have relatively limited margins but high quality cash flows and comparatively small balance sheets.

Competitive electric suppliers, also known as REPs, ESCOs, ARES, or the like depending upon the state, are also licensed to deal with retail customers. They have an up-stream supply arrangement which may include purchasing directly from an ISO like ERCOT, MISO, PJM, or NYISO or bilaterally from large energy companies or independent power producers. In contrast to brokers, suppliers potentially have higher margins on the energy sold but require larger amounts of capital to acquire energy and carry receivables and payables for some period.

Key Strategies

It is important to note that while we and REH, a former wholly-owned subsidiary of Enterprises sold on November 2, 2016, both compete in the same industry, Aspirity Energy was formed to pursue different supply and marketing strategies than those employed by REH.

For example, with respect to supply, Aspirity has chosen to procure the energy required by its customers using a “full requirements” preferred supply agreement that while costing slightly more, eliminates volumetric, commodity price, and liquidity risks. REH buys the energy it needs using a cash-intensive, trading-centric model that results in relatively unpredictable costs.

With respect to marketing, Aspirity offers only long term, fixed rate electricity contracts and ultimately intends to offer other energy and home management related goods and services as well, hence our slogan, Power + More, with the goal of building a brand characterized by long term relationships. These long-term relationships will be fostered by offering products and services other than just electricity – hence the ‘+ More’ of our slogan. Certain products and services are currently being vetted and we expect to begin offering some in 2017. Further, Aspirity goes to market via multiple offline and online channels such as door-to-door, outbound telemarketing, paid search, and direct mail. In contrast, REH offers principally shorter term contracts and competes primarily on price. It offers its services almost exclusively online via state-run comparison shopping engines in 8 states.

Since the sale of electricity is a regulated business, we can only market in jurisdictions where we are licensed by appropriate authorities and have established electronic connections or “EDI compliance” with relevant utilities to exchange customer usage and billing information. Our goal is to become licensed in all full choice jurisdictions and become EDI compliant with the larger IOUs in such areas. When this “market portfolio” is available to us, we may quickly shift our marketing resources and budget from area to area based on which opportunities are most attractive.

Like most startups, we have experienced both success and challenges to date. While we began to acquire customers in January 2016, we have also experienced delays versus our original timetable, principally in obtaining licenses and structuring our online presence. In addition, our former CEO left us in July 2016 for health reasons.

In any case, as of December 31, 2016, we held market-based rate authority from FERC, were members of the ISO-NE and PJM wholesale electricity markets, were licensed to serve retail customers in Illinois, Maryland, New York, Ohio, Pennsylvania, and Rhode Island, had established electronic connections with 9 IOUs serving over 10 million residential accounts, and were providing electricity to over 7,000 households.

By the end of 2017, our goal is to be able to market power to the approximately 32 million residential customers located in the service areas of 40 or so IOUs in all 14 full choice jurisdictions.

Our market rollout plan as of March 23, 2017 is summarized in the table below. Note that delays to this schedule may occur and such may have a material impact on our business. Further, the table includes New York. While we intend to join NYISO and qualify to do business with the 6 IOUs serving the state’s 5.8 million residential accounts, we currently do not anticipate entering those markets due to regulatory uncertainty with respect to the contracts that may be sold there.

Aspirity Energy

Market Rollout Plan by Quarter

Last updated March 23, 2017

	ISOs			States			EDI Ready IOU Service Areas			Accessable Customers (000s)
Period		Added during period	Available at end of period		Added during period	Available at end of period		Added during period	Available at end of period		Added during period	Available at end of period

Q4 2015		1	1		2	2		0	0		0	0

Q1 2016		0	1		1	3		3	3		4,537	4,537
Q2 2016		1	2		1	4		3	3		3,924	8,461
Q3 2016		0	2		2	6		3	3		1,848	10,308
Q4 2016		1	3		0	6		4	4		2,028	12,337

Q1 2017		0	3		2	8		1	1		528	12,864
Q2 2017		1	4		4	12		15	15		11,358	24,222
Q3 2017		0	4		0	12		5	5		5,959	30,181
Q4 2017		0	4		0	12		0	0		0	30,181

Totals		4	—		12	—		34	—		30,181	—

Despite the challenges we have encountered, which are not unusual for a start-up company, we believe that our marketing approach and the advantages of our power supply agreement with Exelon provide positive indications for our future development.

Sales & Marketing

The retail energy sales cycle starts with a sign-up on day 1 and most enrollees start receiving electricity from us about day 30. There is additional time between the end of the customer’s first billing cycle with us on about day 60, billing on day 61, payment to the utility on or about day 81, and payment by the utility to us about day 90 or so. Once this start-up period has been completed, we expect to collect cash from a customer every 30 days or so. As a retailer’s customer base grows, this delay between signup and first cash collection may put stress on its cash position.

All payments from customers go to a lockbox operated by our energy supplier, Exelon, with funds collected during a given month released to us during the first week of the next month. While our agreement with Exelon allows us to defer payment for energy sold, we are still required to pay our marketing vendors for the enrollees they sign, typically twice a month.

Our services are made available to customers under fixed price contracts as well as some that may provide for renewable energy percentages greater than state requirements. All contracts regardless of price, term, and renewable energy percentage are subject to standard terms and conditions as filed from time to time with state regulatory authorities.

Retail customers make purchase decisions based on a variety of factors, including price, customer service, brand, product choices, bundles, or value-added features. On average, only about 36% of the 32.2 million residential customers (in a range of 7% to 81%) in our 44 target markets as described above have ever switched away from the utility as the supplier of their generation services. Our target customer is not necessarily one who has switched before, rather our goal is to reach the un-switched Home CEO with a compelling offer.

The prices we offer customers are determined by us and are not subject to regulation. The terms we offer are also determined by us, and we develop such to align with regulatory requirements within each state where we do business. The electricity we sell is generally metered and delivered to our customers by local utilities. As such, we do not have a maintenance or service staff for customer locations. With certain limited exceptions, these utilities also provide customer billing and collection services on our behalf, generally under the utility consolidated billing structure.

Although our marketing efforts just began in the first quarter of 2016, we plan to reach residential prospects utilizing offline and online marketing channels. The offline channel includes vehicles such as outbound telemarketing, door-to-door, and direct mail. The online channel includes paid search, display ads, retargeting ads, affiliate, email, state-run comparison-shopping engines, and the like. Our goal is to invest an optimal amount in new customer acquisition, and focus on customer retention and the lifetime value inherent in satisfied customer relationships.

To date, most of our customers have come from the outbound telemarketing and door-to-door channels. We are also re-designing our web site and in the first half of 2017, we expect to begin testing online paid search and direct mail.

The table below summarizes certain areas of our intended marketing and brand-building strategies:

Target Consumer		The Home CEO Each household has someone in charge of managing all the activities related to their home. While the role may be shared, it is largely a thankless task but still an important job that needs to be handled. Ideally, we will reach un-switched Home CEO’s.

Relevant Insights		Fear of making a regrettable decision The Home CEO is bombarded with life-related events that have resulted in an overall stress level that makes them “fear making a bad decision,” such that they avoid making any decision. We believe this has contributed significantly to many potential customers NOT making an energy choice.

Key Selling Point		Aspirity simplifies choice This statement is what makes Aspirity better than the competition. We will use this simple, single-minded benefit to motivate customers to choose us over their current provider or other potential options.

Value Proposition		Aspirity turns the chaos of data into actionable information The ability to turn a chaos of data into useful information will take customers from a place of stress to one of calm. As a result, the fear of making decisions they may regret will diminish.

Point of Differentiation		Aspirity organizes complex issues simply Our 4-step approach turns information into knowledge:

	●	Un-confuse – People cannot begin to learn something new if they are confused.

	●	Organize – Eliminate irrelevant information, then organize the remainder.

	●	Compare – Provide opportunities to test the impact of different factors; our goal is to help customers make their choice.

	●	Choose – Making knowledgeable choices make one feel confident and minimizes fear.

Reason to Believe

Aspirity is significantly different than the competition Until our brand is more widely known, we will need to do two things to support the decision to choose Aspirity:

	●	The user experience must be simple and intuitive – Our brand promises of Advocacy, Clarity, Information, Anticipation, Customization, and Transparency must be clear.

	●	We will not be confusing or misleading – In contrast to the competition, we will avoid behaviors that don’t put customers first.

Brand Character		We serve our customers and always put them first Our customers must always feel that we put them first and are fully empathetic to their needs. We will use humility, enthusiasm, and intelligence to consistently anticipate customer needs.

Desired Consumer Response		Aspirity helps me make great decisions We will earn our customers respect and they will reward us with their loyalty and sincere testimonials like:

●

“Prior to Aspirity, decisions about my home were confusing, time-consuming, and very stressful to work through”.

●

“Aspirity simplifies complex problems into relevant learnings, clear trade-offs, and personalized plans to fit my needs”.

Energy Supply

The retail energy business involves the purchase of electricity in wholesale markets and the virtually simultaneous resale of such to retail customers. In general, ISOs require payment for energy purchased on a weekly or twice-weekly basis. In some markets, retailers are also required to buy capacity and certain ancillary services and pay for it every month. In all cases, retailers are required to provide market operators with financial assurance also known as collateral, typically in the form of cash or a letter of credit in an amount equal to 60 to 75 days’ worth of such purchases. However, retailers typically only receive payment from customers once a month. Consequently, a substantial amount of liquidity and capital may be required to both satisfy payables and carry receivables. We do not own any generation, transmission, or distribution facilities and utilize wholesale suppliers for our supply requirements and utilities for our transmission and distribution needs.

On March 30, 2016, we entered into a full requirements preferred supply agreement with Exelon to provide us with all the power and ancillary services we need to serve our customers for an initial term expiring on March 30, 2019. As of December 31, 2016, Exelon was the operator of the second largest generation fleet in the U.S. and its long-term S&P credit rating was BBB.

Under the terms of the PSA, on a daily or weekly basis as we request, Exelon provides us with firm, fixed price quotes for power for terms of 1, 3, 6, 9, 12, 15, 18, 24, 30, and 36 months out for each of the service areas in which we operate. Exelon’s prices to us include all costs of energy, capacity, and ancillary services necessary to serve residential and small commercial customers. We may also meet state minimum green or renewable energy supply criteria by acquiring renewable energy certificates or RECs from Exelon via the PSA. If necessary, we may also buy additional RECs to satisfy the requirements of customers selecting a product with a percentage of renewable power higher than state minimums. We then mark up these costs to obtain selling prices. In addition, under the PSA, Exelon absorbs all volumetric risk or deviations between forecasted and actual customer usage. Finally, the PSA provides that Exelon will post any collateral required of us by an ISO or EDC.

Exelon invoices us for all purchases under the agreement every month. The PSA also incorporates the ability for us to defer payment of all or a portion of these invoices based on certain financial criteria as defined in the agreement. With respect to the agreement, if Exelon fails to deliver or if we default and are unable to cure such, we would then be forced to pledge collateral and buy the required power from either an ISO or another wholesale supplier and the costs of such may be higher or lower than those embodied in the PSA.

Credit Risk Management

In the ordinary course, Aspirity Energy provides trade credit to consumers and commercial enterprises and all states with restructured retail energy markets have put in place laws and regulations with respect to permitted billing, credit, and collections practices. This exposes us to certain credit risks which we manage in different ways.

Some states require that utilities billing customers in their service territory on behalf of a retail supplier purchase the receivables from electricity sales. These areas are known as purchase of receivables or POR jurisdictions. These purchases by the utility from the retailer generally occur at a modest discount of 0% to 2.5% to reflect the bad debt experienced within the service territory. Consequently, suppliers have no retail credit exposure other than the bad debt charge because the utility pays regardless of whether the customer does. However, if a customer fails to pay, the utility will typically disconnect service, which results in the loss of the account for the retailer. In states with retail choice but without POR programs - the non-POR jurisdictions - retailers are exposed to the credit risk of the customer.

POR Programs in Full Retail Choice Jurisdictions
Type	Count		States
Full		6	CT, IL, MA, MD, NY, PA
Recourse		1	NJ
Limited area		1	OH
In progress		1	DC
None		5	DE, ME, NH, RI, TX
Total		14	--

POR laws have the effect of converting a retailer’s exposure to its customers’ credit to that of the applicable utility, the vast majority of which are rated as “investment grade” on the scales of the Nationally Recognized Statistical Rating Organizations recognized by the SEC. Consequently, if a prospect is in a POR area, we will accept the account as the utility is the account obligor and we have very limited exposure to credit loss.

For non-POR areas, we believe the underwriting strategy summarized below, which we expect to implement during 2017, allows us to prudently accept business by taking deposits only from the riskiest accounts. Collection activity and cost is largely eliminated since if a customer fails to pay in a timely fashion, then we will simply cease providing service and apply the deposit to the outstanding bill, specifically:

●	For residential service, we will check the consumer credit score of the primary obligor on the account and for non-residential service, we will check the trade credit score of the business in question:

	○	If the scores are above our cutoffs, we will accept the account without a deposit.

	○	If the scores are below our thresholds, we will accept the account with a deposit equal to a portion of our expected annual revenue.

●	To size deposits, we will estimate the next 12 months of revenue based on expected usage, our power price for the area, and a 90-day delinquency threshold.

●	After 12 prompt payments on their account, the customer may elect to either have their deposit returned to them or applied to their account.

Financial Services

To date, our primary focus has been on building our retail energy business. For the near term, our financial services business is expected to consist primarily of our lending relationships with Enterprises, our first financial services customer. Ultimately, we intend to invest in other commercial loans to businesses operating in the energy industry and we also may make loans to individuals and households.

Item 1A – Risk Factors

If any of the following risks actually occur, our business, financial condition, and results of operations would suffer. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business, financial conditions, and results of operations.

As a result of our recent Restructuring and our startup businesses, our primary sources of cash flow are sales of Notes and payments from Enterprises on the Term Loan.

We do not expect to break-even on a month-to-month cash flow basis until 2018 at the earliest. Prior to that, we will rely on the timely payment of the Term Loan and on our ability to sell Notes in order to fund our retail energy start-up operations and repay Notes as they are redeemed. We are relying on the ability of Enterprises to pay amounts owed to us under the Term Loan to provide us with the funds necessary to repay our indebtedness on the Notes. If Enterprises fails to pay amounts owed to us when due, or if our business does not provide enough cash to cover all of our liabilities, we may be unable to pay the interest or principal payments on the Notes as they become due. Enterprises’ ability to make timely payments on the Term Loan will, at least initially, depend on the wholesale energy trading operations of Enterprises’ subsidiaries and the operations of the other legacy businesses. Wholesale energy trading is volatile and unpredictable, and was not profitable for Enterprises in 2016. In the event amounts owed to us are paid late or not paid, our ability to fund operations and repay notes will be negatively impacted.

Even after we break even on our new retail energy business, those operations alone may not produce a sufficient return on investment to pay the stated interest rates on the Notes and fund our capital needs. We may be substantially reliant upon the proceeds we receive from the sale of Notes in order to meet our liquidity needs. We may not be able to attract new investors or have sufficient borrowing capacity when we need additional funds to repay principal and interest on Notes.

We have a history of operating losses and we may not become profitable in the future, which could ultimately result in our inability to continue operations in the normal course of business.

For the year ended December 31, 2016, on a consolidated basis, the Company reported a net loss from continuing operations of $12,893,000 and cash used for continuing operations of $11,064,000. On the same basis, for the year ended December 31, 2015, we recorded a net loss from continuing operations of $8,862,000 and cash used for continuing operations of $5,884,000.

As of December 31, 2016, the Company had unrestricted cash, negative working capital, and total members’ deficit of $1,300,000, $14,338,000, and $31,298,000, respectively.

There is no assurance that our operating activities will be able to fund our cash requirements in the future, which could ultimately result in our inability to continue operations as a going concern.

Historical losses and upcoming debt maturities have raised concerns about our ability to continue operations at the current level.

Historically, the Company has relied on sales of Notes and payments from its Term Loan to Enterprises as its principal sources of funding and will continue to do so for at least the next 12 months until it can generate sufficient operating cash flow to fund its ongoing business. As of December 31, 2016, $12,430,000 of Notes will mature prior to December 31, 2017. Historically, a significant portion of maturing Notes renew, which does not require a cash outlay by the Company. However, the decision to redeem or renew is solely at the discretion of the noteholder and not the Company.

While the Company expects that Notes will be redeemed at rates similar to those that have occurred historically, management’s analysis of the ability of the Company to continue as a going concern must consider the possibility that all Notes maturing for at least the next 12 months from the issuance of the financial statements will be redeemed. If such events were to occur, the Company would not have enough liquidity to meet all redemption requests, given the Company currently has no other sources of capital that could be accessed to cover increased redemptions from these Notes.

To evaluate the Company’s ability to continue as a going concern, the Company considered both the aggregation of the negative financial metrics, as noted above, and the possibility these will not turn positive for at least the next 12 months. Further, the Company assessed the possibility of the redemption of all Notes maturing in the next 12 months by the respective noteholders. These uncertainties suggest there is substantial doubt as to the Company’s ability to continue as a going concern within one year from the date that these financial statements were issued.

Management has plans intended to mitigate the conditions described above. These plans include growing customer acquisitions such that positive operating cash flow is generated on a sustained basis beginning in the first half of 2018, continuing collection on the Term Loan, and continuing to sell Notes. Further, the Company intends to evaluate other sources of debt and equity financing, there can be no assurance that these efforts will be successful

While the Company believes that payments from Enterprises on the Term Loan, anticipated cash generated from operating activities, availability of trade credit, and anticipated proceeds from the Notes Offering will be sufficient to meet operating cash requirements and Note redemption obligations for the next twelve months, the Company is unable to conclude that it is probable that management’s plans will fully mitigate the conditions identified.

Our consolidated financial statements reflect the financial condition and results of operation of Enterprises.

After the spinoff of Enterprises on November 1, 2015 but prior to March 30, 2016, the financial results of Enterprises were consolidated with those of the Company as a variable interest entity or VIE.

On March 18, 2016, FERC approved the change in control of the Company per Docket No. EC16-60-000. This allowed the Company to adopt an amended and re-stated Operating Agreement which converted outstanding Class B units (certain financial rights only) to Class A units (full financial and governance rights) on March 30, 2016. This constituted a reconsideration event and as such, a reassessment of the VIE relationship between the Company and Enterprises and the consolidation decision was performed as of this date.

While Enterprises is still a VIE due to lack of sufficient equity investment to finance its activities without additional subordinated financial support and Aspirity continues to hold a variable interest in the form of the Term Loan, for Aspirity to consolidate Enterprises, it must be either the primary beneficiary of, or hold a controlling financial interest, either by contract or via related party considerations. After March 30, 2016, Aspirity meets neither of these requirements. Specifically, Timothy Krieger as an individual is the primary beneficiary of Enterprises as he meets both the power and losses/benefits criteria.

With the spinoff, we exited all wholesale trading and diversified investment activity and have no plans to engage in such in the future, therefore these operations are reported in our 2016 SEC filings and GAAP financials as discontinued operations. However, although we no longer owned REH, GAAP required that we report its business as a continuing operation through March 30, 2016 since it was not considered to be a “strategic shift” from future operations.

Historically, these three segments of Enterprises’ business – wholesale trading, REH, and diversified investments - constituted significant parts of our operations, and therefore, our current and future financial statements are and will be significantly different from those issued prior to March 31, 2016.

Consequently, some of our consolidated financial statements include the financial condition and results of operations of Enterprises even though we do not have access to its assets except pursuant to our contractual rights and obligations with respect to the Term Loan. Enterprises is not a guarantor of the Notes.

Investors should consider our financial condition in light of these facts and look only to the assets and expected operations of Aspirity in determining whether to invest. See “Critical Accounting Policies - Variable Interest Entities - Principles of Consolidation”.

As a result of the Distribution, we are in a start-up phase and must apply for, and receive, the necessary licenses from appropriate regulatory authorities and enter into information exchange and billing arrangements with utilities.

We intend to develop and operate retail energy businesses in all 14 jurisdictions that allow all retail customers of investor-owned utilities to choose their electricity supplier and as of December 31, 2016, we held market-based rate authority from FERC, were members of the ISO-NE and PJM wholesale electricity markets, were licensed to serve retail customers in Illinois, Maryland, New York, Ohio, Pennsylvania, and Rhode Island, and had established electronic connections with 9 IOUs serving over 10 million residential accounts.

To do so, we require licenses from public utility commissions and other regulatory organizations. These agencies impose various requirements to obtain or maintain licenses. Further, certain non-governmental organizations have been focusing on the retail energy industry and the treatment of customers by certain of our competitors. Any negative publicity regarding the industry in general and us in particular could negatively affect our relationship with various commissions and regulatory agencies and could negatively impact our ability to obtain new licenses to expand operations or maintain the licenses currently held. Furthermore, we must also establish electronic connections (“EDI compliance”) with the utilities serving particular areas in such states in which we wish to market our services in order to exchange customer usage and billing information.

Although we expect most of these pre-market processes and procedures to be completed by the end of 2017, there can be no assurance that we will be able to achieve all of the arrangements we seek on a timely basis or at all or at an acceptable cost. Consequently, we may not be able to offer service in all of our target markets and failure to do so will adversely affect our ability to grow our business. Loss of licenses or failure to maintain EDI compliance could cause a negative impact on our results of operations, financial condition, and cash flow.

We may not be able to expand geographically as quickly as planned.

Our marketing efforts depend on obtaining licenses from state regulatory authorities and becoming qualified by relevant investor-owned utilities in the geographic areas in which we plan to target customers. To date, these efforts have taken substantially more time than expected. We may incur further delays, which will significantly hinder our marketing efforts and prevent us from reaching our goal for enrollees.

There can be no assurance that we will be able to achieve all the arrangements we seek on a timely basis or at all or at an acceptable cost. Consequently, we may not be able to offer service in all our target markets and failure to do so will adversely affect our ability to grow our business. Loss of licenses or failure to maintain EDI compliance could cause a negative impact on our results of operations, financial condition, and cash flow.

Our marketing efforts may not be successful.

Our marketing strategy recognizes that we will not be the lowest cost provider of electricity to households; instead, we emphasize our value proposition, our brand-building strategy, and other points of differentiation. There is no assurance that our marketing efforts will be successful and, if they are not, we will not be able to build a viable business.

Our cash flow may not be sufficient to sustain our business.

We currently rely on the sale of our Notes, payments on the Term Loan, and payments from custormers to meet our cash needs. There can be no assurance that cash from these sources will continue in sufficient amounts to meet our needs. If we do not have sufficient cash flow, our marketing efforts, assuming they are successful, will be severely constrained and we will not be able to achieve a sufficiently large customer base to sustain our business.

Also, given the amount of Notes that are maturing in the 12 months following issuance, the Company has substantial doubt about its ability to continue as a going concern and is unable to conclude that it is probable that management’s plans will be able to mitigate adverse conditions.

Volatility in prices and consumption could have an adverse effect on our revenues, costs, and results of operations.

Unexpected volatility in prices and constraints in the availability of fuel supplies, particularly natural gas, may have an adverse impact on the cost of the electricity that we sell to our customers. Furthermore, consumption of energy is significantly affected by weather conditions. Typically, colder-than-normal winters and hotter-than-normal summers create higher demand and consumption for natural gas and electricity, respectively, and conversely, milder than normal weather may reduce the demand for energy. Natural gas prices also affect the cost of electricity as it is the fuel of choice for marginal generation requirements. Although we expect to manage our exposure to these movements in wholesale energy prices and customer demand by use of the Exelon PSA, there can be no assurance that this strategy will prove to be successful.

Finally, we may not always choose to pass along increases in costs in order to maintain overall customer satisfaction and this action would have an adverse impact on our margins and results of operations. Alternatively, volatility in pricing related to the cost of energy may lead to increased customer attrition. Changes in these factors, as well as others, could have an adverse effect on our revenues, profitability, and growth, or threaten the viability of our current business model.

We face risks that are beyond our control due to our reliance on third parties and on the electrical power and transmission infrastructure within the U.S.

Our ability to provide energy to our customers depends on the successful and reliable operations and facilities of third parties such as generators, wholesale suppliers, the ISOs, and energy distribution companies. The loss of use or destruction of third party facilities used to generate, transmit, and distribute electricity due to extreme weather conditions, breakdowns, war, acts of terrorism, or other occurrences could greatly reduce our potential earnings and cash flows.

The retail energy business is highly competitive.

We will compete based on value added, price, provision of services, and customer service. Increasing our market share depends in part on our ability to persuade customers to switch to our services. Our retail energy business faces substantial competition both from incumbent utilities as well as from other retail providers, including affiliates of utilities in specific territories. Utilities and other more established competitors have certain advantages such as name recognition, financial strength, and long-standing relationships with customers. Additionally, overall customer demand for electricity may decrease if the prevalence of residential solar panel systems increases. The use of solar panel systems to generate power may allow residential customers to decrease their electricity consumption from providers like us or eliminate it altogether. Persuading potential customers to switch to a new supplier of such important services is challenging. As a result, we may be forced to reduce prices or incur increased costs to gain market share, and we may not always be able pass along increases in commodity costs to customers. Existing or future competitors may have greater financial, technical, or other resources which could put us at a disadvantage. If we are not successful in convincing customers to switch, our business, results of operations, and financial condition will be adversely affected.

Our growth depends on our ability to enter new markets.

We evaluate new markets for our business based on many factors, including the regulatory environment and our ability to procure energy to serve customers in a cost-efficient manner. We may expend substantial effort to obtain required licenses and connections with local distribution companies. Furthermore, there are regulatory differences between the markets that we currently operate in and new markets, including, but not limited to, exposure to credit risk, additional churn caused by tariff requirements, rate-setting requirements, and incremental billing costs. We may also incur significant customer acquisition costs.

Unfair business practices or other activities of our competitors may adversely affect us.

Competitors in the retail market may engage in unfair business practices to sign up new customers, which may create an unfavorable impression about the industry on consumers or with regulators. Such unfair practices by other companies can adversely affect our ability to grow or maintain our customer base. The successes, failures, or other activities of our competitors within the markets that we serve may impact how we are perceived in the market.

Our operating strategy is based on current regulatory conditions and assumptions, which could change or prove to be incorrect.

Since the passage of PURPA in 1978, regulation of the energy markets has been in flux at both the federal and state levels. In particular, any changes adopted by FERC, or changes in state or federal laws or regulations, including environmental laws, may affect the prices at which we purchase energy for our customers. We may not always be able to pass these costs on to our customers due to competitive market forces and the risk of losing our customer base. In addition, regulatory changes may impact our ability to use different sales and marketing channels. Changes in these factors, as well as others, could have an adverse effect on our revenues, profitability, and growth or threaten the viability of our current business model.

Changes in certain programs in which we plan to participate could disrupt our operations and adversely affect our results.

Certain programs required by state regulators have been implemented by utilities in many of the service territories in which we intend to operate, one of which is purchase of receivables or POR. These programs are important to our control of bad debt. In the event that POR programs were to be revised or eliminated by state regulators or individual utilities, we would need to adjust our current strategy regarding customer acquisition and our focus on the growth of our customer base. We would also need to adjust our current business plan to reduce our exposure to customers who may pose a bad debt risk. Any failure to properly respond to changing conditions could adversely affect our results of operations and profitability. See also “Item 1 - Business – Credit Risk Management”.

Our business is subject to complex governmental regulations and legislation that have impacted, and may in the future impact, our businesses and results of operations.

We are subject to the jurisdiction of federal and state authorities, including FERC, the CFTC, the SEC, the Federal Trade Commission, and the public utilities commissions of the states in which we do business as well as the market rules and tariffs of the ISOs of which we are a member. These rules and regulations are subject to legislative change, judicial interpretation, and regulatory actions, any which may increase our costs and adversely impact our business.

Changes in, revisions to, or reinterpretations of existing laws and regulations, for example, with respect to prices at which we may sell electricity, or competition in its generation and sale, may have an adverse effect on our businesses. For example, many electricity markets have rate caps, and changes to these rate caps by regulators can impact future price exposure. Similarly, regulatory changes can result in new fees or charges that may not have been anticipated when existing retail contracts were drafted, which can create financial exposure. For example, mandates to purchase a certain quantity or type of electricity capacity can create unanticipated costs. Our ability to manage cost increases that result from regulatory changes will depend, in part, on how the “change in law provisions” of our contracts are interpreted and enforced, among other factors.

Operators of systems providing for the delivery of natural gas and electricity maintain detailed tariffs that are kept on file with regulators. These tariffs and market rules applicable to operators are often very long and complex, and often are subject to service provider proposals to change them. We may not be able to prevent adoption of adverse tariff changes. Users of energy delivery systems also have rules and obligations applicable to them that are established by regulators. For instance, transactions involving a shipper’s release of interstate pipeline capacity are subject to regulation at the federal level. Our failure to abide by tariffs, market rules, or other delivery system rules may result in fines, penalties, and damages.

We are also subject to regulatory scrutiny in all of our markets that can give rise to compliance fees, licensing fees, or enforcement penalties. Regulations vary widely in the markets in which we operate, and these regulations change from time to time. Failure to follow prescribed regulatory guidelines could result in customer complaints and regulatory sanctions.

In addition, regulators are continuously examining certain aspects of our industry. For example, a number of public utility commissions in the Northeast are investigating the impact of the harsh weather conditions during the 2013-2014 winter season on consumers in their territories due to the number of consumer complaints attributable to high bills for the winter season and are urging FERC to investigate circumstances during that period in wholesale energy markets. This heightened regulatory scrutiny resulted in additional obligations on retailers in various markets to provide more detailed disclosures to consumers as well as additional and more stringent requirements on notifying customers when their fixed contract converts to variable pricing. These new regulations could adversely affect our customer attrition rates and cause us to incur higher compliance costs. To the extent any of these commissions takes further regulatory action to address these complaints, such as imposing limits on products, services, rates or other business limitations, our business prospects in these regions could be materially adversely affected.

Finally, door-to-door marketing and outbound telemarketing may become a significant part of our marketing efforts. Each of these channels is continually under scrutiny by state and federal regulators and legislators. Additional regulation or restriction of these marketing practices could negatively impact our customer acquisition plan, and therefore our financial results and our ability to pay the Notes.

We may make poor investment choices.

Aspirity Financial is in the business of lending money to companies and households for energy related purposes. Some or all of the parties which borrow from us may be unable to repay their obligations, which would have a material adverse effect on us.

We may be subject to a conflict of interest.

Aspirity Financial has loaned money to Enterprises. Because Mr. Krieger is both a significant owner of Aspirity and the owner of Enterprises, there may be a conflict of interest in determining how liquidity is used.

We need substantial liquidity to operate our business.

Historically, we have funded our operations through borrowings from related and unrelated parties and internally generated cash flows. Beginning in May 2012, we began a direct public offering of our Notes. Up to April 24, 2017, we have sold $42,350,000 of Notes for cash and paid $11,801,000 of redemptions, for a net raise to date of $30,550,000, exclusive of offering costs. As of April 24, 2017, there were $30,550,000 of Notes outstanding. The Notes Offering supplies us with liquidity to operate. However, we may not be able to obtain sufficient funding for our future operations from such source to provide us with necessary liquidity. Difficulty in obtaining adequate credit and liquidity on commercially reasonable terms may adversely affect our business, prospects, and financial condition. Based on the amount of current maturities and the nature of the Notes, the Company has concluded there is substantial doubt about its ability to continue as a going concern.

We could be harmed by network disruptions, security breaches, or other significant disruptions, or failures of our information technology infrastructure and related systems.

We face the risk, as does any company, of a breach of the security of, and unauthorized access to, our information systems, whether through cyber-attack, malware, computer viruses, or sabotage. Furthermore, the secure maintenance and transmission of information between us and our third party service providers is a critical element of our operations. If our information security were to be breached, our information and that of our customers may be lost, disclosed, accessed, or taken without our consent. Although we make significant efforts to maintain the security and integrity of our information systems, there can be no assurance that our efforts and measures will be effective or that attempted breaches or disruptions would not be successful or damaging, especially in light of the growing sophistication of cyber-attacks and intrusions. We may be unable to anticipate all potential types of attacks or intrusions or to implement adequate security barriers or other preventative measures.

Network disruptions, security breaches, and other significant failures of the information systems upon which we depend could: (a) disrupt the proper functioning of our operations; (b) result in unauthorized access to, and destruction, loss, theft, misappropriation, or release of our proprietary, confidential, sensitive, or otherwise valuable information, including trade secrets, which others could use to compete against us or for disruptive, destructive, or otherwise harmful purposes and outcomes; (c) require significant management attention and financial resources to remedy the resulting damage or change to our systems; (d) result in a loss of business or damage to our reputation; or (e) expose us to litigation, any or all of which could have a negative impact on our results of operations, financial condition, and cash flows.

We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective which could adversely affect our ability to accurately report our financial results.

We concluded that as of December 31, 2016, our disclosure controls and procedures were not effective. Until we have been able to test the operating effectiveness of our remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weakness or failure to remediate the existing weakness could materially adversely affect our ability to comply with applicable financial reporting requirements. If that were to occur, purchasers of our Notes could be using inaccurate financial information with which to make their investment decision.

Shortcomings or failures in our internal control processes could lead to disruption of our business, financial loss, or regulatory intervention.

We rely on our internal control systems to protect our operations from, among other things, improper activities by individuals within our organization. Shortcomings or failures in our systems, internal control processes, or people could lead to disruption of our business, financial loss, or regulatory intervention.

Our business depends on the continuing efforts of our management team and personnel and our efforts may be severely disrupted if we lose their services.

Our success depends on key members of our management team, the loss of whom could disrupt our business operations. Our business also requires a capable, well-trained workforce to operate effectively. There can be no assurance that we will be able to retain our qualified personnel, the loss of which may adversely affect our business, prospects, and financial condition.

We are dependent on the services of our senior management because of their knowledge of the industry and our business. The loss of one or more of these key employees could seriously harm our business. It may be difficult to find a replacement with the same or similar level of knowledge. Competition for these types of personnel is high, and we may not be able to attract and retain qualified personnel on acceptable terms. Failure to recruit and retain such personnel could adversely affect our business, financial condition, results of operations and planned growth.

The characteristics of our Notes, including the offered maturities and interest rates, and lack of collateral security, guarantee, financial covenants, or liquidity, may not satisfy your investment objectives.

Our Notes may not be suitable for every individual, and we advise all parties considering an investment to consult their investment, tax, and other professional financial advisors prior to purchasing Notes. The characteristics of the Notes, including their maturities, interest rates, and lack of liquidity, collateral security, guarantee, and financial covenants may not satisfy your investment objectives. The Notes may not be a suitable investment based on the ability to withstand a loss of interest or principal or other aspects of an individual’s financial situation, including income, net worth, financial needs, risk profile, return objectives, experience, and other factors. Prior to purchasing any Notes, one should consider their investment allocation with respect to the amount of the contemplated investment in the Notes in relation to their other investment holdings and the diversity of those holdings. While we require that all investors complete a subscription agreement that asks certain questions regarding suitability, we disclaim any responsibility for determining that the Notes are a suitable investment for anyone.

Please refer to our Prospectus for additional risk factors related to the Notes.

Item 1B – Unresolved Staff Comments

Not applicable.

Item 2 – Properties

Our headquarters is located at 701 Xenia Avenue South, Suite 475, Minneapolis, MN 55416, telephone (463) 432-1500. Our sub-lease is for 8,003 square feet, expires on May 31, 2017, and the monthly rent is $10,671.

On March 24, 2017, we signed a new lease for headquarters office space at 12800 Whitewater Drive, Minneapolis MN 55343. Our lease is for approximately 7,200 square feet, expires on October 31, 2024, and calls for average monthly occupancy expenses for the first lease year commencing June 1, 2017 of $9,209, consisting of rent and operating expenses of $3,413 and $5,796, respectively.

We do not engage in any production or manufacturing activities, and we do not have any environmental issues related to our operations.

Item 3 – Legal Proceedings

See “Item 8 - Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 16 Commitments and Contingencies”.

Item 4 – Mine Safety Disclosures

Not applicable.

Part II

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

Not applicable.

Item 6 – Selected Consolidated Financial Data

Not applicable.

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion (the “MD&A”) should be read in conjunction with our consolidated financial statements and notes thereto and other information appearing elsewhere in this report.

Forward Looking Statements

Statements in this report that are not statements of historical facts are considered “forward-looking” and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. Any statements that express, or involve discussions as to, future expectations, risks, beliefs, plans, objectives, assumptions, events, uncertainties, financial performance, or growth strategies, often, but not always, through the use of words or phrases such as “anticipates”, “believes”, “estimates”, “expects”, “intends”, “plans”, “projects”, “likely”, “will continue”, “could”, “may”, “potential”, “target”, “outlook”, or words of similar meaning are not statements of historical facts and may be forward-looking.

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we are providing this cautionary statement to identify important factors that could cause our actual results to differ materially from those indicated in forward-looking statements made by or on behalf of the Company in this Form 10-K, in presentations, on our website, in response to questions, or otherwise. You should not place undue reliance on any forward-looking statement. Examples of forward-looking statements include, among others, statements we make regarding:

●	Changes in commodity prices,

●	Extreme and unpredictable weather conditions,

●	The sufficiency of risk management and hedging policies,

●	Customer concentration,

●	Federal, state and local regulation, including the industry’s ability to prevail on its challenge to the New York Public Service Commission’s order enacting new regulations that sought to impose significant new restrictions on retail energy providers operating in New York,

●	Key license retention,

●	Increased regulatory scrutiny and compliance costs,

●	Our ability to borrow funds and access credit markets,

●	Restrictions in our debt agreements and collateral requirements,

●	Credit risk with respect to suppliers and customers,

●	Level of indebtedness,

●	Changes in costs to acquire customers,

●	Actual customer attrition rates,

●	Actual bad debt expense in non-POR markets,

●	Accuracy of billing systems,

●	Ability to successfully navigate entry into new markets,

●	Whether our majority shareholder or its affiliates offers us acquisition opportunities on terms that are commercially acceptable to us,

●	Ability to integrate acquisitions into our operations successfully and efficiently,

●	Competition, and

●	The “Risk Factors” appearing under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, and in our quarterly reports, other public filings, and press releases.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which that statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of these factors, nor can it assess the impact of each of these factors on the businesses of the Company or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

These statements are qualified in their entirety by reference to, and are accompanied by, the factors detailed in “Risk Factors” of this Form 10-K, in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements that could cause our actual results to differ materially from those indicated in the forward-looking statements.

The risk factors and forward looking statements described involve risks and uncertainties and are not the only ones facing our Company.

Additional risks and uncertainties that we are not presently aware of, or that we currently consider immaterial, may also affect our business, financial condition, or results of operations.

The Company

Aspirity is a holding company that conducts its operations principally through wholly-owned subsidiaries. Our roots go back to 2005 and in 2015 we restructured. The restructuring included the sale of a subsidiary and the spinoff of Enterprises and its legacy business segments of wholesale trading, diversified investments, and the retail business operated by REH.

Through the end of the first quarter of 2016, our financial results were consolidated with those of Enterprises. Enterprises is the parent company of REH, a company in the same business as us - the sale of electricity to retail customers. Accordingly, our statement of operations included results generated by REH through the end of the first quarter of 2016, which were significant. We no longer consolidate Enterprises or its subsidiaries, after the first quarter, our financial statements include only our results and, consequently, period-by-period comparisons between 2015 and 2016 are not comparable.

Results of Operations

Years Ended December 31, 2016 and 2015

While Enterprises is still a VIE due to lack of sufficient equity investment to finance its activities without additional subordinated financial support and Aspirity continues to hold a variable interest in the form of the Term Loan, for Aspirity to consolidate Enterprises, it must be either the primary beneficiary of its operations, or hold a controlling financial interest, either by contract or via related party considerations. After March 30, 2016, Aspirity meets neither of these requirements. Specifically, Timothy Krieger as an individual is the primary beneficiary of Enterprises as he meets both the power and losses/benefits criteria.

With the spinoff, the Company exited all wholesale trading and diversified investment activity and has no plans to engage in such in the future, therefore these operations are reported in our 2016 SEC filings and GAAP financials as discontinued operations.

However, although we no longer owned REH after the spinoff, GAAP requires that we report its business as a continuing operation through March 30, 2016 since it was not considered to be a “strategic shift” from future operations.

The following table shows the effects of the consolidation of Enterprises’ retail energy operations on our consolidated statements of operations for 2016 and 2015.

Consolidating Statement of Operations Data
Dollars in thousands	Aspirity Holdings & Subsidiaries			Krieger Enterprises & Subsidiaries			Eliminations			Aspirity Holdings Consolidated

For Year Ended Dec 31, 2016
Retail energy services	$	2,095		$	9,583		$	-		$	11,678
Financial services		2,579			-			(715	)		1,864
Total revenue		4,673			9,583			(715	)		13,542
Total costs of revenues & operations		12,136			9,742			-			21,878
Operating loss		(7,462	)		(159	)		(715	)		(8,336	)
Interest expense		(4,260	)		(677	)		609			(4,328	)
Other income (expense), net		(349	)		119			-			(230	)
Loss from continuing operations		(12,072	)		(717	)		(105	)		(12,894	)
Net income (loss) from:
Continuing operations		(12,072	)		(717	)		(105	)		(12,894	)
Discontinued operations		-			607			105			712
Net loss		(12,072	)		(110	)		-			(12,181	)

Net loss attributable to non-controlling interest		-			(110	)		-			(110	)
Net loss attributable to the Company		(12,072	)		-			-			(12,072	)
Preferred distributions		549			-			-			549
Net loss attributable to common	$	(12,621	)	$	-		$	-		$	(12,621	)

For Year Ended Dec 31, 2015
Retail energy services	$	-		$	30,109		$	-		$	30,109
Financial services		2,877			-			(2,877	)		-
Total revenue		2,877			30,109			(2,877	)		30,109
Total costs of revenues & operations		3,780			32,888			-			36,668
Operating loss		(903	)		(2,779	)		(2,877	)		(6,559	)
Interest expense		(3,206	)		(2,140	)		2,877			(2,468	)
Other income (expense), net		(109	)		275			-			165
Loss from continuing operations		(4,218	)		(4,644	)		-			(8,862	)
Net income (loss) from:
Continuing operations		(4,218	)		(4,644	)		-			(8,862	)
Discontinued operations		-			4,100			-			4,100
Net loss		(4,218	)		(544	)		-			(4,762	)
Net loss attributable to non-controlling interest		-			(468	)		-			(468	)
Net loss attributable to the Company		(4,218	)		(76	)		-			(4,294	)
Preferred distributions		549			-			-			549
Net loss attributable to common	$	(4,767	)	$	(76	)	$	-		$	(4,843	)

The following table sets forth selected financial data for the periods indicated, which has been derived from the consolidated financial statements included in this report:

	For the Years Ended December 31,
Dollars in thousands;	2016						2015						Increase (decrease)
may not add due to rounding	Dollars			Percent			Dollars			Percent			Dollars			Percent

Revenue
Retail energy services.	$	11,678			86.2	%	$	30,109			100.0	%	$	(18,431	)		-61.2	%
Financial services (Note 13)		1,864			13.8	%		-			0.0	%		1,864			na

Net revenue		13,542			100.0	%		30,109			100.0	%		(16,567	)		-55.0	%

Costs of sales & services
Cost of retail electricity sold		10,010			73.9	%		26,663			88.6	%		(16,653	)		-62.5	%

Gross profit (loss)		3,533			26.1	%		3,446			11.4	%		87			2.5	%

Operating expenses
Sales, marketing, and customer service		5,038			37.2	%		1,333			4.4	%		3,705			278.0	%
Other general & administrative		6,831			50.4	%		8,672			28.8	%		(1,841	)		-21.2	%
Total operating expenses		11,869			87.6	%		10,005			33.2	%		1,864			18.6	%

Operating income (loss)		(8,336	)		-61.6	%		(6,559	)		-21.8	%		(1,777	)		27.1	%

Other income (expense)
Interest expense		(4,328	)		-32.0	%		(2,468	)		-8.2	%		(1,859	)		75.3	%
Other income		(230	)		-1.7	%		165			0.5	%		(395	)		-239.2	%
Other income (expense), net		(4,558	)		-33.7	%		(2,303	)		-7.6	%		(2,255	)		97.9	%

Net income (loss) from continuing operations		(12,894	)		-95.2	%		(8,862	)		-29.4	%		(4,032	)		45.5	%

Net income (loss) from discontinued operations		712			5.3	%		4,100			13.6	%		(3,387	)		-82.6	%

Net income (loss)		(12,181	)		-89.9	%		(4,762	)		-15.8	%		(7,419	)		155.8	%
Net income (loss) from non-controlling interest		(110	)		-0.8	%		(468	)		-1.6	%		359			-76.6	%

Net income (loss) attributable to Company		(12,072	)		-89.1	%		(4,294	)		-14.3	%		(7,778	)		181.2	%
Preferred distributions		549			4.1	%		549			1.8	%		-			0.0	%

Net income (loss) attributable to common	$	(12,621	)		-93.2	%	$	(4,843	)		-16.1	%	$	(7,778	)		160.6	%

Revenue: For the years ended December 31, 2016 and 2015, on a consolidated basis, retail energy revenue was $11,678,000 and $30,109,000, respectively, a decrease of $18,431,000. In 2016, $2,095,000 of this revenue was generated by Aspirity Energy for the full year and $9,583,000 by REH through March 30, 2016. Revenue for 2015 was produced solely by REH.

The remainder of 2016’s total revenue of $13,542,000 includes $1,864,000 of financial services revenue or interest income on the Term Loan earned by Aspirity Financial through October 31, 2016. Due to Amendment 3 of the Term Loan, financial services revenue was not recognized after November 1, 2016 due to a change in accounting method. Subsequent to November 1, 2016, the cost recovery method will be used account for income related to the Term loan. All payments received after the amendment were recognized as equity contributions and reductions to the principal of the loan. Under this method, cash receipts are first applied to reduce the principal balance of the receivable and second to income after all principal has been repaid.

See “Note 10 - Term Loan” to the financial statements.

The following table details key operating statistics for the periods indicated.

	For/At Years Ended December 31,
Key Retail Energy Operating Statistics				Increase (decrease)
(in units unless otherwise indicated)		2016	2015		Units		Percent

Aspirity
Retail electricity sales ($000s)		2,095	na		na		na
Unit sales (MWh)		27,979	na		na		na
Weighted average retail price (¢/kWh)		7.49	na		na		na
Customers receiving service, end of period		7,170	na		na		na

REH
Retail electricity sales ($000s)		9,583	30,109		(20,525	)	-68.2	%
Unit sales (MWh)		115,092	346,037		(230,945	)	-66.7	%
Weighted average retail price (¢/kWh)		8.33	8.70		(0.37	)	-4.3	%
Customers receiving service, end of period		—	32,319		na		na

Consolidated
Retail electricity sales ($000s)		11,678	30,109		(18,430	)	-61.2	%
Unit sales (MWh)		143,071	346,037		(202,966	)	-58.7	%
Weighted average retail price (¢/kWh)		8.16	8.70		(0.54	)	-6.2	%
Customers receiving service, end of period		7,170	32,319		(25,149	)	-77.8	%

Costs of retail electricity sold: In general, the Company’s costs of electricity sold include the cost of purchased power, EDC service fees, renewable energy certificates, bad debt expense, and hedge gains net of losses, if any. Wholesale electricity buyers are typically required to maintain cash deposits in separate accounts to meet vendors’ financial assurance requirements to purchase power which amount is included in “cash in trading accounts” or “cash in collateral accounts”.

Electricity buyers that do not use full requirements preferred supply agreements are exposed to volatility in the cost of energy acquired for sale to customers, and consequently, from time to time they may use derivatives to hedge or reduce this variability using hedge accounting guidance as permitted by GAAP. For example, under GAAP, certain derivatives contracts may be designated as cash flow hedges and the effective portion of any change in the derivative or hedging instrument’s fair value is recorded as other comprehensive income and deferred until the change in value of the hedged item is recognized in earnings. An entity’s risk management policies may also permit the use of undesignated derivatives as economic hedges. For an undesignated economic hedge, all changes in the derivative financial instrument’s fair value are recognized currently in revenues.

During 2016, Aspirity purchased electricity for sale to retail customers in PJM and from Exelon. In 2016 and 2015, REH acquired power in ISO-NE, PJM, and from certain other wholesale suppliers.

During 2016, the Company sold 143,071 MWh purchased for $10,010,000, resulting in a weighted average cost of $69.97/MWh, down from $26,663,000 spent on 346,037 MWh at a cost of $77.05/MWh in 2015. The reduction in cost is primarily due to the elimination of REH from the Company’s consolidated financial results after the first quarter of 2016.

REH did not hedge any power costs during the fiscal year of 2016, but during 2015, it hedged the cost of 144,667 MWh or 42% of the electricity sold to retail customers. For the 2015 period, these designated hedges had the effect of increasing the cost of retail electricity sold by $1,713,000.

Sales, marketing, and customer service costs: Retail sales and marketing costs and expenses include offline and online marketing costs related to retail customer acquisition and retention. Major offline marketing channels may include out-bound telemarketing, direct mail, door-to-door, mass media (radio, television, print, and outdoor), and affiliates. Online marketing channels may include paid search, affiliates, comparison shopping engines, banner or display advertising, search engine optimization, and e-mail marketing. Customer service costs include all variable costs associated with serving customers such as software, mailing, data aggregation, and reporting.

During 2016 and 2015, we spent $5,038,000 and $1,333,000, respectively on sales and marketing, with the increase driven primarily by Aspirity’s entry into new markets and initiatives to establish the brand of the Company. REH utilized minimal marketing to gain new customers in 2015. Also included in the 2016 amount is $1,289,000 spent on customer service; whereas no money was spent on customer service in 2015.

General and administrative expenses: Other general and administrative expenses include salaries, wages, incentive compensation, and related costs such as employee benefits and payroll taxes, legal fees and expenses, audit fees, tax compliance reporting service fees, other fees paid for outside consulting services, expenses associated with marketing our Notes such as advertising, printing, and servicing costs as well as items such as trading tools and subscriptions, rent, depreciation and amortization, insurance, travel, and all other indirect support expenses.

For 2016, general and administrative expenses decreased by $1,841,000 to $6,831,000 compared to $8,672,000 for 2015, primarily due to expenses associated with REH such as trading tools and subscriptions in association with their hedging activities.

Other income (expense): In 2016, we recorded net other expense of $4,558,000 compared to net other expense of $2,303,000 in 2015. As the principal component of other expense, interest expense increased by $1,859,000 to $4,328,000 for the year from $2,468,000 during 2015, primarily due to an increase in outstanding debt as well as a higher weighted average interest rate in 2016.

Discontinued operations: In the first quarter of 2016, the Company moved two segments, diversified investments and wholesale trading, into discontinued operations. Both segments are owned and operated by Enterprises. Discontinued operations contributed $712,000 of income to the net loss of the Company for the first three months of 2016, compared to $4,100,000 of income for the full year of 2015. This is primarily due to the profitable year for wholesale trading in 2015.

Preferred distributions: During both 2016 and 2015, we distributed $549,000 to our preferred unit holder.

Liquidity, Capital Resources, and Cash Flow

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has determined that due to the nature of the Notes, the amount of Note maturities in the 12 months after the issuance of these financial statements, as well as negative financial trends raises substantial doubt about its ability to continue as a going concern. See “Note 1 – Organization and Description of Business” for further discussion.

Aspirity Energy and Aspirity Financial are start-up companies in the retail energy and financial services industries, respectively. While revenues from Aspirity Energy are expected to continue to increase throughout the remainder of the year as customers are signed up, overall we do not expect such to be significant until 2017. Further, the Company does not expect to report positive cash flow from operations or profitability on a regular basis until the first half of 2018 at the earliest.

The Company has financed its operations to date principally through cash on hand, Note sales, and Term Loan receipts. For the year ended December 31, 2016, the Company on a consolidated basis reported a net loss of $12,893,000 and cash used for operations of $11,064,000. As of December 31, 2016, the Company had unrestricted cash, negative working capital, and total members’ deficit of $1,300,000, $14,338,000, and $31,298,000, respectively.

Prior to the time that Aspirity Energy is generating sustained positive cash flow from operations and profits, the Company will rely on the timely payment of the Term Loan and its ability to sell Notes to fund Note redemptions and operations. Enterprises’ ability to make timely payments on the Term Loan depends in part on the operations of its Legacy Businesses which were unprofitable in 2016. In the event amounts owed to us are paid late or not paid, our ability to fund operations, sell new Notes, renew existing Notes, and redeem existing Notes will be negatively impacted.

Historically, sales and renewals of Notes have exceeded redemptions, although there can be no assurance that such will be the case in the future. If redemptions exceed cash from operations, Term Loan payments, renewals, and new Note sales, then the Company will need additional financing from other sources.

Given the amount of Notes that are maturing in the 12 months following issuance, the Company has substantial doubt about its ability to continue as a going concern and is unable to conclude that it is probable that management’s plans will be able to mitigate adverse conditions.

Term Loan Amendment

On July 1, 2015, as part of the Restructuring, Aspirity Financial entered into a Term Loan with Enterprises, pursuant to which the Company agreed to loan Enterprises an aggregate principal amount of $22,206,000 with a weighted average interest rate of 14.08% and a maturity date of December 30, 2019. Up until October 31, 2016, the cash flow required to service the Term Loan Notes (those that were outstanding as of June 30, 2015, including any renewals thereof) was directly tied to the monthly invoices sent by the Company to Enterprises.

On November 1, 2016, the Company and Enterprises executed Amendment No. 3 to the Term Loan Agreement. Among other things, the Amendment revises certain definitions and incorporates a new amortization schedule calling for fixed monthly payments of principal and interest at a fixed annual rate of 15.12% with a balloon payment on the maturity date. The principal amount of the loan was adjusted up to $18,238,000 to include $1,592,000 of accrued interest income and costs that were capitalized.

The Amendment also revises the accounting treatment of the mandatory prepayments owed the Company as the result of the sale by Enterprises of REH, which closed on November 2, 2016, and further provides for certain additional optional prepayments. Pursuant to the Amendment, both the mandatory prepayments due to the REH sale and the optional prepayments provided for in the Amendment are treated as “prepayments of installments” rather than as “prepayments of principal”.

On November 4, 2016, the Company received $2,008,000, consisting of $1,508,000 of mandatory and $500,000 of optional prepayments. The Amendment also specifies the conditions under which the Company will release its security interest in the equity interests of Enterprises and provides for adjustments to certain of the covenants and agreements of the borrower with respect to monthly reporting, minimum liquidity, permitted liens, and defaults.

The Amendment also provides that Mr. Krieger, the Company’s Chairman and controlling shareholder, will assist Aspirity Energy in obtaining certain surety bonds required by its geographic expansion plans and provides that the Company and its subsidiaries have no explicit obligation to lend funds to the Borrower, Mr. Krieger, or their affiliates, but that any such request will be considered based on the facts and circumstances existing at the time.

In conjunction with the modifications in Amendment 3, management evaluated the classification of the Term Loan. Its terms are consistent with those likely available from a third party and there is intention to repay. While the loan is not in default, due to recent losses, the historical volatility of its primary business of wholesale electricity trading, and the level of assets in the business, there is no longer significant evidence of collectability of all amounts owed.

Therefore, effective with the date of the amendment, the Term Loan is classified on the balance sheet as a receivable from a related party, a contra-equity account. Subsequent to November 1, 2016, the cost recovery method will be used account for income related to the Term loan. All payments received after the amendment were recognized as equity contributions and reductions to the principal of the loan. Under this method, cash receipts are first applied to reduce the principal balance of the receivable and second to income after all principal has been repaid.

The following table is presented as a measure of our liquidity and capital resources as of the dates indicated, including “Total liquid assets”, which is a non-GAAP measure :

	At December 31,
	2016						2015						Increase (decrease)
Dollars in thousands; may not add due to rounding	Dollars			Percent of total assets			Dollars			Percent of total assets			Dollars			Percent

Liquidity
Unrestricted cash	$	1,300			58.8	%	$	1,371			4.8	%	$	(71	)		-5.2	%
Restricted cash		220			9.9	%		-			0.0	%		220			na
Cash in trading accounts		-			0.0	%		1,800			6.3	%		(1,800	)		-100.0	%
Cash in collateral accounts		25			1.1	%		246			0.9	%		(221	)		-89.8	%
Accounts receivable		503			22.7	%		3,558			12.4	%		(3,055	)		-85.9	%

Total liquid assets		2,047			92.6	%		6,975			24.3	%		(4,929	)		-70.6	%

Prepaid expenses and other assets		87			3.9	%		82			0.3	%		5			5.9	%
Assets of discontinued operations - current		-			0.0	%		11,084			38.6	%		(11,084	)		-100.0	%

Total current assets		2,134			96.5	%		18,142			63.2	%		(16,007	)		-88.2	%

Other assets		77			3.5	%		10,544			36.8	%		(10,467	)		-99.3	%

Total assets	$	2,212			100.0	%	$	28,685			100.0	%		(26,474	)		-92.3	%

Capital Resources
Current debt	$	12,430			562.1	%	$	11,333			39.5	%	$	1,097			9.7	%
Long term debt		17,037			770.4	%		14,050			49.0	%		2,987			21.3	%

Total debt		29,467			1332.4	%		25,383			88.5	%		4,084			16.1	%

Preferred equity		2,745			124.1	%		2,745			9.6	%		-			0.0	%
Term Loan receivable from related party		(15,067	)		-681.3	%		-			0.0	%		(15,067	)		na
Common equity		(18,977	)		-858.1	%		(7,500	)		-26.1	%		(11,477	)		153.0	%
Non-controlling interest		-			0.0	%		(3,296	)		-11.5	%		3,296			-100.0	%

Total equity		(31,298	)		-1415.2	%		(8,051	)		-28.1	%		(23,248	)		288.8	%

Total capitalization	$	(1,831	)		-82.8	%	$	17,332			60.4	%	$	(19,164	)		-110.6	%

For income tax purposes, we are taxed as a partnership which means that we do not pay any income taxes. Our income or loss for each year is allocated among holders of our common units who are then personally responsible for the tax liability associated with such income. Our Operating Agreement provides for distributions of cash to members based upon their respective ownership interests in the amount necessary to permit the member who is in the highest income tax bracket to pay all state and federal taxes on our net income allocated to such member.

The decision to make distributions other than tax distributions to holders of our common units and required distributions to holders of preferred units is at the discretion of our Board and depends on various factors, including our results of operations, financial condition, capital requirements, contractual restrictions, outstanding indebtedness, investment opportunities, and other factors considered by the Board to be relevant. The indenture governing our Notes prohibits us from paying distributions to our members if there is an event of default with respect to the Notes or if payment of the distribution would result in an event of default. The indenture also prohibits our Board from declaring or paying any distributions other than tax distributions if, in the reasonable determination of the Board, the Company would have insufficient cash to meet anticipated Note redemption or repayment obligations.

While we believe that payments from Enterprises on the Term Loan, anticipated cash generated from operating activities, availability of trade credit with respect to power purchases, and anticipated proceeds from our Notes Offering will be sufficient to meet operating cash requirements and obligations under the Notes for the next twelve months, there can be no assurance that this will prove to be the case. Further, given the nature of our Notes and the amount of maturities in the 12 months following issuance, the Company has substantial doubt about its ability to continue as a going concern.

The Company regularly evaluates sources of debt financing other than the Notes and additional equity capital to meet its funding needs. However, there can be no assurance that these efforts will prove to be successful.

The table below summarizes our primary sources and uses of cash for the years ended December 31, 2016 and 2015 as derived from the statements of cash flows included in this Form 10-K.

Dollars in thousands;	For the Years Ended December 31,
may not add due to rounding							Increase (decrease)
	2016			2015			Dollars			Percent
Net cash provided by (used in)
Operating activities	$	(11,064	)	$	(5,884	)	$	(5,179	)		88.0	%
Investing activities		3,153			(59	)		3,212			-5477.4	%
Financing activities		7,992			4,847			3,145			64.9	%

Net cash flow, continuing operations		81			(1,096	)		1,178			7.4	%
Net cash flow, discontinued operations		481			819			(338	)		-41.2	%

Net cash flow		562			(278	)		840			202.4	%
Effect of exchange rate changes on cash		87			212			(125	)		-58.9	%

Unrestricted cash and restricted cash
Beginning of period		2,331			2,397			(66	)		-2.7	%
Adjustment for deconsolidation		(1,461	)		-			(1,461	)		na

End of period	$	1,520		$	2,331		$	(812	)		-34.8	%

Continuing operations for year ended December 31, 2016 used $11,064,000 of cash for operating activities. The largest uses were the net loss of $12,894,000, while the largest source of cash was an increase in accrued interest of $752,000. The net loss for the period was primarily driven by customer acquisition costs of $3,407,000, general and administrative expenses of $6,831,000 and interest expense of $4,328,000. During 2016, we generated $3,153,000 of cash from investing activities, principally due to proceeds from the Term Loan, and $7,992,000 of cash from financing activity, principally due to sales of Notes, net of redemptions, and partially offset by distributions of $549,000 paid to the holder of our preferred units. Overall, for 2016, net cash flow provided by continuing operations totaled $81,000 and net cash flow provided by discontinued operations was $481,000. At December 31, 2016, our unrestricted and restricted cash totaled $1,300,000 and $220,000, respectively, and our debt totaled $29,467,000 compared to $25,383,000 as of as of December 31, 2015.

Continuing operations for the year ended December 31, 2015 used $5,884,000 of cash for operating activities. The largest uses were the net loss of $4,762,000 and an increase in accounts receivable of $1,680,000, while the largest sources of cash were increases in accounts payable of $1,412,000 and accrued expenses of $1,745,000. During 2015, we used $59,000 of cash for investing activities, and generated $4,847,000 of cash from financing activity, principally due to sales of Notes net of redemptions, which was partially offset by common distributions of $1,251,000 and preferred distributions of $549,000 paid to the holder of our preferred units. Overall, for 2015, net cash flow used in continuing operations totaled $1,096,000, while cash flow from discontinued operations provided $819,000. At December 31, 2015, our cash totaled $2,331,000 and our debt from continuing operations totaled $25,383,000 compared to $19,288,000 as of as of December 31, 2014.

Financing

Exelon

Under the terms of the PSA, on a daily or weekly basis as we request, Exelon will provide firm, fixed quotes for power for terms from 1 to 36 months out for each of the service areas in which we operate. Such quotes will include all costs of energy, capacity, ancillary services, and RECs necessary to meet state minimum renewable energy requirements to serve residential and small commercial customers. In addition, Exelon absorbs all deviations between forecasted and actual customer usage. Finally, the PSA provides that Exelon will post any collateral required of us by an ISO or EDC.

In addition to eliminating commodity price and volumetric risk, the PSA also incorporates the ability for us to defer payment of all or a portion of Exelon’s invoices to us based on certain criteria as defined in the agreement, including an asset pledge and certain financial covenants. The criteria used to determine the amount of deferral are not limited to, but include the amount of receivables, both billed and unbilled, as well as a portion of the forward value of customer contracts. As of December 31, 2016, we have deferred $907,000 of payments to Exelon.

Notes Offering

On May 8, 2015, we filed a new registration statement with respect to the Notes (File No. 333-203994) to continue our Notes Offering under the Old S-1 until the effective date of the New S-1. The new registration replaces the original statement and covers up to $75,000,000 in principal amount of 3-and 6-month and 1, 2, 3, 4, 5, and 10 year Notes. The New S-1 was declared effective by the SEC on November 12, 2015.

For the years ended December 31, 2016 and 2015, we incurred $2,228,000 and $2,081,000, respectively, of offering-related expenses, including marketing and certain printing expenses, legal and accounting fees, filing fees, and trustee fees but excluding amounts capitalized as deferred financing costs and amortized as Notes are sold. Deferred financing cost amortization totaled $74,000 and $229,000 for the years ended December 31, 2016 and 2015, respectively. At December 31, 2016, net deferred financing costs related to the Notes totaled $465,000.

From the effective date of May 10, 2012 through December 31, 2016, we issued a total of $63,789,000 of Notes, of which $40,642,000 were initial sales for cash and $23,147,000 were renewals for which we did not receive any additional proceeds, and we redeemed $10,709,000 for a net principal outstanding as of December 31, 2016 of $29,933,000.

Non-GAAP Financial Measures

The Company’s communications may include certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company's financial performance, financial position, or cash flows that excludes, or includes, amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with GAAP in the Company's financial statements.

Non-GAAP financial measures utilized by the Company include “total liquid assets”. The most comparable GAAP measure is total current assets. The Company’s management believes that these non-GAAP financial measures provide useful information to investors and enable investors and analysts to more accurately compare the Company’s ongoing financial performance over the periods presented.

Critical Accounting Policies and Estimates

Variable Interest Entities - Principles of Consolidation

Generally, we consolidate only business enterprises that we control by ownership of a majority voting interest. However, there are situations in which consolidation is required even though the usual condition of consolidation (ownership of a majority voting interest) does not apply. Generally, this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting interests, which results in a disproportionate relationship between such entity’s voting interests in, and its exposure to the economic risks and potential rewards of, the other business enterprise. This disproportionate relationship results in what is known as a variable interest, and the entity in which we have the variable interest is referred to as a “VIE.”

The Company follows ASC 810-10-15 guidance with respect to accounting for VIEs. A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of the entity’s expected residual returns. Variable interests are contractual, ownership, or other pecuniary interests that change with changes in the fair value of the entity’s net assets. A party is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides the party with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances.

The Company consolidated Enterprises until March 30, 2016 when all Class B units were converted into Class A units due to the FERC approval of the change of control and the amending of the Operating Agreement. This conversion significantly changed the nature of the relationship between the Company and Enterprises such that the Company is no longer required to consolidate Enterprises.

Discontinued Operations

ASU 2014-08 provided an update to ASC 205 when determining if a component of a business should be accounted for as a discontinued operation, with the primary consideration being whether the disposal represented a strategic shift that has or will have a major effect on an entity’s operations and financial results.

For the Company, each of the three segments of Enterprises was evaluated individually. It was concluded that the results of all three segments have a major effect on the entity’s operations given their size and fact that they are separate reportable segments. However, it was determined that the disposal of wholesale trading and diversified investments would represent a strategic shift for the Company. Therefore, wholesale trading and diversified investments are reported as discontinued operations up to and as of December 31, 2015, while the retail energy services business of REH was accounted for in continuing operations up to and until March 30, 2016. Thereafter, no part of Enterprises’ business is consolidated with the Company.

Term Loan Receivable from Related Party

Prior to Amendment 3 on November 1, 2016, the Company recorded the Term Loan receivable as an asset and recorded financial services revenue for interest incurred on a monthly basis. Any portion of a payment not related to interest was applied to the principal balance.

Revenue Recognition

Revenue from the retail sale of electricity, including estimates of unbilled revenues for power consumed by customers but not yet billed under the cycle billing method, is recorded in the period in which customers consume the commodity.

Revenue for financial services pertains to the Term Loan with Enterprises. Revenue is recognized as interest is incurred on the Term Loan. As of November 1, 2016, the Company will no longer recognize financial services revenue for the Term Loan.

Subsequent to November 1, 2016, the cost recovery method will be used account for income related to the Term Loan. All payments received after the amendment were recognized as equity contributions and reductions to the principal of the loan. Under this method, cash receipts are first applied to reduce the principal balance of the receivable and second to income after all principal has been repaid.

Unit Based Compensation

The Company expenses unit based awards pursuant to ASC Topic 718 Compensation-Stock Compensation which requires that compensation cost at the grant date fair value of unit-based awards be recognized over the requisite service period. The Company estimates grant date fair value using a discounted cash flow model as the Company’s units are not publicly traded. This model includes highly subjective inputs including cost of capital and growth projections. The Company used the discounted cash flow model due to limited operations of the Company as well as the lack of publicly trade equity.

Item 7A - Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in our normal business activities. Market risk is the potential loss that may result from changes associated with an existing or forecasted financial or commodity transaction. The types of market risk we are exposed to are interest rate risk, liquidity risk, and credit risk.

Commodity Price Risk

One of the largest risks that a retail electricity provider faces is commodity risk from fluctuating energy prices. The Company has mitigated this risk by entering into the PSA with Exelon. The PSA agreement is a full requirements contract which means that Exelon provides electricity at a stated price that will not change for the duration of the customer’s contract. This allows the Company to avoid risk from fluctuating prices in the energy market.

Interest Rate Risk

As of December 31, 2016 and 2015, we had $0 and $3,101,000 of variable rate debt outstanding. The interest rates charged on such are based in part on changes in certain market indices plus a credit margin, but are subject to “floors”, which may have the effect of converting variable rates to fixed rates and such was the case at December 31, 2015. Consequently, at December 31, 2016, we had no variable rate debt, although in the future we may be exposed to fluctuations in interest rates. Exposures to interest rate fluctuations may be mitigated by derivative contracts known as interest rate swaps, caps, collars, and put or call options. These contracts reduce exposure to interest rate volatility and result in primarily fixed rate debt obligations when considering the combination of the variable rate debt and the interest rate derivative instrument.

Liquidity Risk

Liquidity risk arises from our general funding needs and the management of our assets and liabilities.

Credit Risk

Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations.

In our retail business, we may be exposed to certain customer credit risks. Although we are currently not exposed to retail customer credit risk to a large degree due to our participation in POR programs, we expect that this situation will change as we grow our retail business and expand into non-POR areas.

In our financial services business, we are exposed to the credit risk represented by the Enterprises Term Loan. The agreement governing the loan includes certain provisions and covenants that allow us to monitor this risk monthly.

Furthermore, economic and market conditions may affect the willingness and ability of our retail customers and Enterprises to pay their bills in a timely manner, which could lead to an increase in bad debt expense above and beyond the allowance for uncollectible accounts charged to us by utilities and any bad debt provision we may make directly.

Item 8 – Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Members

Aspirity Holdings LLC and Subsidiaries

Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheet of Aspirity Holdings, LLC and subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of comprehensive loss, changes in members’ deficit, and cash flows for the year ended December 31, 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 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. The Company is not required to have, nor were we engaged to perform, an audit of its 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations and its cash flows for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements for the year ended December 31, 2016 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s recurring losses from operations, members’ deficit, and lack of sufficient cash flows to meet its obligations, including repayment of renewable unsecured subordinated notes, and sustain its operations raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN

April 28, 2017

Report of Independent Registered Public Accounting Firms

To the Board of Directors and Members

Aspirity Holdings LLC and Subsidiaries

Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheet of Aspirity Holdings LLC and subsidiaries (the “Company”) as of December 31, 2015, and the related consolidated statements of comprehensive income, changes in members’ deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aspirity Holdings LLC 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.

/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota

April 15, 2016, except for the effects of the correction of an error discussed in Note 19 as to which the date is May 23, 2016 and the effects of the 2015 discontinued operations discussed in Note 4, as to which the date is April 28, 2017.

Aspirity Holdings, LLC and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2016 and 2015

	2016			2015

Assets
Current assets
Unrestricted cash	$	1,299,743		$	1,371,167
Restricted cash		219,857			-
Cash in trading accounts		-			1,800,272
Cash in collateral accounts		25,025			246,000
Accounts receivable, net of allowance		502,722			3,558,316
Prepaid expenses and other current assets		87,106			82,253
Assets of discontinued operations - current (see Note 4)		-			11,084,264

Total current assets		2,134,453			18,142,272

Property, equipment and furniture, net		77,091			217,625

Other assets
Assets of discontinued operations - non-current (see Note 4)		-			10,325,332

Total assets	$	2,211,544		$	28,685,229


Liabilities and Members' Deficit
Current liabilities
Current portions of debt
Revolver and short term debt (see Note 15)	$	-		$	1,212,705
Renewable unsecured subordinated notes		12,430,151			10,120,175
Accounts payable		1,107,500			2,471,355
Accrued expenses		741,563			2,090,227
Accrued interest		2,193,408			1,502,761
Liabilities of discontinued operations - current (see Note 4)		-			5,046,443

Total current liabilities		16,472,622			22,443,666

Long-term liabilities
Renewable unsecured subordinated notes		17,037,398			14,050,298
Liabilities of discontinued operations - non-current (see Note 4)		-			242,232

Total long term liabilities		17,037,398			14,292,530

Total liabilities		33,510,020			36,736,196

Commitments and contingencies (see Note 16)

Members' deficit
Series A preferred equity		2,745,000			2,745,000
Term Loan receivable from related party (see Notes 10 and 15)		(15,066,701	)		-
Common equity		(18,976,775	)		(7,499,580	)

Total members' deficit		(31,298,476	)		(4,754,580	)

Non-controlling interest		-			(3,955,159	)
Accumulated other comprehensive income attributed to non-controlling interest		-			658,772

Total deficit		(31,298,476	)		(8,050,967	)

Total liabilities and members' deficit	$	2,211,544		$	28,685,229

See notes to consolidated financial statements.

Aspirity Holdings, LLC and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2016 and 2015

	2016			2015

Revenue
Retail energy services		11,678,164			30,109,090
Financial services (Related party - Note 13)		1,864,199			-

Total revenue		13,542,363			30,109,090

Costs of sales and services
Cost of retail energy sold		10,009,558			26,663,003

Gross profit on sales and services		3,532,805			3,446,087

Operating expenses
Sales, marketing, and customer service		5,037,755			1,332,721
Other general and administrative		6,831,126			8,672,047

Total operating expenses		11,868,881			10,004,768

Operating loss		(8,336,076	)		(6,558,681	)

Other income (expense)
Interest expense		(4,327,500	)		(2,468,368	)
Other income, net		(230,133	)		165,308

Other expense, net		(4,557,633	)		(2,303,060	)

Net loss from continuing operations		(12,893,709	)		(8,861,741	)

Discontinued operations (Note 4)
Net income from discontinued operations		712,364			4,099,698

Net loss		(12,181,345	)		(4,762,043	)

Net loss from non-controlling interest		(109,638	)		(468,484	)

Net loss attributable to Company		(12,071,707	)		(4,293,559	)

Preferred distributions		549,072			549,072

Net loss attributable to common	$	(12,620,779	)	$	(4,842,631	)


Other comprehensive loss:
Net loss from non-controlling interest	$	(109,638	)	$	(468,484	)
Foreign currency translation adjustment		90,840			-

Attributable to non-controlling interest		(18,798	)		(468,484	)

Net loss attributable to Company		(12,071,707	)		(4,293,559	)
Foreign currency translation adjustment		-			(340,269	)
Change in fair value of cash flow hedges		-			863,408
Unrealized gain on marketable securities		-			(11,116	)

Attributable to the Company		(12,071,707	)		(3,781,536	)

Preferred distributions		549,072			549,072

Attributable to common	$	(12,620,779	)	$	(4,330,608	)

See notes to consolidated financial statements.

Aspirity Holdings, LLC and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2016 and 2015

	2016			2015

Cash flows from operating activities
Net loss	$	(12,181,345	)	$	(4,762,043	)
Net income from discontinued operations		712,364			4,099,698

Net loss from continuing operations		(12,893,709	)		(8,861,741	)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		111,722			539,303
Unit based compensation		655,105			-
Gain on sale of marketable securities		-			129,743
Change in operating assets and liabilities:
Trading accounts		291,104			488,650
Collateral deposits		38,475			(246,000	)
Accounts receivable		(1,341,379	)		(1,680,069	)
Prepaid expenses and other current assets		56,953			172,547
Accounts payable		439,506			1,745,348
Accrued expenses		826,841			1,412,031
Accrued compensation		-			(237,092	)
Accrued interest		751,613			652,848

Net cash used for continuing operations		(11,063,770	)		(5,884,432	)
Net cash provided by discontinued operations		1,747,833			6,973,613

Net cash (used for) provided by operating activites		(9,315,937	)		1,089,181

Cash flows from investing activities
Purchases of property, equipment, and furniture		(20,392	)		(240,479	)
Purchases of marketable securities		-			(5,110,517	)
Proceeds from sale of marketable securities		-			5,292,360
Proceeds from Term Loan		3,173,486			-

Net cash provided by (used for) continuing operations		3,153,094			(58,636	)
Net cash used for discontinued operations		(162,852	)		(2,479,736	)

Net cash provided by (used for) investing activities		2,990,242			(2,538,372	)

Cash flows from financing activities
Deferred financing costs		(239,401	)		(300,792	)
Proceeds from revolver and short term debt		4,345,420			28,977,000
Proceeds from bridge loan		500,000			-
Payments on revolver and short term debt		(3,496,586	)		(28,869,555	)
Issuances of renewable unsecured subordinated notes		9,619,227			10,213,969
Redemptions of renewable unsecured subordinated notes		(4,170,700	)		(3,374,420	)
Contribution from related party on Term Loan		2,008,000
Purchase of treasury stock		(25,000	)		-
Preferred distributions		(549,072	)		(549,072	)
Common distributions		-			(1,250,540	)

Net cash provided by continuing operations		7,991,888			4,846,590
Net cash used for discontinued operations		(1,103,898	)		(3,675,210	)

Net cash provided by financing activities		6,887,990			1,171,380

Net increase (decrease) in cash		562,295			(277,811	)

Effect of exchange rate changes on cash		87,104			211,911

Unrestricted cash and restricted cash
Beginning of period		2,331,401			2,397,300
Adjustment for deconsolidation of VIE		(1,461,200	)		-

End of period	$	1,519,600		$	2,331,400

See notes to consolidated financial statements.

Aspirity Holdings, LLC and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

For the Years Ended December, 31 2016 and 2015

	2016		2015

Non-cash financing activities:
Conversion of bridge loan and accrued interest to common units	$	513,479	$	-

Renewable unsecured subordinated notes Capitalized interest	$	442,308	$	308,982

Renewals	$	8,771,958	$	7,732,661

Supplemental disclosures of cash flow information:
Cash payments for interest	$	2,952,370	$	2,456,354

See notes to consolidated financial statements.

Aspirity Holdings, LLC and Subsidiaries

Consolidated Statements of Changes in Members’ Deficit

For the Years ended December 31, 2016 and 2015

	Series A Preferred Equity		Common Equity			Term Loan receivable from related party		Accumulated Other Comprehensive Income		Total Members' Equity			Non- Controlling Interest			Accumulated Other Comprehensive Income Attributed to Non- Controlling Interest		Total Equity

Balance - December 31, 2014	$	2,745,000	$	(193,624	)	$	-	$	146,749	$	2,698,125		$	-		$	-	$	2,698,125

Net loss		-		(4,293,559	)		-		-		(4,293,559	)		(468,484	)		-		(4,762,043	)

Other comprehensive income		-		-			-		512,023		512,023			-

ASPIRITY HOLDINGS LLC 10-K