UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934


For the
quarterly period endedJune 30,
2010





oTRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




Commission
File No. 333-140637





PREMIER
POWER RENEWABLE ENERGY, INC.


(Exact
name of registrant as specified in it charter)





Delaware
            
            13-4343369(State
      or other jurisdiction of incorporation or organization)
            
            (IRS
      Employer Identification No.)





4961
Windplay Drive, Suite 100


El Dorado Hills, CA
95762


(Address
of principal executive offices) (Zip Code)





(916)
939-0400


(Registrant's
telephone number, including area code)





N/A


(Former
name, former address and former fiscal year, if changed since last
report)





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.       x Yes      
 ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period than the
registrant was required to submit and post such files).   ̈ Yes      ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated
      filer  ̈
            Accelerated filer
       ̈Non-accelerated
      filer  ̈ (do
      not check if a smaller reporting company)
            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). o Yes x No





APPLICABLE
ONLY TO CORPORATE ISSUERS:





29,099,750
shares of the issuer’s common stock are issued and outstanding as of August 16,
2010.










PREMIER
POWER RENEWABLE ENERGY, INC.


TABLE OF
CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED JUNE 30, 2010




PagePART I –
      FINANCIAL INFORMATION
            1Item
      1.
            Financial
      Statements
            1Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            2Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            11Item
      4.
            Controls
      and Procedures
            11PART
      II – OTHER INFORMATION
            12Item
      1.
            Legal
      Proceedings
            12Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            12Item
      3.
            Defaults
      Upon Senior Securities
            12Item
      4.
            (Removed
      and Reserved)Item
      5.
            Other
      Information
            12Item
      6.
            Exhibits
            12Signatures
            14








PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.





Our
financial statements start on the following page, beginning with page
F-1.





1




PREMIER
      POWER RENEWABLE ENERGY, INC.CONSOLIDATED
      BALANCE SHEETSAS
      OF JUNE 30, 2010 AND DECEMBER 31, 2009(in
      thousands, except share data)June
      30,
              
              
              December
      31,2010
              
              
              2009ASSETS
              
              (unaudited)
              
              
              (unaudited)Current
      assets:Cash
      and cash equivalents
              
              $
              1,561
              
              
              $
              3,792Accounts
      receivable, net of allowance for doubtful accounts of$227
      and $137 at June 30, 2010 and December 31, 2009,
    respectively
              
              
              11,374
              
              
              
              7,676Inventory
              
              
              1,810
              
              
              
              1,824Prepaid
      expenses and other current assets
              
              
              1,286
              
              
              
              432Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
              
              
              7,837
              
              
              
              13,674Other
      receivables
              
              
              103
              
              
              
              175Deferred
      tax assets
              
              
              227
              
              
              
              473Total
      current assets
              
              
              24,198
              
              
              
              28,046Property
      and equipment, net
              
              
              512
              
              
              
              615Intangible
      assets, net
              
              
              871
              
              
              
              970Goodwill
              
              
              10,508
              
              
              
              12,254Deferred
      tax assets
              
              
              -
              
              
              
              1,295Total
      assets
              
              $
              36,089
              
              
              $
              43,180LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              18,078
              
              
              $
              18,347Accrued
      liabilities
              
              
              1,951
              
              
              
              2,043Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              
              436
              
              
              
              374Taxes
      payable
              
              
              225
              
              
              
              293Customer
      deposits
              
              
              1,268
              
              
              
              -Borrowings,
      current
              
              
              1,658
              
              
              
              1,692Total
      current liabilities
              
              
              23,616
              
              
              
              22,749Borrowings,
      non-current
              
              
              339
              
              
              
              548Contingent
      consideration liability
              
              
              1,949
              
              
              
              7,725Total
      liabilities
              
              
              25,904
              
              
              
              31,022Commitments
      and contingencies (Notes 12)Shareholders'
      equity:Series
      A convertible preferred stock, par value $.0001 per share: 5,000,000
      sharesdesignated;
      20,000,000 shares of preferred stock authorized; 3,500,000shares
      issued and outstanding at June 30, 2010 and December 31,
    2009.
              
              
              -
              
              
              
              -Series
      B convertible preferred stock, par value $.0001 per share: 2,800,000
      shares designated;20,000,000
      shares of preferred stock authorized; 2,800,000 and 2,800,000 shares
      issued andoutstanding
      at June 30, 2010 and December 31, 2009.
              
              
              -
              
              
              
              -Common
      stock, par value $.0001 per share; 500,000,000 shares
      authorized;29,099,750
      and 29,050,250 shares issued and outstanding atJune
      30, 2010 and December 31, 2009, respectively
              
              
              3
              
              
              
              3Additional
      paid-in-capital
              
              
              18,251
              
              
              
              17,822Accumulated
      deficit
              
              
              (5,464
              )
              
              
              (5,385
              )Accumulated
      other comprehensive loss
              
              
              (2,605
              )
              
              
              (282
              )Total
      shareholders' equity
              
              
              10,185
              
              
              
              12,158Total
      liabilities and shareholders' equity
              
              $
              36,089
              
              
              $
              43,180
  The
accompanying notes are an integral part of these financial
statements.
  F-1




PREMIER POWER RENEWABLE ENERGY, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSFOR
      THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30,
    2009(in
      thousands, except per share data)For
      Three Months ended June 30,
              
              
              For
      Six Months ended June 30,2010
              
              
              2009
              
              
              2010
              
              
              2009(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)Net
      sales
              
              $
              9,026
              
              
              $
              4,114
              
              
              $
              12,425
              
              
              $
              8,908Cost
      of sales
              
              
              (8,576
              )
              
              
              (3,585
              )
              
              
              (11,944
              )
              
              
              (8,011
              )Gross
      profit
              
              
              450
              
              
              
              529
              
              
              
              481
              
              
              
              897Operating
      expenses:Sales
      and marketing
              
              
              771
              
              
              
              734
              
              
              
              1,512
              
              
              
              1,389General
      and administrative
              
              
              1,521
              
              
              
              1,248
              
              
              
              3,181
              
              
              
              2,376Total
      operating expenses
              
              
              2,292
              
              
              
              1,982
              
              
              
              4,693
              
              
              
              3,765Operating
      loss
              
              
              (1,842
              )
              
              
              (1,453
              )
              
              
              (4,212
              )
              
              
              (2,868
              )Other
      income (expense):Interest
      expense
              
              
              (38
              )
              
              
              (6
              )
              
              
              (75
              )
              
              
              (8
              )Other
      expense
              
              
              (64
              )
              
              
              -
              
              
              
              (64
              )
              
              
              -Change
      in fair value of contingent consideration liability
              
              
              4,522
              
              
              
              -
              
              
              
              5,776
              
              
              
              -Change
      in fair value of financial instruments
              
              
              -
              
              
              
              708
              
              
              
              -
              
              
              
              2,184Interest
      income
              
              
              4
              
              
              
              11
              
              
              
              5
              
              
              
              28Total
      other income (expense), net
              
              
              4,424
              
              
              
              713
              
              
              
              5,642
              
              
              
              2,204Income
      (loss) before income taxes
              
              
              2,582
              
              
              
              (740
              )
              
              
              1,430
              
              
              
              (664
              )Income
      tax (expense ) benefit
              
              
              (1,855
              )
              
              
              481
              
              
              
              (1,509
              )
              
              
              1,126Net
      income (loss)
              
              $
              727
              
              
              $
              (259
              )
              
              $
              (79
              )
              
              $
              462Earnings
      (loss) Per Share:Basic
              
              $
              0.03
              
              
              $
              (0.01
              )
              
              $
              (0.00
              )
              
              $
              0.02Diluted
              
              $
              0.02
              
              
              $
              (0.01
              )
              
              $
              (0.00
              )
              
              $
              0.02Weighted
      Average Shares Outstanding:Basic
              
              
              26,602
              
              
              
              26,049
              
              
              
              26,582
              
              
              
              26,049Diluted
              
              
              32,902
              
              
              
              26,049
              
              
              
              26,582
              
              
              
              30,257
  The
accompanying notes are an integral part of these financial
statements.




F-2


PREMIER POWER RENEWABLE ENERGY, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009(in
      thousands)JUNE 30, 2010
            
            
            JUNE 30, 2009(unaudited)
            
            
            (unaudited)Cash
      flows from operating activities:Net
      (loss) income
            
            $
            (79
            )
            
            $
            462Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:Stock
      based compensation
            
            
            482
            
            
            
            290Depreciation
      and amortization
            
            
            179
            
            
            
            202Change
      in fair value of contingent consideration liability
            
            
            (5,776
            )
            
            
            -Change
      in fair value of warrant liability
            
            
            -
            
            
            
            (2,184
            )Deferred
      taxes
            
            
            1,504
            
            
            
            (1,159
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (4,226
            )
            
            
            2,661Inventory
            
            
            (184
            )
            
            
            (886
            )Prepaid
      expenses and other current assets
            
            
            (954
            )
            
            
            184Costs
      and estimated earnings in excess of billingson
      uncompleted contracts
            
            
            4,275
            
            
            
            (706
            )Other
      receivables
            
            
            (692
            )
            
            
            (1,580
            )Taxes
      receivable
            
            
            54
            
            
            
            (65
            )Accounts
      payable
            
            
            2,162
            
            
            
            (1,726
            )Accrued
      liabilities
            
            
            60
            
            
            
            (248
            )Billings
      in excess of costs and estimated earningson
      uncompleted contracts
            
            
            107
            
            
            
            (663
            )Taxes
      payable
            
            
            (27
            )
            
            
            (7
            )Customer
      deposits
            
            
            1,383
            
            
            
            -Net
      cash used in operating activities
            
            
            (1,732
            )
            
            
            (5,425
            )Cash
      flows from investing activities:Acquisition
      of property and equipment
            
            
            (30
            )
            
            
            (75
            )Net
      cash used in investing activities
            
            
            (30
            )
            
            
            (75
            )Cash
      flows from financing activities:Principal
      payments on borrowings
            
            
            (300
            )
            
            
            (28
            )Proceeds
      from line of credit
            
            
            -
            
            
            
            139Proceeds
      from borrowings
            
            
            157
            
            
            
            347Proceeds
      from issuance of series B preferred stock
            
            
            -
            
            
            
            3,000Cost
      related to share registration
            
            
            (183
            )
            
            
            (107
            )Net
      cash (used in)/provided by financing activities
            
            
            (326
            )
            
            
            3,351Effect
      of foreign currency
            
            
            (143
            )
            
            
            (69
            )Decrease
      in cash and cash equivalents
            
            
            (2,231
            )
            
            
            (2,218
            )Cash
      and cash equivalents at beginning of period
            
            
            3,792
            
            
            
            5,770Cash
      and cash equivalents at end of period
            
            $
            1,561
            
            
            $
            3,552Supplemental
      cash flow information:Interest
      paid
            
            $
            63
            
            
            $
            8Taxes
      paid
            
            $
            -
            
            
            $
            39Non-cash
      investing and financing activities:Warrant
      liability settled with equity
            
            $
            -
            
            
            $
            8,935




The
accompanying notes are an integral part of these financial
statements.




F-3




PREMIER POWER RENEWABLE ENERGY, INC.CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITYFOR
      THE SIX MONTHS ENDED JUNE 30, 2010(in
      thousands and unaudited)Common
      Stock
              
              
              Series
      A - Preferred Stock
              
              
              Series
      B - Preferred Stock
              
              
              Additional
      Paid
              
              
              (Accumulated
              
              
              Accumulated
      Other ComprehensiveShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              In Capital
              
              
              Deficit)
              
              
              Loss
              
              
              TotalBalance
      December 31, 2009
              
              
              29,050
              
              
              $
              3
              
              
              
              3,500
              
              
              $
              -
              
              
              
              2,800
              
              
              $
              -
              
              
              $
              17,822
              
              
              $
              (5,385
              )
              
              $
              (282
              )
              
              $
              12,158Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (79
              )
              
              
              
              
              
              
              (79
              )Foreign
      currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,323
              )
              
              
              (2,323
              )Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,402
              )Stock
      based compensation
              
              
              50
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              482
              
              
              
              
              
              
              
              
              
              
              
              482Cost
      related to share registration
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (53
              )
              
              
              
              
              
              
              
              
              
              
              (53
              )Balance
      June 30, 2010
              
              
              29,100
              
              
              $
              3
              
              
              
              3,500
              
              
              $
              -
              
              
              
              2,800
              
              
              $
              -
              
              
              $
              18,251
              
              
              $
              (5,464
              )
              
              $
              (2,605
              )
              
              $
              10,185
  The
accompanying notes are an integral part of these financial
statements.




F-4




PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
 
 
 1.
            ORGANIZATION
AND NATURE OF BUSINESS
  Premier
Power Renewable Energy, Inc., a Delaware corporation (the “Parent”), through its
wholly owned subsidiaries, Premier Power Renewable Energy, Inc., a California
corporation (“Premier Power California”), and Rupinvest Sarl (“Rupinvest”), and
Premier Power California’s two wholly owned subsidiaries, Bright Future
Technologies LLC (“Bright Future”) and Premier Power Sociedad Limitada (“Premier
Power Spain”), and Rupinvest’s wholly owned subsidiary, Premier Power Italy
S.p.A. (“Premier Power Italy”) (collectively the “Company”), designs, engineers,
and installs photovoltaic systems in the United States, Italy, and
Spain.
  On
June 16, 2009, the Company sold to Vision Opportunity Master Fund
(“Vision”) 2.8 million shares of Series B Convertible Preferred Stock
(bearing no liquidation preference, no coupon payments, and no redemption
rights) in exchange for the cancellation of 3.5 million Series A and Series B
warrants held by Vision, and $3 million in cash.  The cancellation of
warrants resulted in the elimination of all the Company’s issued and outstanding
warrants.
  On
July 31, 2009, the Company purchased 100% of the issued and outstanding equity
ownership of Rupinvest, a corporation duly organized and existing under the laws
of Luxembourg, from Esdras Ltd., a corporation duly organized and existing under
the laws of Cyprus (“Esdras”).  Rupinvest distributes, develops, and
integrates ground mount and rooftop solar power systems in Italy through its
then majority-owned subsidiary, Premier Power Italy (formerly known as ARCO
Energy, SRL), a private limited liability company organized under the laws of
Italy.  Prior to the closing, Rupinvest was a wholly owned subsidiary of
Esdras.  The Company acquired 100% of the issued and outstanding equity
ownership interest in Rupinvest from Esdras in exchange for: (a) a cash payment
by us to Esdras in the amount of twelve thousand five hundred Euros (€12,500, or
approximately $18,292); and (b) the potential transfer to Esdras of up to three
million shares of the Company’s restricted common stock, with the number of
shares to be transferred, if any, to be calculated based on achieving certain
sales by Premier Power Italy over a three-year period.  Pursuant to the
closing of this transaction, the Company conducts operations in Italy through
Premier Power Italy.  On December 31, 2009, Rupinvest purchased the
remaining 10% interest of Premier Power Italy from Esdras at Esdras’ initial
capital contribution per the Share Exchange Agreement, and Premier Power Italy
became the wholly owned subsidiary of Rupinvest.
  F-5
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   2.
            SIGNIFICANT
ACCOUNTING POLICIES
  Basis of Presentation – The
accompanying consolidated financial statements are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information.  They should be read in conjunction with the
consolidated financial statements and related notes to the Company’s
consolidated financial statements for the years ended December 31, 2009 and
2008 appearing in the Company’s Form 10-K for the fiscal year ended December 31,
2009 that is filed with the Securities and Exchange Commission.  The
March 31, 2010 and 2009 unaudited interim consolidated financial
statements on Form 10-Q have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for smaller reporting
companies.  Certain information and note disclosures normally included in
the annual financial statements have been condensed or omitted pursuant to
those rules and regulations, although the Company’s management believes the
disclosures made are adequate to make the information presented not
misleading.  In the opinion of management, all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the results
of operations for the interim periods presented have been reflected
herein.  The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the entire
year.
  The
consolidated financial statements include the accounts of the Parent and its
subsidiaries.  Intercompany balances, transactions, and cash flows are
eliminated on consolidation.
  Concentrations and Credit Risk
– Three customers accounted for 25.2%, 9.5%, and 7.0%, respectively, of
the Company’s sales for the three months ended June 30, 2010.  Two
customers each accounted for more than 10% of the Company’s sales for the three
months ended June 30, 2009 that in the aggregate accounted for 22.3% of the
Company’s sales during the quarter.  Three customers accounted for
aggregate sales of 30.7% for the six months ended, June 30, 2010, or 18.6%,
7.0%, and 5.1% respectively.  The Company had two customers that each
accounted for 14% of the Company’s sales for the six months ended June 30,
2009.  Accounts receivable primarily consist of trade receivables and
amounts due from state agencies and utilities for rebates on solar systems
installed.  At June 30, 2010, the Company had two customers that
accounted for 43.9% and 19.8% of the Company’s accounts
receivable.  At December 31, 2009, the Company had two customers that
accounted for 22.9% and 10.9% of the Company’s accounts
receivable.  The Company monitors account balances and follows up with
accounts that are past due as defined in the terms of the contract with the
customer. The Company maintains an allowance for doubtful accounts receivable
based on the expected collectability of its accounts receivable. The allowance
for doubtful accounts is based on assessments of the collectability of specific
customer accounts and the aging of the accounts receivable. If there is a
deterioration of a major customer’s credit worthiness or actual defaults are
higher than historical experience, the allowance for doubtful accounts is
increased. The allowance for doubtful accounts was $0.2 million and $0.1 million
as of June 30, 2010 and December 31, 2009, respectively.
  The
Company purchases its solar modules from a limited number of suppliers but
believes that in the event it is unable to purchase solar panels from these
suppliers that alternative sources of solar modules will be
available.
  F-6
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  Use
of Estimates – The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Significant estimates include revenue recognition and
derivative instruments, allowance for doubtful accounts, valuation of goodwill,
warranty reserves, the estimated useful life of property and equipment,
valuation of the contingent consideration liability and derivative
instrument, and income taxes. Actual results could differ from those
estimates.
  Cash and Cash Equivalents –
Cash and cash equivalents include cash on hand or in the bank and short-term
investment securities with remaining maturities of 90 days or less at date of
purchase. The Company maintains its cash in bank deposit accounts that, at
times, may exceed the statutory insured limits of the jurisdiction in which the
accounts are held.  The Company has not experienced any losses on
these investments.  At June 30, 2010, the Company had $0.9 million in
cash in bank accounts in excess of the various deposit insurance limits of the
jurisdictions in which the balances were held.
  Inventories – Inventories,
consisting of raw materials and finished goods, are recorded using the average
cost method and are carried at the lower of cost or market.
  Property and Equipment –
Property and equipment are stated at cost and depreciated using
the straight-line method over estimated useful lives of 5 years, or in the
case of leasehold improvements, the lease term, if shorter. Maintenance and
repairs are expensed as they occur.  Upon disposition, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gain or loss is reflected in current operations.
  Stock-Based Compensation –The Company
accounts for stock-based compensation under the provisions of Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718
(Statement of Financial Accounting Standards No. 123 (revised 2004),“Share-Based
Payment”), which requires the Company to measure the stock-based
compensation costs of share-based compensation arrangements based on the grant
date fair value and generally recognizes the costs in the financial statements
over the employee’s requisite service period.  Stock-based
compensation expense for all stock-based compensation awards granted was based
on the grant date fair value estimated in accordance with the provisions of FASB
ASC 718.
  Goodwill and Other Intangible Assets
– The Company does not amortize goodwill, but rather tests goodwill for
impairment at least annually. We determine the fair value using a weighted
market and income approach. Under the income approach, we calculate the fair
value of a reporting unit based on the present value of estimated future cash
flows. Under the market approach, we calculate the fair value of the reporting
unit using selected comparable companies’ revenue multiples and apply an average
of such companies’ multiples to the Company’s revenue. If the fair value of the
reporting unit exceeds the carrying value of the net assets including goodwill
assigned to that unit, goodwill is not impaired. If the carrying value of the
reporting unit’s net assets including goodwill exceeds the fair value of the
reporting unit, then we determine the implied fair value of the reporting unit’s
goodwill. If the carrying value of a reporting unit’s goodwill exceeds its
implied fair value, then an impairment of goodwill has occurred and we recognize
an impairment of loss for the difference between the carrying amount and the
implied fair value of goodwill as a component of operating income. In the second
quarter of 2010, due to the reduction in forecasted revenue since the purchase
of our Italian operations, the Company performed an impairment test of the
goodwill recorded from the acquisition of Rupinvest, which totaled $10 million
at June 30, 2010. The Company's testing approach utilized a discounted cash flow
analysis and comparative market multiples to determine the entity's (single
reporting unit) fair value for comparison to its carrying value.  We
did not recognize any goodwill impairment charges for the six months ended June
30, 2010 and 2009.  Intangible assets, consisting of a customer list,
trademarks, and an employee contract, are amortized over their estimated useful
lives ranging from 2-17 years.
  F-7
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  Fair Value of Financial Instruments
– The carrying value reported for cash equivalents, accounts receivable,
prepaid expenses, other receivables, accounts payable, and accrued liabilities
approximated their respective fair values at each balance sheet date due to the
short-term maturity of these financial instruments.  The fair values
of the contingent consideration liability and our borrowings have been
determined in accordance with the methodology as disclosed in Notes 12 and
16.
  Revenue Recognition – Revenue
on solar power projects installed by the Company for customers under
installation contracts is recognized using the percentage of completion method
of accounting. At the end of each period, the Company measures the cost incurred
on each project and compares the result against its estimated total costs at
completion. The percent of cost incurred determines the amount of revenue to be
recognized. Payment terms are generally defined by the installation contract and
as a result may not match the timing of the costs incurred by the Company and
the related recognition of revenue. Such differences are recorded as either
costs or estimated earnings in excess of billings on uncompleted contracts or
billings in excess of costs and estimated earnings on uncompleted contracts. The
Company determines a customer’s credit worthiness at the time an order is
accepted. Sudden and unexpected changes in a customer’s financial condition
could put recoverability at risk.
  Contract
costs include all direct material and labor costs attributable to a project as
well as certain indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and depreciation costs. Selling, general, and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Profit
incentives are included in revenues when their realization is reasonably
assured.
  The
percentage of completion method requires the ability to estimate several
factors, including the ability of the customer to meet its obligations under the
contract, including the payment of amounts when due. If we determine that
collectability is not assured, we will defer revenue recognition and use methods
of accounting for the contract such as completed contract method until such time
we determine that collectability is reasonably assured or through the completion
of the project.
  The
Company recognized revenue on a percentage of completion basis on a 1 megawatt
solar project in Italy in 2009 and in 2010 as the project was being
completed.  The Company completed the project in May 2010 and invoiced
the customer in accordance with the related contract.  Subsequently,
the customer informed the Company that it intended to resell the project,
however the buyer requested that the Company enter into an operating and
maintenance (O&M) contract for the solar facility and wanted to purchase the
project from the Company in its role as the builder.  The Company
agreed to retake title to the project and transfer it to the
buyer.  The Company did not receive any additional compensation for
the transaction, took on a minimal increase in its warranty exposure that was
limited to the de minimis amount of fees of the O&M contract, and did not
assume other obligations with its assumption and passage of title to the buyer
contemporaneously in June 2010.  Prior to June 2010, there was no
agreement to enter into this transaction and payment of the original contract
amount was not contingent on the sale to the buyer.  In July 2010, the
Company received full payment for the total outstanding accounts receivable,
which equals the original contract amount.  The Company determined the
assumption of title and sale did not cause a change in the previous accounting
recognition, and accordingly there was no effect on the accompanying financial
statements.
  Revenue
related to distribution sales is recognized when we have received either a
purchase order or contract, product is delivered to the customer or a third
party shipper takes possession, the title and risk of ownership have passed to
the buyer, and we determine that collection is probable.  The Company
considers the risk of ownership to have passed when the customer has assumed the
risk of loss.
 Advertising – The Company
expenses advertising costs as they are incurred.  Advertising costs
were $0.1 million and $0.2 million the three months ended June 30, 2010 and
2009, respectively.  Advertising costs were $0.2 million and $0.4
million for the six months ended June 30, 2010 and 2009,
respectively.
  F-8
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  Product Warranties – The
Company warrants its projects for labor and materials associated with its
installations.  The Company’s warranty is ten years in California and
generally five to ten years elsewhere in the U.S. depending upon each state’s
specific requirements.  Premier Power Italy provides a ten year
warranty covering the labor and materials associated with its
installations.  Premier Power Spain provides a one year warranty for
all contracts signed after December 31, 2006.  Since the Company does
not have sufficient historical data to estimate its exposure, we have looked to
our historical data and the historical data reported by a peer company solar
system installer.  Solar panels and inverters are warranted by the
manufacturer for 25 years and 10 years, respectively.  Activity in the
Company’s accrued warranty reserve for the three and six months ended June
30, 2010 and 2009 were as follows:
  Three
      Months
                  Ended
      June 30,
                
                
                Six
      Months
                  Ended
      June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009(in
      thousands)
                
                
                (in
      thousands)Beginning
      accrued warranty balance
                
                $
                355
                
                
                $
                332
                
                
                $
                359
                
                
                $
                367Accruals
      related to warranties issued during period
                
                
                10
                
                
                
                20
                
                
                
                33
                
                
                
                133Reduction
      for labor payments and claims made under warranty
                
                
                (14
                )
                
                
                (85
                )
                
                
                (41
                )
                
                
                (233
                )Ending
      accrued warranty balance
                
                $
                351
                
                
                $
                267
                
                
                $
                351
                
                
                $
                267
  For certain European solar projects, we
enter into warranties for the performance of a solar system upon completion of
the project.  We warrant that the solar system will perform at certain
performance ratios based on the energy generated versus irradiance levels.  Our exposure under these
warranties is currently limited to the amount of fees we are to receive for
performing maintenance services over a limited period of time (usually two
years) and that would be forgone by us in the event the system did notperform as expected.  To date,
we have not incurred lost revenue under these arrangements, and the total of
future revenues subject to forfeiture is not material.
  Foreign Currency – The
functional currency of Premier Power Italy and Premier Power Spain is the Euro.
Their assets and liabilities are translated at year-end exchange rates including
goodwill, except for certain non-monetary balances, which are translated at
historical rates. All income and expense amounts of Premier Power Italy and
Premier Power Spain are translated at average exchange rates for the respective
period. Translation gains and losses are not included in determining net income
but are accumulated in a separate component of shareholders’ equity. Foreign
currency transaction gains and losses are included in the determination of net
income (loss) in the period in which they occur. For the three and six months
ended June 30, 2010, the foreign currency transaction gain (loss) was $(0.1)
million and $(0.03) million, respectively.  For the three and six
months ended June 30, 2009, the foreign currency transaction gain was $0.04
million and $0.08 million, respectively.
  F-9
  PREMIER POWER
RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  Comprehensive Income – FASB
ASC Topic 220 (Statement of Financial Accounting Standards No. 130, “Reporting
Comprehensive Income,”) establishes standards for reporting comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income, as defined,
includes all changes in equity during the period from non-owner sources, such as
foreign currency translation adjustments.
  Income Taxes – The Company
accounts for income taxes under the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax reporting bases of assets and liabilities and
are measured using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Realization of deferred tax assets
is dependent upon the weight of available evidence, including expected future
earnings. A valuation allowance is recognized if it is more likely than not that
some portion or all of a deferred tax asset will not be realized.   The
Company has a valuation allowance for its net deferred tax asset associated with
its U.S. operations.  Prior to September 2008, the Company was not
subject to federal income tax.
  Effective
September 1, 2008, the Company adopted FASB ASC 740-10 (Financial Accounting
Standards Interpretation FIN No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN
48)). FASB ASC 740-10 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of uncertain
tax positions taken or expected to be taken in a company’s income tax return and
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.  As a
result of the implementation of FASB ASC 740-10, the Company recognized no
change in the liability for unrecognized tax benefits related to tax positions
taken in prior periods and no corresponding change in retained
earnings.   As a result of the implementation of FASB
ASC 740-10, the Company recognized no material adjustment in the liability
for unrecognized income tax benefits as of the September 2008 adoption date and
at December 31, 2009. Also, the Company had no amounts of unrecognized tax
benefits that, if recognized, would affect its effective tax rate.
  Premier
Power Italy is organized under the laws of Italy and is subject to federal and
provincial taxes.  Premier Power Spain is organized under the laws of
Spain and is subject to federal and provincial taxes.
  Contingent Consideration
Liability – In connection with the acquisition of Rupinvest,
contingent consideration liability of approximately $12 million was recorded at
the time of the purchase. The contingent consideration liability relates to the
contingent issuance of 3 million shares to the sellers of Rupinvest. In
accordance with FASB ASC 820, the Company estimates the fair value of the
contingent consideration liability at each reporting period, with changes in the
estimated fair value recorded in income.
  The
fair value measurement assumes that the contingent consideration liability is
transferred to a market participant at the valuation date and that the
nonperformance risk related to the contingent consideration liability remains
constant. The Company estimates the fair value using the market price of its
shares since it believes this represents the present value of its future stock
returns, discounted at the Company’s required rate of return. The Company also
estimates the number of shares to be issued based on a number of financial
scenarios weighted based on their relative probability. The Company considers
the effect of counterparty performance risk in its fair value estimate. The
Company estimates the counterparty performance risk by comparing its borrowing
rate to those of U.S. treasury notes and uses the underlying spread to discount
the estimated fair value.
  Reclassifications –
  F-10
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  Recently
Issued Accounting Pronouncements
  In
January 2010, the FASB issued Accounting Standards Update No. 2010-06,
Improving
Disclosures about Fair Value Measurements (Topic 820)— Fair Value
Measurements and Disclosures(ASU 2010-06) to add additional disclosures
about the different classes of assets and liabilities measured at fair value,
the valuation techniques and inputs used, the activity in Level 3 fair value
measurements, and the transfers between Levels 1, 2, and 3. Levels 1, 2 and 3 of
fair value measurements are defined in Note 16 below. We are currently
evaluating the impact of its pending adoption on our consolidated financial
statements.
  In
February 2010, the FASB issued an update to Subsequent
Events (ASC 855),which
amends the previous definition of an SEC filer and removed the requirement that
an SEC filer disclose the date through which subsequent events have been
evaluated in both issued and revised financial statements.  Subsequent
Eventsdefines the period after the balance sheet date that entities
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements and establishes the circumstances
under which entities should recognize and the disclosures that should be made
about events or transactions that occur after the balance sheet date. The
Company adopted this guidance with no material impact to our consolidated
financial statements.
  In
April 2010, the FASB issued an update to Compensation-Stock
Compensation (ASC 718),which
clarifies that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity shares trades should not be considered to contain a condition
that is not a market, performance or service condition. Therefore, an entity
would not classify such an award as a liability if the award otherwise qualifies
as equity.  The standard is effective for interim and annual periods ending
after December 15, 2010 and should be applied prospectively. The adoption
of this standard is not expected to have a material impact to our consolidated
financial statements.
  In
June 2009, the FASB issued FASB ASC 810 (SFAS No. 167, “Amendments to
FASB Interpretation No. 46(R)”). FASB ASC 810 applies to FASB ASC 105
entities and is effective for annual financial periods beginning after November
15, 2009 and for interim periods within those years. Earlier application is
prohibited. A calendar year-end company must adopt this statement as of January
1, 2010. The Company adopted this guidance with no material impact to our
consolidated financial statements.
  F-11
 
 PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   In
June 2009, the FASB issued FASB ASC 860 (SFAS No. 166, “Accounting for
Transfers of Financial Assets-an amendment of FASB Statement No. 140”).
FASB ASC 860 applies to all entities and is effective for annual financial
periods beginning after November 15, 2009 and for interim periods within those
years. Earlier application is prohibited. A calendar year-end company must adopt
this statement as of January 1, 2010. This statement retains many of the
criteria of FASB ASC 860 (FASB 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”) to determine whether a transfer of financial assets
qualifies for sale accounting, but there are some significant changes as
discussed in the statement. Its disclosure and measurement requirements apply to
all transfers of financial assets occurring on or after the effective date. Its
disclosure requirements, however, apply to transfers that occurred both
before and after the effective date. In addition, because FASB ASC 860
eliminates the consolidation exemption for Qualifying Special Purpose Entities,
a company will have to analyze all existing QSPEs to determine whether they must
be consolidated under FASB ASC 810. The Company adopted this guidance with no
material impact to our consolidated financial statements.
  In
August 2009, the FASB issued ASU 2009-05, “Measuring
Liabilities at Fair Value.”ASU
2009-05 applies to all entities that measure liabilities at fair value within
the scope of FASB ASC 820, “Fair Value
Measurements and Disclosures.”
ASU 2009-05 is effective for the first reporting period (including interim
periods) beginning after issuance, October 1, 2009 for the Company. The Company
adopted this guidance with no material impact to our consolidated financial
statements.
  In
August 2009, an update was made to Fair Value
Measurements and Disclosures –Measuring
Liabilities at Fair Value.” This update permits entities to measure
the fair value of liabilities, in circumstances in which a quoted price in an
active market for an identical liability is not available, using a valuation
technique that uses a quoted price of an identical liability when traded as an
asset, quoted prices for similar liabilities or similar liabilities when traded
as assets or the income or market approach that is consistent with the
principles of Fair Value
Measurements and Disclosures. Effective upon issuance, the
Company adopted this guidance with no material impact to our consolidated
financial statements.
  In
October 2009, the FASB ratified FASB ASC 605-25 (the EITF’s final consensus on
Issue 00-21, “Revenue
Arrangements with Multiple Deliverables”). FASB ASC 605-25 is effective
for fiscal years beginning on or after June 15, 2010. Earlier adoption is
permitted on a prospective or retrospective basis. The Company is currently
evaluating the impact of this pronouncement on its consolidated financial
statements.
  3.           EARNINGS
PER SHARE
  Earnings
per share is computed in accordance with the provisions of FASB ASC Topic 260
(SFAS No. 128, “Earnings Per
Share”). Basic net income (loss) per share is computed using the
weighted-average number of common shares outstanding during the period.
 Diluted earnings per share is computed using the weighted-average number
of common shares outstanding during the period, as adjusted for the dilutive
effect of the Company’s outstanding convertible preferred shares using the “if
converted” method and dilutive potential common shares. Potentially dilutive
securities include convertible preferred stock, employee stock options,
restricted shares, and contingently issuable shares for the purchase of
Rupinvest.  Potentially dilutive common shares from employee incentive
plans are determined by applying the treasury stock method to the assumed
exercise of outstanding stock options and the assumed vesting of outstanding
restricted stock.
  F-12
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   Three
      Months Ended June 30,
                      
                      
                      Six
      Months Ended June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(in
      thousands, except per share data)
                      
                      
                      (in
      thousands, except per share data)Net
      income (loss)
                      
                      $
                      727
                      
                      
                      $
                      (259
                      )
                      
                      $
                      (79
                      )
                      
                      $
                      462Earnings
      (loss) per share:Basic
                      
                      $
                      0.03
                      
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.00
                      )
                      
                      $
                      0.02Diluted
                      
                      $
                      0.02
                      
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.00
                      )
                      
                      $
                      0.02Weighted
      average shares outstanding:Basic
                      
                      
                      26,602
                      
                      
                      
                      26,049
                      
                      
                      
                      26,582
                      
                      
                      
                      26,049Diluted
      effect of convertible preferred stock, series
    A
                      
                      
                      3,500
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,500Diluted
      effect of convertible preferred stock, series
    B
                      
                      
                      2,800
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      218Diluted
      effect of warrants, Series A and B
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      490Diluted
                      
                      
                      32,902
                      
                      
                      
                      26,049
                      
                      
                      
                      26,582
                      
                      
                      
                      30,257
   For
the three months ended June 30, 2010 and 2009, there were issued and
outstanding stock options exercisable for an aggregate 2,051,229 and
1,142,479 shares of common stock, respectively, that were anti-dilutive as their
weighted average exercise price exceeded the average market price of the
Company’s common stock.  For the three months ended June 30, 2009,
there were 6,300,000 of potentially dilutive shares of common stock
excluded from the computation of diluted earnings per share as their effect was
anti-dilutive.  For the six months ended June 30, 2010, there were
6,300,000 of potentially dilutive shares of common stock excluded from
the computation of diluted earnings per share as their effect was
anti-dilutive.
  4.            
INTANGIBLE ASSETS
  Intangibles
consist of amortizing intangibles and goodwill.  At June 30, 2010 and
December 31, 2009, such amounts were as follows:
  June
      30, 2010
                
                
                December 31,
      2009(in
      thousands)Trademark
                
                $
                788
                
                
                $
                814Customer
      List
                
                
                61
                
                
                
                89Employee
      contract
                
                
                22
                
                
                
                67871
                
                
                
                970Goodwill
                
                
                10,508
                
                
                
                12,254$
                11,379
                
                
                $
                13,224
   Amortization
periods for the intangibles are as follows: trademark – 17 years, customer list
– 3 years, and employee contract – 2 years. Amortization for the three and six
months ended June 30, 2010 was $0.04 million and $0.09 million,
respectively.  Amortization for the three and six months ended June
30, 2009 was $0.06 million and $0.1 million,
respectively.   Accumulated amortization was $0.3 million and
$0.3 million at June 30, 2010 and December 31, 2009, respectively. The change of
$1.7 million in goodwill as of June 30, 2010 compared to December 31, 2009 was
the result of changes in foreign currency translation rates.
  F-13
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  The
Company expects amortization expense for the next five years to be as follows
(in thousands):
  Year
                
                Amount2010
                
                $
                1502011
                
                $
                812012
                
                $
                692013
                
                $
                522014
                
                $
                52
   5.
            PROPERTY AND
EQUIPMENT
  Property
and equipment consisted of the following:
  June
      30, 2010
                
                
                December 31,
      2009(in
      thousands)Equipment
                
                $
                248
                
                
                $
                217Furniture and
      computers
                
                
                200
                
                
                
                204Vehicles
                
                
                571
                
                
                
                6511,019
                
                
                
                1,072Less: accumulated
      depreciation
                
                
                (507
                )
                
                
                (457
                )$
                512
                
                
                $
                615
   Depreciation
expense was $0.05 million and $0.1 million for the three and six months ended
June 30, 2010, respectively.  Depreciation expense was $0.04 million
and $0.08 million for three and six months ended June 30, 2009.
  6.
            ACCRUED
LIABILITIES
  Accrued
liabilities consisted of the following:
  June
      30, 2010
                
                
                December
      31, 2009(in
      thousands)Sales
      and local taxes
                
                $
                501
                
                
                $
                176Payroll
                
                
                467
                
                
                
                363Accrued
      subcontractors
                
                
                455
                
                
                
                998Warranty
      reserve
                
                
                351
                
                
                
                359Other
      operational accruals
                
                
                177
                
                
                
                147$
                1,951
                
                
                $
                2,043
  F-14
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   7.           INCOME
TAXES
  The
effective tax rate for the periods presented is the result of the mix of income
earned in various tax jurisdictions that apply a broad range of income tax
rates.  Our provision for income taxes differs from the tax computed
at the U.S. federal statutory income tax rate due primarily to state taxes,
earnings considered as indefinitely reinvested in foreign operations, and
changes in the valuation allowance and fair values of the contingent
consideration liability and financial instruments.
  Our
net deferred tax assets decreased from $1.8 million as of December 31, 2009 to
$0.2 million as of June 30, 2010 primarily as a result of the Company
recognizing a valuation allowance of $1.4 million mainly related to net
operating loss carry forwards in the U.S. The valuation allowance was recorded
as a result of delays in the execution and signing of certain construction
contracts, and we believe based on current U.S. operations that it has become
more likely than not that we will be unable to realize our U.S. net operating
loss carry forwards.
  The
Company files income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions.  The Company adopted the provisions
of accounting for uncertain tax positions in accordance with the Income Taxes
(ASC 740) topic on September 8, 2008, and accordingly, performed a
comprehensive review of the Company’s uncertain tax positions as of that
date.  In this regard, an uncertain tax position represents its
expected treatment of a tax position taken in a filed tax return, or planned to
be taken in a future tax return, that has not been reflected in measuring income
tax expense for financial reporting purposes.
  The
Company does not expect there to be any material changes to the assessment of
uncertain tax positions over the next twelve months.  The Company is
subject to routine corporate income tax audits in the United States and foreign
jurisdictions.  The statute of limitations for the Company’s 2008 tax
years remains open for U.S. purposes.  Most foreign jurisdictions have
statute of limitations that range from three to six years.
  The
liability for uncertain tax positions is recorded in accrued expenses in the
Company’s consolidated balance sheet.  The Company recognizes interest
and penalties related to uncertain tax positions in the income tax
provision.  Interest and penalties are computed based upon the
difference between its uncertain tax positions under ASC 740 and the amount
deducted or expected to be deducted in its tax returns.  During 2009
and 2008, the Company did not accrue or pay for any interest and
penalties.
  8.
           
BORROWINGS
  Notes
Payable
  Notes
payable were $0.6 million and $0.6 million at June 30, 2010 and December 31,
2009, respectively.  Notes payable of $0.07 million are secured by
vehicles and have maturities through 2014.  Additionally, we have $0.02
million short term unsecured notes associated with various insurance
policies.  The annual interest rates on the notes range from 2.9% to
6.4%. Premier Power Spain has two unsecured loans totaling $0.5 million
with Instituto de Crédito Oficial as of June 30, 2010, with the first payment
due on December 18, 2010 for one of the loans with each additional payment due
six months thereafter until June 18, 2012, which is the due date of the last
payment on this loan, and with the other loan due on June 18,
2011.  Payment amounts are $0.1 million each.
  F-15
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   Lines
of Credit
  On
July 13, 2009, the Company entered into a loan agreement with Umpqua Bank, an
Oregon corporation, for a line of credit of up to $12 million, maturing on July
13, 2011.  The loan agreement provides for an initial line of credit
of $7 million, provided, however, that the Company may request no more than
twice prior to the maturity date that the line of credit be increased to an
amount not to exceed $12 million in the event the Company acquires another
subsidiary and require additional working capital for such
subsidiary.  The line of credit is secured by the
Parent’s assets and by the assets of Premier Power California and Bright
Future.  The line of credit bears interest at the prime rate,
provided, however, that the interest rate will not be less than five percent
(5%) per annum.  At June 30, 2010, the interest rate was 5%. As
of June 30, 2010, there was $1.4 million outstanding under the agreement with
Umpqua Bank.  Additionally, certain financial ratios under the
agreement with Umpqua Bank restricts the amount that we can borrow.
  The
loan agreement with Umpqua Bank contains the following financial condition
covenants:  (i) minimum debt service charge, (ii) minimum current
ratio, (iii) maximum debt-to-tangible net worth ratio, and (iv) minimum tangible
net worth.  Under the loan agreement, the Company is also subject to
customary non-financial covenants including limitations on secured indebtedness
and limitations on dividends and other restricted payments.  As of
June 30, 2010, the Company was out of compliance with the minimum
current ratio, the maximum debt-to-tangible net worth ratio, and the
minimum tangible net worth ratio.  The bank is aware of the
non-compliance and has not waived the non-compliance.  The bank has
indicated that it does not intend to issue a notice of default, nor institute
default rates, nor cut funding under the line.  We are in discussions with
the bank to redefine the financial covenants; in the event, however, that the
bank does subject the Company to default provisions, our interest rate would
increase to 5% above the then-current rate and our ability to borrow would be
limited.  Additionally, the bank has the right to request repayment of
all outstanding obligations.  We believe that our current cash
balances and the anticipated increase from operating cash flows resulting from
increased collections from accounts receivable, extended payment terms on
certain of our accounts payable, our backlog, and our expected realization of
our costs and estimated earnings in excess of billings on
uncompleted contracts, as of June 30, 2010, are sufficient to meet working
capital needs should the bank issue a notice of default and demand repayment of
all obligations or cut off funding under the line.  We do not expect
any of these events to occur, though, and believe we have the ability to comply
with these covenants once the financial covenants are
redefined.  Without the redefinition of terms, we are unable to comply
with the current ratios with which we are out of
compliance.
  At
June 30, 2010, Premier Power Spain had an unsecured line of credit for $0.1
million, which has interest terms of Euribor+3.25 and is due in full on August
1, 2011.  As of June 30, 2010, there was $0.03 million outstanding on
the line.
  The
future principle payments on these balances as of June 30, 2010 are as
follows:
  (in
      thousands)2010
                
                $
                1,6582011
                
                
                2702012
                
                
                622013
                
                
                52014
                
                
                2$
                1,997
  F-16
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  9.           EQUITY
  Preferred
Stock
  The
Company has authorized 20,000,000 shares of preferred stock, par value $ 0.0001
per share (“Preferred Stock”). The Preferred Stock may be issued from time to
time in series having such designated preferences and rights and qualifications
and to such limitations as the Board of Directors may determine.
  The Company has designated 5,000,000 shares of
Preferred Stock as Series A Convertible Preferred Stock (“Series A
Stock”).  The holders of Series A Stock have no voting rights except
with regards to certain corporate events, enjoys a $2.40 liquidation preference
per share, subject to adjustment, over holders of common stock, and may convert
each share of Series A Stock into one share of common stock at any
time.  Series A stock converts automatically upon the occurrence of an
offering meeting certain criteria.  Holders of the Series A Stock have
certain redemption rights.  The Company has determined that the events
triggering such rights are either in control of the Company or in the case of
such events where the Company is not deemed to exercise control; the redemption
right is limited to the ability to convert into shares of the Company’s common
stock.  As of June 30, 2010 and 2009, there were 3,500,000 shares of
Series A Stock outstanding.
  The
Company has designated 2,800,000 shares of Preferred Stock as Series B
Convertible Preferred Stock (“Series B Stock”).  The holders of
Series B Stock have no voting rights except with regards to certain corporate
events and may convert each share of Series B Stock into one share of common
stock at any time. Series B stock converts automatically upon the occurrence of
an offering meeting certain criteria.  Holders of the Series B Stock
have certain redemption rights.  The Company has determined that the
events triggering such rights are either in control of the Company or in the
case of such events where the Company is not deemed to exercise control; the
redemption right is limited to the ability to convert into shares of the
Company’s common stock.  As of June 30, 2010 and 2009, there were
2,800,000 shares of Series B Stock outstanding.
  Warrants
  In
September 2008, the Company issued 3,500,000 units, consisting each of 1 share
of Series A Stock, 1⁄2 of a Series A Warrant, and 1⁄2 of a Series B Warrant, in
exchange for $7,000,000 in gross proceeds.  Both the Series A and B
Warrants had four year lives. The Company had the right to call for cancellation
of each outstanding Series A Warrant or Series B Warrant under certain
circumstances. The Series A Warrants had an exercise price of $2.50 and a fair
value of $.15 per warrant. The Series B Warrants had an exercise price of $3.00
and a fair value of $.13 per warrant. All of the issued and outstanding Series A
Warrants and Series B Warrants were cancelled on June 16, 2009 in connection
with a sale of our Series B Stock.
  The
significant assumptions used to determine the fair values of the warrants are as
follows:
  Risk-free interest rate at grant
      date
                4.5%Expected stock price
      volatility
                95%Expected dividend
      payout
                -Expected option
      life
                4 yrs
   The
fair value of the Series A Stock was calculated based on the estimated fair
value and underlying number of common shares it would convert into at the time
of the transaction. The estimated fair value of our common stock on the
transaction date was $.42 per share, and the Series A Stock would have converted
into 3,500,000 shares of common stock, thus deriving a fair value of $1,475,000
for the underlying common stock.
 
 F-17
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  10.           RELATED
PARTY TRANSACTIONS
  Certain
stockholders have guaranteed certain obligations under the Company’s borrowings
and operating leases.  Premier Power Italy purchased $0.06 million of
furniture and office equipment from a company related to an executive officer of
Premier Power Italy.  Premier Power Italy also retained a relative of
an executive officer on a contract basis to perform design
services.  This relative was paid $0.02 million for the six months
ended June 30, 2010.  In addition, an executive officer has contracted
with the Company for a residential solar system.  For the six
months ended June 30, 2010, the Company has recognized minimal revenue and cost
from this contract.  The total contract value is for $0.05
million.
 
 11.
            COMMITMENTS
AND CONTINGENCIES
  Premier
Power Spain is party to four non-cancelable leases for operating facilities in
Navarro, Madrid, and Barcelona, Spain, and Prague in the Czech Republic, which
expire in 2011 through 2014.  Premier Power Italy is party to a
non-cancelable lease for operating facilities in Campobasso, Italy, which
expires in 2015.  Premier Power California is party to a
non-cancelable lease for operating facilities in Redlands and Anaheim,
California, which expires in 2010 and 2013,
respectively.  Additionally, the Company is renting an apartment for
an employee pursuant to his employment agreement; this lease is non-cancelable
and expires in 2011.  These leases provide for annual rent increases
tied to the Consumer Price Index. The leases require the following payments as
of June 30, 2010, subject to annual adjustment, if any:
  (in
      thousands)2010
                
                $
                622011
                
                
                1122012
                
                
                962013
                
                
                832014
                
                
                29Thereafter
                
                
                16$
                398
   We are not currently involved
in any material legal proceedings, and we are not aware of any material legal
proceedings pending or threatened against us. We are also not aware of any
material legal proceedings involving any of our directors, officers, or
affiliates or any owner of record or beneficially of more than 5% of any class
of our voting securities.
  12.           CONTINGENT
CONSIDERATION LIABILITY
  In
connection with the acquisition of Rupinvest, contingent consideration liability
of approximately $12.0 million was recorded at the time of the purchase to
reflect the estimated fair value of 3 million contingently issuable shares of
the Company’s common stock.
  F-18
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  The
conditions that must be met and the amount of the 3 million shares, if any,
to be issued are described below:
  (i)
              375,000
      shares for each ten million Euros ( € 10 million, or approximately $14.2
      million) worth of net sales (as defined) achieved by Premier Power
      Italy from July 9, 2009, the escrow opening date, to December 31, 2009
      (the “First Issuance ”), with the maximum number of shares released as
      part of the First Issuance to be 1,500,000 shares (any number of shares
      not issuable as part of the First Issuance solely due to the fact that the
      1,500,000 shares threshold was exceeded is hereinafter referred to as the
      “ Excess Issuable Amount ” );
  (ii)
              50%
      of the Excess Issuable Amount, if any, plus 200,000 shares for each ten
      million Euros ( € 10 million, or approximately $14.2 million) worth of net
      sales achieved by Premier Power Italy from January 1, 2010 to December 31,
      2010 (the “Second Issuance) ”). The maximum combined number of shares to
      be released as part of the First Issuance and the Second Issuance, in the
      aggregate, shall not exceed 3,000,000 shares;
  and
  (iii)
              100,000
      shares for each ten million Euros ( € 10 million, or approximately
      $14.2 million) worth of net sales achieved by Premier Power Italy
      from January 1, 2011 to December 31, 2011 (the “Third Issuance ”). The
      maximum combined number of shares to be released as part of the First
      Issuance, the Second Issuance, and the Third issuance, in the aggregate,
      shall not exceed 3,000,000 shares.
  At
June 30, 2010 and December 31, 2009, the Company estimated the fair value of the
contingent consideration liability at $1.9 million and $7.7 million,
respectively, assuming 1,422,100 and 2,801,875 shares of its common stock,
respectively, would be issued, a share price of $1.40 and $2.75, respectively,
transaction costs, and an adjustment for counterparty performance
risk.  As of June 30, 2010, the Company estimated the amount
of shares by the seller was approximately 502,100 for period ended December
31, 2009, but no such shares have yet been distributed as the Company and seller
are finalizing the application of the conditions to the 2009 results. The
Company does not expect the final number of shares to be issued for 2009 to
materially differ from its current estimate.
  13.
          DERIVATIVE
INSTRUMENT
  On
January 1, 2009, the Company adopted FASB ASC 815 (EITF 07-5,
Determining Whether an Instrument (or embedded Feature) is Indexed to an
Entity’s Own Stock). As part of the adoption of FASB ASC 815, the Company
determined that its warrants are not indexed to its stock as a result of the
basis of an exercise price reset that occurs when the Company sells its common
stock at a lower price, even if such price is at fair value. Thus, the value of
the warrants has been recorded as a liability.
  The
Company recorded a warrant liability in the amount of $11.1 million upon
adoption of FASB ASC 815.  The liability was then adjusted to fair
value, $9.6 million as of March 31, 2009 and $8.9 million as of June 30,
2009.  As a result of the changes in fair value, the Company recorded
income of $0.7 million and $2.2 million for the three and six months ended June
30, 2009, respectively.
  The Company recorded the
following cumulative effect of change in accounting principle pursuant to its
adoption of EITF 07-05 as of January 1, 2009:
  Other
                
                
                OtherPaid-In-
                
                
                Current
                
                
                RetainedCapital
                
                
                Liability
                
                
                Earnings(in
      thousands)Record
      January 1, 2009, derivative instrument liability related to
      warrants
                
                $
                -
                
                
                $
                11,119
                
                
                $
                -Record
      January 1, 2009, the reversal of prior accounting related
      warrants
                
                
                (1,794
                )
                
                
                -
                
                
                
                (9,325.00
                )$
                (1,794
                )
                
                $
                11,119
                
                
                $
                (9,325
                )
  F-19
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  The
Company used the Black-Scholes pricing model to calculate fair value of its
warrant liability.  Key assumptions used are as follows:
  Number of Shares
                included in
                Warrant
              
              Dividend Yield
              
              
              Volatility
              
              
              Risk-Free
                Rate
              
              
              Expected Life
                (in years)
              
              
              Stock Price1,750,000
              
              0.0
              %
              
              95.0
              %
              
              4.5
              %
              
              4.0
              
              
              $
              2.501,750,000
              
              0.0
              %
              
              95.0
              %
              
              4.5
              %
              
              4.0
              
              
              $
              3.00
   14. 
         STOCK-BASED COMPENSATION
EXPENSE AND VALUATION OF STOCK OPTIONS AND RESTRICTED STOCK-BASED
AWARDS
  The
Company’s 2008 Equity Incentive Plan (the “Incentive Plan”) provides for the
issuance of incentive stock options and non-statutory stock options. The board
of directors determines to whom grants are made and the vesting, timing,
amounts, and other terms of such grants, subject to the terms of the Incentive
Plan. Incentive stock options may be granted only to employees of the Company,
while non-statutory stock options may be granted to the Company’s employees,
officers, directors, certain consultants, and certain advisors. Options under
the Incentive Plan vest as determined by the Board.  The term of the
options granted under the Incentive Plan may not exceed 10 years, and the
maximum number of shares of common stock that may be issued pursuant to
stock options and stock awards granted under the Incentive
Plan is 2,951,875 shares in the aggregate. The Company granted 126,500
and 728,500 options in the three and six months ended June 30, 2010,
respectively.  An aggregate of 2,226,729 stock options and awards (net
of forfeitures) were committed under the Incentive Plan as of June 30,
2010.
  Restricted
stock awards granted under the Incentive Plan are independent of option grants
and are subject to restrictions.  Awards, which have been issued since
2009, are subject to forfeiture if employment or services are terminated prior
to the release of restrictions, which generally occurs on a ratable basis over
three to four years from the date of grant.  The cost of the awards,
determined to be the fair market value of the shares at the date of grant, is
expensed ratably over the period the restriction lapse.  At June 30,
2010 and 2009, there were an aggregate of 175,500 and 150,000, respectively,
restricted stock awards unissued and unvested.
  Stock-based
compensation is included in the following operating expense line items in our
consolidated statement of operations:
  Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009(in
      thousands)Cost
      of sales
                
                $
                61
                
                
                $
                47
                
                
                $
                150
                
                
                $
                93Sales
      and marketing
                
                
                41
                
                
                
                30
                
                
                
                66
                
                
                
                61General
      and administrative
                
                
                135
                
                
                
                67
                
                
                
                266
                
                
                
                136$
                237
                
                
                $
                144
                
                
                $
                482
                
                
                $
                290
   F-20
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  We
estimate the fair value of our stock option grants using the
Black-Scholes-Merton option-pricing model, which was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable.  Option valuation models, including the
Black-Scholes-Merton option-pricing model, require the input of assumptions,
including stock price volatility.  Changes in the input assumptions
can materially affect the fair value estimates and ultimately how much we
recognize as stock-based compensation expense.  The fair values of our
stock options were estimated at the date of grant.  The weighted
average input assumptions used and resulting fair values were as follows for the
six months ended June 30, 2010 and 2009:
  Six Months
      Ended June 30,2010
                
                
                2009Expected
      volatitity
                
                
                90.98
                %
                
                
                93.60
                %Expected
      dividend
                
                
                0
                %
                
                
                0
                %Expected
      term
                
                6.4
      years
                
                6.5
      yearsRisk-free
      interest rate
                
                
                0.15
                %
                
                
                1.88
                %Weighted-average
      fair value per share
                
                $
                2.57
                
                $
                3.32
  
 Valuation and
Amortization Method — The estimated fair value of stock options is
amortized over the requisite service periods of the awards, which is generally
the vesting period. Stock options typically have a ten-year life from date of
grant and vesting periods of three to five years. The fair value of the
Company’s restricted stock award is based on its value as determined by market
prices of the Company’s stock on the date of grant. Compensation expense is
recognized on a straight-line basis over the respective vesting
period.
  Expected
Volatility — Because there is minimal history of stock price returns, the
Company does not have sufficient historical volatility data for its stock option
grants. Accordingly, the Company has chosen to use rates for similar publicly
traded U.S.-based competitors to calculate the volatility for its granted
options.
  Expected
Dividend — The Company has never paid dividends on its common shares and
currently does not intend to do so.  Accordingly, the dividend yield
percentage is zero for all periods.
  Expected Term
— The Company’s expected term represents the period that the Company’s
stock options are expected to be outstanding. For awards granted subject only to
service vesting requirements, the Company utilizes the simplified method under
the provisions of FASB ASC 718-10-S99-1 (Staff Accounting Bulletin No. 107)
for estimating the expected term of the stock options.
  Risk-Free
Interest Rate — The Company bases the risk-free interest rate used in the
Black-Scholes-Merton valuation method upon the implied yield curve currently
available on U.S. Treasury zero-coupon issues with a remaining term equal to the
expected term used as the assumption in the model.
  15. 
         EMPLOYEE
BENEFITS
  The
Company has a 401(k) Plan for its United States employees. Employees are
eligible to make contributions when they attain an age of twenty-one and have
completed at least one year of service. The Company makes discretionary matching
contributions to employees who qualify for the Plan and were employed on the
last day of the Plan year. Such contributions totaled $0 and $12 thousand for
the six months ended June 30, 2010 and 2009, respectively.   The
contributions was zero for the three months ended June 30, 2010 and
2009.  Employees are vested 100% after 3 years of
service.  Bright Future, Premier Power Italy, and Premier Power
Spain do not offer defined contribution or defined benefit plans to
employees.
  F-21
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  16.
          FAIR VALUE OF FINANCIAL
INSTRUMENTS
  The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in an orderly transaction between market participants to sell the
asset or transfer the liability.  In accordance with  FASB
ASC 820 (SAS No. 157 Fair Value
Measurements), the Company uses fair value measurements based on quoted
prices in active markets for identical assets or liabilities (Level 1),
significant other observable inputs (Level 2), or unobservable inputs for assets
or liabilities (Level 3), depending on the nature of the item being
valued.
  The
following disclosure is made in accordance with FASB ASC 820 (FASB Staff
Position (FSP) FAS 107-1, Interim
Disclosures about Fair Value of Financial Instruments ): The carrying
amounts of cash and cash equivalents and accounts receivable, prepaid expenses,
costs and estimated earnings in excess of billings, accounts payable, billings
in excess of costs and estimated earnings on uncompleted contracts, and accrued
liabilities approximate their fair values at each balance sheet date due to the
short-term maturity of these financial instruments. The fair value of the
Company’s borrowings approximates their carrying values, either as a result of
their short term nature or their terms.
  FASB
ASC 820 (SFAS No. 157) defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.  FASB ASC 820 establishes
a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value.  The hierarchy, as defined below, gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable
inputs.
  ●
              Level
      1, defined as observable inputs such as quoted prices in active markets
      for identical assets.
  ●
              Level
      2, defined as observable inputs other than Level 1 prices.  They
      include quoted prices for similar assets or liabilities in an active
      market, quoted prices for identical assets and liabilities in a market
      that is not active, or other inputs that are observable or can be
      corroborated by observable market data for substantially the full term of
      the assets or liabilities.
  ●
              Level
      3, defined as unobservable inputs in which little or no market data
      exists, therefore requiring an entity to develop its own
      assumptions.
  The
table below sets forth the Company’s Level 3 financial assets and liabilities
that are accounted for at fair value:
  June
      30, 2010
                
                
                December
      31, 2009(in
      thousands)
                
                
                (in
    thousands)Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                Level
      1
                
                
                Level
      2
                
                
                Level
      3Liabilities:
      Contingent consideration
                
                $
                -
                
                
                $
                -
                
                
                $
                1,949
                
                
                $
                -
                
                
                $
                -
                
                
                $
                7,725
   ContingentConsiderationLiability(in
      thousands)Beginning
      balance
                
                $
                7,725Total
      gain recognized
                
                
                5,776Ending
      balance
                
                $
                1,949
  F-22
  PREMIER POWER RENEWABLE ENERGY,
INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   17.           CONTINGENCIES
  Legal
Matters
  The
Company is subject to legal proceedings, claims, and litigation arising in the
ordinary course of business.  The Company is not currently involved in
any litigation, the outcome of which would, based on information currently
available, have a material adverse effect on the Company’s financial position,
results of operations, or cash flows.
  Indemnifications
  The
Company indemnifies its directors and executive officers for costs associated
with any fees, expenses, judgments, fines and settlement amounts incurred by
them in any action or proceeding to which any of them is, or is threatened to
be, made a party by reason of his or her services in their role as a director or
officer.
  18.           SEGMENT
INFORMATION
  The
Company has adopted Segment
Reporting (ASC 280) requiring segmentation based on the Company’s
internal organization, reporting of revenue and other performance
measures.  Operating segments are defined as components of an
enterprise about which discrete financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing
performance.  The Company’s chief operating decision maker is the
Chief Executive Officer.  The Company’s segments are designed to
allocate resources internally and provide a framework to determine management
responsibility.  There are three operating segments, as summarized
below:
  ·
              United
      States – consists of (i) commercial ground mount or rooftop solar energy
      projects generally ranging from 100kWh to 20MW provided to corporate,
      municipal, agricultural, and utility customers and (ii) residential that
      consists mainly of rooftop solar installations generally ranging from 5kWh
      to 40KWh provided to residential customers primarily in California and New
      Jersey.
  ·
              Italy
      – consists of distribution, ground mount, roof mount, and solar power
      plant installations.
  ·
              Spain
      – consists of rooftop solar installations generally ranging 5kWh to 1MW
      provided primarily to businesses that own commercial buildings or
      warehouse and distribution and engineering, procurement, and
      construction of ground mount, and solar power plant
      systems.
  Prior
to its acquisition of Premier Power Italy, the Company determined that it
operated as a single segment. In conjunction with the acquisition and changes in
its management structure, the Company determined that the three operating
segments noted above are more reflective of its operations.
  The
Company refers to the Net Sales as the revenue earned from the installation
projects or distribution sales.  Currently, the Company does not
separately allocate operating expenses to these segments, nor does it allocate
specific assets to these segments.  Therefore, segment information
reported includes only net sales, cost of sales, and gross
profit.  The following tables present the operations by each operating
segment:
  F-23
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   Three
      Months Ended June 30, 2010United
      States
                
                
                Italy
                
                
                Spain
                
                
                Total(in
      thousands)Net
      sales
                
                $
                1,012
                
                
                $
                3,381
                
                
                $
                4,633
                
                
                $
                9,026Cost
      of sales
                
                
                (1,162
                )
                
                
                (2,996
                )
                
                
                (4,418
                )
                
                
                (8,576
                )Gross
      (loss) profit
                
                $
                (150
                )
                
                $
                (385
                )
                
                $
                215
                
                
                
                450Total
      operating expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,292Operating
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (1,842
                )Three
      Months Ended June 30, 2009United
      States
                
                
                Spain
                
                
                Total(in
    thousands)Net
      sales
                
                
                
                
                
                $
                3,085
                
                
                $
                1,029
                
                
                $
                4,114Cost
      of sales
                
                
                
                
                
                
                (2,648
                )
                
                
                (937
                )
                
                
                (3,585
                )Gross
      profit
                
                
                
                
                
                $
                437
                
                
                $
                92
                
                
                
                529Total
      operating expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,982Operating
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (1,453
                )Six
      Months Ended June 30, 2010United
      States
                
                
                Italy
                
                
                Spain
                
                
                Total(in
      thousands)Net
      sales
                
                $
                1,984
                
                
                $
                4,306
                
                
                $
                6,135
                
                
                $
                12,425Cost
      of sales
                
                
                (2,347
                )
                
                
                (3,971
                )
                
                
                (5,625
                )
                
                
                (11,944
                )Gross
      (loss) profit
                
                $
                (363
                )
                
                $
                335
                
                
                $
                509
                
                
                
                481Total
      operating expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,693Operating
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (4,212
                )
  F-24
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  Six
      Months Ended June 30, 2009United
      States
                
                
                Spain
                
                
                Total(in
    thousands)Net
      sales
                
                $
                5,469
                
                
                $
                3,439
                
                
                $
                8,908Cost
      of sales
                
                
                (5,107
                )
                
                
                (2,904
                )
                
                
                (8,011
                )Gross
      profit
                
                $
                362
                
                
                $
                535
                
                
                
                897Total
      operating expenses
                
                
                
                
                
                
                
                
                
                
                3,765Operating
      loss
                
                
                
                
                
                
                
                
                
                $
                (2,868
                )
   At
June 30, 2010 and 2009, property and equipment located in the United States, net
of accumulated depreciation and amortization, was approximately $0.3 million and
$0.4 million, respectively.  At June 30, 2010 and 2009, property and
equipment located in foreign countries, net of accumulated depreciation and
amortization, was approximately $0.2 million and $0.1 million,
respectively.
  19.           SUBSEQUENT
EVENT
  In
July 2010, we formed a new subsidiary, Premier Power Development, S.r.l., which
is wholly owned by our wholly owned subsidiary, Rupinvest.  This
subsidiary is organized under the laws of Italy and will supplement our Italian
operations.
  F-25


Item
2.  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.




Forward-Looking
Statements





The
following discussion and analysis of the results of operations and financial
condition of Premier Power Renewable Energy, Inc. should be read in conjunction
with the financial statements included in this report and the notes to those
financial statements. References to “we,” “our,” or “us” in this section refers
to the Company and its subsidiaries. Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations, and intentions. Actual results and
the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
included in the “Risk Factors” section of our most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission. We use words such as
“anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions
to identify forward-looking statements.








Overview





We are a
developer, designer, and integrator of solar energy solutions. We develop,
market, sell, and maintain solar energy systems for residential, agricultural,
commercial, industrial customers in North America and Spain through Bright
Future and Premier Power Spain, both of which are wholly owned subsidiaries of
Premier Power California, which is our wholly owned subsidiary. We also
distribute solar modules and develop and integrate ground mount and rooftop
solar power systems in Italy through Premier Power Italy, the wholly owned
subsidiary of Rupinvest, which is our wholly owned subsidiary. We use solar
components from the solar industry’s leading suppliers and manufacturers such as
GE, Sharp, Kyocera, Fronius, Watsun, and SunPower Corporation.  Our
profitability is primarily dependent upon revenue from sales to commercial,
governmental, residential, and equity fund customers.





Critical
Accounting Policies and Estimates





Our
management’s discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.





While our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements, we believe that the following accounting
policies are the most critical to aid the reader in fully understanding and
evaluating this discussion and analysis:





Basis of Presentation – The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles accepted in the United States
(“GAAP”), and include the accounts of Premier Power Renewable Energy, Inc. and
its subsidiaries.  All intercompany accounts and transactions have been
eliminated.





Inventories – Inventories,
consisting of raw materials and finished goods, are recorded using the average
cost method, and are carried at the lower of cost or market.





Stock-Based Compensation – The Company accounts for stock-based compensation under the
provisions of  Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 718 (Statement of Financial Accounting Standards
No. 123 (revised 2004),“Share-Based Payment”), which
requires the Company to measure the stock-based compensation costs of
share-based compensation arrangements based on the grant date fair value and
generally recognizes the costs in the financial statements over the employee’s
requisite service period.  Stock-based compensation expense for all
stock-based compensation awards granted was based on the grant date fair value
estimated in accordance with the provisions of FASB ASC 718.




Goodwill and Other Intangible Assets
– The Company does not amortize goodwill, but rather tests goodwill for
impairment at least annually. We determine the fair value of our reporting units
using a weighted market and income approach. Under the income approach, we
calculate the fair value of a reporting unit based on the present value of
estimated future cash flows. Under the market approach, we calculate the fair
value of the reporting unit using selected comparable companies’ revenue
multiples and applying an average of such companies’ multiples to the Company’s
revenue. If the fair value of the reporting unit exceeds the carrying value of
the net assets including goodwill assigned to that unit, goodwill is not
impaired. If the carrying value of a reporting unit’s goodwill exceeds its
implied fair value, then an impairment of goodwill has occurred and we recognize
an impairment of loss for the difference between the carrying amount and the
implied fair value of goodwill as a component of operating income. In the second
quarter of 2010, due to the reduction in forecasted revenue since the purchase
of our Italian operations, the Company performed an impairment test of the
goodwill recorded from the acquisition of Rupinvest, which totaled $10 million
at June 30, 2010. The Company's testing approach utilized a discounted cash flow
analysis and comparative market multiples to determine the entity's (single
reporting unit) fair value for comparison to its carrying value.  We
did not recognize any goodwill impairment charges for the six months ended June
30, 2010 and 2009.  Intangible assets, consisting of a customer list,
trademarks, and an employee contract, are amortized over their estimated useful
lives ranging from 2-17 years.





2


Fair Value of Financial Instruments
– The carrying value reported for cash equivalents, accounts receivable,
prepaid expenses, other receivables, accounts payable, and accrued liabilities
approximated their respective fair values at each balance sheet date due to the
short-term maturity of these financial instruments. The fair value of the
contingent consideration liability and our borrowings have been determined in
accordance with the methodology as disclosed in the notes to our
annual and interim consolidated financial statements.





Revenue Recognition – Revenue
on solar power projects installed by the Company for customers under
installation contracts is recognized using the percentage of completion method
of accounting. At the end of each period, the Company measures the cost incurred
on each project and compares the result against its estimated total costs at
completion. The percent of cost incurred determines the amount of revenue to be
recognized. Payment terms are generally defined by the installation contract and
as a result may not match the timing of the costs incurred by the Company and
the related recognition of revenue. Such differences are recorded as either
costs or estimated earnings in excess of billings on uncompleted contracts or
billings in excess of costs and estimated earnings on uncompleted contracts. The
Company determines a customer’s credit worthiness at the time an order is
accepted. Sudden and unexpected changes in a customer’s financial condition
could put recoverability at risk.





Contract
costs include all direct material and labor costs attributable to a project as
well as certain indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and depreciation costs. Selling, general, and
administrative costs are charged to expense, as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Profit
incentives are included in revenues when their realization is reasonably
assured.





The
percentage of completion method requires the ability to estimate several
factors, including the ability of the customer to meet its obligations under the
contract, including the payment of amounts when due. If we determine that
collectability is not assured, we will defer revenue recognition and use methods
of accounting for the contract such as completed contract method until such time
we determine that collectability is reasonably assured or through the completion
of the project.




The
Company recognized revenue on a percentage of completion basis on a 1 megawatt
solar project in Italy in 2009 and in 2010 as the project was being
completed.  The Company completed the project in May 2010 and invoiced
the customer in accordance with the related contract.  Subsequently,
the customer informed the Company that it intended to resell the project,
however the buyer requested that the Company enter into an operating and
maintenance (O&M) contract for the solar facility and wanted to purchase the
project from the Company in its role as the builder.  The Company
agreed to retake title to the project and transfer it to the
buyer.  The Company did not receive any additional compensation for
the transaction, took on a minimal increase in its warranty exposure that was
limited to the de minimis amount of fees of the O&M contract, and did not
assume other obligations with its assumption and passage of title to the buyer
contemporaneously in June 2010.  Prior to June 2010, there was no
agreement to enter into this transaction and payment of the original contract
amount was not contingent on the sale to the buyer.  In July 2010, the
Company received full payment for the total outstanding accounts receivable,
which equals the original contract amount.  The Company determined the
assumption of title and sale did not cause a change in the previous accounting
recognition, and accordingly there was no effect on the accompanying financial
statements.




Revenue
related to distribution sales is recognized when we have received either a
purchase order or contract, product is delivered to the customer or a third
party shipper takes possession, the title and risk of ownership have passed to
the buyer, and we determine that collection is probable.  The Company
considers the risk of ownership to have passed when the customer has assumed the
risk of loss.




Product Warranties – The
Company warrants its projects for labor and materials associated with its
installations.  The Company’s warranty is ten years in California and
generally five to ten years elsewhere in the U.S., depending upon each state’s
specific requirements.  Premier Power Italy provides a ten year
warranty covering the labor and materials associated with its
installations.  Premier Power Spain provides a one year warranty for
all contracts signed after December 31, 2006.  Since the Company does
not have sufficient historical data to estimate its exposure, we have looked to
our historical data and the historical data reported by a peer company solar
system installer. Solar panels and inverters are warranted by the manufacturer
for 25 years and 10 years, respectively.





Income Taxes – The Company
accounts for income taxes under the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax reporting bases of assets and liabilities and
are measured using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Realization of deferred tax assets
is dependent upon the weight of available evidence, including expected future
earnings. A valuation allowance is recognized if it is more likely than not that
some portion or all of a deferred tax asset will not be realized.   The
Company has a valuation allowance for its net deferred tax asset associated with
its U.S. operations.  Prior to September 2008, the Company was not
subject to federal income tax.





Effective
September 1, 2008, the Company adopted FASB ASC 740-10 (Financial Accounting
Standards Interpretation FIN No. 48, “Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109” (FIN 48)). FASB ASC
740-10 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of uncertain tax positions taken
or expected to be taken in a company’s income tax return and provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. As a result of the implementation of FASB
ASC 740-10, the Company recognized no change in the liability for unrecognized
tax benefits related to tax positions taken in prior periods and no
corresponding change in retained earnings. As a result of the implementation of
FASB ASC 740-10, the Company recognized no material adjustment in the liability
for unrecognized income tax benefits as of the September 2008 adoption date and
at December 31, 2009.  Also, the Company had no amounts of
unrecognized tax benefits that, if recognized, would affect its effective tax
rate





3


Premier
Power Italy is organized under the laws of Italy and is subject to federal and
provincial taxes.  Premier Power Spain is organized under the laws of Spain
and is subject to federal and provincial taxes.





Contingent Consideration
Liability – In connection with the acquisition of Rupinvest, contingent
consideration liability of approximately $12 million was recorded at the time of
the purchase. The contingent consideration liability relates to the contingent
issuance of 3 million shares to the sellers of Rupinvest.   In accordance
with FASB ASC 820 the Company estimates the fair value of the contingent
consideration liability at each reporting period, with changes in the estimated
fair value recorded in income.





The fair
value measurement assumes that the contingent consideration liability is
transferred to a market participant at the valuation date and that the
nonperformance risk related to the contingent consideration liability remains
constant. The Company estimates the fair value using the market price of its
shares since it believes this represents the present value of its future stock
returns, discounted at the Company’s required rate of return. The Company also
estimates the number of shares to be issued based on a number of financial
scenarios weighted based on their relative probability. The Company considers
the effect of counterparty performance risk in its fair value estimate. The
Company estimates the counterparty performance risk by comparing its borrowing
rate to those of U.S. treasury notes and uses the underlying spread to
discount the estimated fair value.




Recently
Issued Accounting Pronouncements





In
January 2010, the FASB issued Accounting Standards Update No. 2010-06,
Improving Disclosures about
Fair Value Measurements (Topic 820)— Fair Value Measurements and
Disclosures(ASU 2010-06) to add additional disclosures about the
different classes of assets and liabilities measured at fair value, the
valuation techniques and inputs used, the activity in Level 3 fair value
measurements, and the transfers between Levels 1, 2, and 3. Levels 1, 2 and 3 of
fair value measurements are defined in Note 16 of our annual consolidated
financial statements. We are currently evaluating the impact of its pending
adoption on our consolidated financial statements.





In
February 2010, the FASB issued an update to Subsequent Events (ASC
855),which
amends the previous definition of an SEC filer and removed the requirement that
an SEC filer disclose the date through which subsequent events have been
evaluated in both issued and revised financial statements.  Subsequent Eventsdefines the
period after the balance sheet date that entities should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements and establishes the circumstances under which entities
should recognize and the disclosures that should be made about events or
transactions that occur after the balance sheet date. The Company has adopted
this guidance with no material impact to our consolidated financial
statements.




In
April 2010, the FASB issued an update to Compensation-Stock Compensation (ASC
718),which
clarifies that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity shares trades should not be considered to contain a condition
that is not a market, performance or service condition. Therefore, an entity
would not classify such an award as a liability if the award otherwise qualifies
as equity.  The standard is effective for interim and annual periods ending
after December 15, 2010 and should be applied prospectively.  The
adoption of this standard is not expected to have a material impact to our
consolidated financial statements.





In June
2009, the FASB issued FASB ASC 810 (SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”). FASB ASC 810 applies to FASB ASC 105 entities and is
effective for annual financial periods beginning after November 15, 2009 and for
interim periods within those years. Earlier application is prohibited. A
calendar year-end company must adopt this statement as of January 1, 2010. 
The Company adopted this guidance with no material impact to our consolidated
financial statements.





In June
2009, the FASB issued FASB ASC 860 (SFAS No. 166, “Accounting for Transfers of
Financial Assets-an amendment of FASB Statement No. 140”). FASB ASC 860
applies to all entities and is effective for annual financial periods beginning
after November 15, 2009 and for interim periods within those years. Earlier
application is prohibited. A calendar year-end company must adopt this statement
as of January 1, 2010. This statement retains many of the criteria of FASB ASC
860 (FASB 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”) to determine whether a transfer of financial assets
qualifies for sale accounting, but there are some significant changes as
discussed in the statement. Its disclosure and measurement requirements apply to
all transfers of financial assets occurring on or after the effective date. Its
disclosure requirements, however, apply to transfers that occurred both before and after the
effective date. In addition, because FASB ASC 860 eliminates the consolidation
exemption for Qualifying Special Purpose Entities, a company will have to
analyze all existing QSPEs to determine whether they must be consolidated under
FASB ASC 810. The Company adopted this guidance with no material impact to our
consolidated financial statements.





4


In August
2009, the FASB issued ASU 2009-05, “Measuring Liabilities at Fair
Value.” ASU 2009-05 applies to
all entities that measure liabilities at fair value within the scope of FASB ASC
820, “Fair Value Measurements
and Disclosures.” ASU 2009-05 is
effective for the first reporting period (including interim periods) beginning
after issuance, October 1, 2009 for the Company. The Company has adopted this
guidance with no material impact to our consolidated financial
statements.





In August
2009, an update was made to Fair Value Measurements and
Disclosures –Measuring
Liabilities at Fair Value.” This update permits
entities to measure the fair value of liabilities, in circumstances in which a
quoted price in an active market for an identical liability is not available,
using a valuation technique that uses a quoted price of an identical liability
when traded as an asset, quoted prices for similar liabilities or similar
liabilities when traded as assets or the income or market approach that is
consistent with the principles of Fair Value Measurements and
Disclosures.Effective upon issuance, the Company adopted this
guidance with no material impact to our consolidated financial
statements.





In
October 2009, the FASB ratified FASB ASC 605-25 (the EITF’s final consensus on
Issue 00-21, “Revenue
Arrangements with Multiple Deliverables”). FASB ASC 605-25 is effective
for fiscal years beginning on or after June 15, 2010. Earlier adoption is
permitted on a prospective or retrospective basis. The Company is currently
evaluating the impact of this pronouncement on its consolidated financial
statements.







Results
of Operations





Comparison of Three Months
Ended June 30, 2010 and 2009





Our net
sales for the three months ended June 30, 2010 were $9.0 million, an increase of
$4.9 million, or 119%, from the prior year period.  U.S. net sales were
$1.0 million for the three months ended June 30, 2010, a decrease of $2.1
million, or 67% from the prior year period.  Our Italian operations
provided $3.4 million of net sales for the three months ended June 30,
2010.  There were no Italian operations for the three months ended June 30,
2009.  Spain’s net sales were $4.6 million for the three months ended June
30, 2010, an increase of $3.6 million, or 350% from the prior year
period.





We had
net income for the three months ended June 30, 2010 of $0.7 million, or $0.03
per share, compared to net loss of $(0.3) million, or $(0.01) per share, for
three months ended June 30, 2009.  An adjustment to fair value of the
contingent consideration liability of $4.5 million increased income by a similar
amount for the three months ended June 30, 2010, and an increase in
the valuation allowance for U.S. net deferred tax assets decreased net
income by $1.4 million.  Net income included $0.7 million for the change in
fair value of warrants for the three months ended June 30, 2009.  Cost of
sales increased $5.0 million, or 139%, for the three months ended June 30, 2010,
compared to the prior year period.  Operating expenses increased by $0.3
million, or 16%, for the three months ended June 30, 2010, as compared to the
prior year period.








Sources
of Revenue





Three
      Months Ended June 30,(Dollars
      in thousands)
              
              2010
              
              
              2009
              
              
              Change
      %Net
      sales:United
      States
              
              $
              1,012
              
              
              $
              3,085
              
              
              
              (67
              )%Italy
              
              
              3,381
              
              
              
              -
              
              
              
              -Spain
              
              
              4,633
              
              
              
              1,029
              
              
              
              350
              %$
              9,026
              
              
              $
              4,114
              
              
              
              119
              %


Our net
sales include revenue recognized under installation contracts using the
percentage of completion method of accounting.  Additionally, for the three
months ended June 30, 2010, we derived sales from our Italian business segment
of $3.3 million primarily as result of distribution sales, which accounted for
99% of our total Italian revenue.  The addition of our Italian net sales is
a result of the acquisition of our Italian subsidiary in the third quarter of
2009.The decrease
in net sales in the United States was largely the result of the financial crisis
resulting in tightened lending and access to cash from banks for our customers,
which slowed business development dramatically in the last year and produced
decreased levels of available project finance.  We have begun to build a
strong product pipeline and backlog in the U.S., and we have partnered with
several Power Purchase Agreement providers and expect to have signed projects
from these efforts in future quarters.  The increase in our Spanish
segment is largely the result of collaboration with a Czech Republic company for
distribution and engineering, procurement, and construction services on up to 19
megawatts of solar projects.





5




Cost
of sales





Three
      Months Ended June 30,(Dollars
      in thousands)
              
              2010
              
              
              2009
              
              
              Change
      %Cost
      of SalesUnited
      States
              
              $
              1,162
              
              
              $
              2,648
              
              
              
              (56
              )%Italy
              
              
              2,996
              
              
              
              -
              
              
              
              -Spain
              
              
              4,418
              
              
              
              937
              
              
              
              372
              %$
              8,576
              
              
              $
              3,585
              
              
              
              139
              %Share-based
      compensation included above
              
              $
              61
              
              
              $
              47
              
              
              
              30
              %Gross
      Margin PercentageUnited
      States
              
              
              -14.8
              %
              
              
              14.2
              %Italy
              
              
              11.4
              %
              
              
              -Spain
              
              
              4.6
              %
              
              
              8.9
              %5.0
              %
              
              
              12.9
              %


Cost of
sales include all direct material and labor costs attributable to a project as
well as certain indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and depreciation costs.  Cost of sales for
the U.S. decreased $1.5 million, or 56%, for the three months ended June 30,
2010, compared to the prior year period.  The decrease was primarily the
result of a decrease in recognized sales.  U.S. gross margin decreased to
negative 14.8% due to the insufficient volume of net sales to cover fixed
operational costs and the increased competitive nature of the industry as a
result of lower U.S. energy incentives.  The gross margin for our Italian
operations was 11.4%.  Large scale solar projects have, in the past,
contributed to our Italian gross margins, and none was recognized in the three
months ended June 30, 2010.  Cost of sales for our Spanish operations
increased $3.5 million, or 372%, for the three months ended June 30, 2010
compared to the prior year period.  The increase was primarily the result
of an increase in net sales of $1.0 million in distribution sales and $2.4
million in installation contracts.  The gross margin for our Spanish
operations decreased to 4.6% due to entry into the Czech Republic market where
initially we are primarily providing procurement, distribution, and engineering
services, which generally have lower margins than those realized on our
construction contracts.





Operating
Expenses




Three
      Months Ended June 30,(Dollars
      in thousands)
              
              2010
              
              
              2009
              
              
              Change
      %Sales
      and marketing expenses
              
              $
              771
              
              
              $
              734
              
              
              
              5
              %General
      and administrative expenses
              
              $
              1,521
              
              
              $
              1,248
              
              
              
              22
              %As
      a percent of net salesSales
      and marketing expenses
              
              
              8.5
              %
              
              
              17.8
              %General
      and administrative expenses
              
              
              16.9
              %
              
              
              30.3
              %Share-Based
      Compensation Included Above:Sales
      and marketing expenses
              
              $
              41
              
              
              $
              30
              
              
              
              37
              %General
      and administrative expenses
              
              $
              135
              
              
              $
              111
              
              
              
              22
              %


Sales
and Marketing Expense





Sales and
marketing expenses consist primarily of personnel costs and costs related to our
sales force and marketing staff.  They also include expenses relating to
advertising, brand building, marketing promotions and trade show events, lead
generation, investor relations, and travel and related overhead. 
Commissions are due and payable when customer payment is received.  Sales
and marketing expense for the three months ended June 30, 2010 increased $37
thousand, or 5% compared to the prior year period, due to the addition of our
Italian operations.





6


General
and Administrative Expenses





General
and administrative expenses consist of personnel and related costs for
accounting, legal, information systems, human resources, and other
administrative functions.  They also include professional service fees, bad
debt expense, and other corporate expenses and related overhead.  General
and administrative expenses increased by $0.3 million, or 22%, for the three
months ended June 30, 2010 compared to the prior year period.  The increase
was attributable to approximately $0.5 million related to the addition of our
Italian operations offset by a decrease in auditing and professional fees of
$0.2 million, and a decrease in worker’s compensation insurance of $0.06
million.







Other
Income and Expenses





Other
income and expense consists of change in fair value of financial instruments,
interest income, interest expense, and other income (expense).  Change in
fair value of financial instruments consists of gain on the fair value and
cancellation of warrant liability in the 2009 period and changes in the
fair value of the contingent consideration liability in the 2010
period.





Income
Taxes





For three
months ended June 30, 2010 and 2009, the effective tax rate is different from
the U.S. federal statutory rate primarily due to changes in the valuation
allowance, the fair value of the contingent consideration liability and
financial instruments, and earnings considered as indefinitely reinvested in
foreign operations.  The Company recognized a valuation allowance of
$1.4 million for its net deferred tax assets associated with its U.S.
operations for the three months ended June 30, 2010.  The valuation
allowance was recorded as we believe based on current U.S. operations that it
has become more likely than not that we will be unable to realize our U.S. net
operating loss carry forwards.





Comparison of Six Months
Ended June 30, 2010 and 2009





Our total
net sales for the six months ended June 30, 2010 were $12.4 million, an increase
of $3.5 million, or 39%, from the six months ended June 30, 2009.  U.S. net
sales were $2.0 million for the six months ended June 30, 2010, a decrease of
$3.5 million, or 64%, from the prior year period.  Our Italian operations
provided $4.3 million of net sales for the six months ended June 30, 2010. 
Spain’s net sales were $6.1 million for the six months ended June 30, 2010, an
increase of $2.7 million, or 78%, from the prior year period.





Our net
loss for the six months ended June 30, 2010, was $(0.1) million, or $(0.00) per
share, compared to net income of $0.5 million, or $0.02 per share, for six
months ended June 30, 2009.  Net loss included $5.8 million associated with
the adjustment to fair value of the contingent consideration liability for the
six months ended June 30, 2010, and a valuation allowance on deferred tax assets
of $1.4 million.  Net income for the six months ended June 30, 2009
was impacted by a $2.2 million gain associated with the cancellation of all of
our issued and outstanding Series A Warrants and Series B
Warrants.  Cost of sales increased by $3.9 million, or 49%, in the six
months ended June 30, 2010, compared to the prior year period.  Operating
expenses increased by $0.9 million, or 25%, for the six months ended June 30,
2010 as compared to the six months ended June 30, 2009.





Sources
of Revenue





Six
      Months Ended June 30,(Dollars
      in thousands)
              
              2010
              
              
              2009
              
              
              Change
      %Net
      sales:United
      States
              
              $
              1,984
              
              
              $
              5,469
              
              
              
              (64
              )%Italy
              
              
              4,306
              
              
              
              -
              
              
              
              -Spain
              
              
              6,135
              
              
              
              3,439
              
              
              
              78
              %$
              12,425
              
              
              $
              8,908
              
              
              
              39
              %


For the
six months ended June 30, 2010, in addition to net sales under installation
contracts, we derived more sales in our distribution
business.   In the U.S. we derived $0.1 million, Italy derived
$4.0 million, and Spain derived $1.3 million in sales from our distribution
business, which in the aggregate accounted for 44% of our total revenue. 
We did not start our distribution business in Spain until 2010.  The
decrease in net sales in the United States is largely the result of three items:
the financial crisis resulting in tightened lending and access to cash from
banks, which slowed business development dramatically in the first half of the
year, the lack of available project finance as a result of the Company’s focus
on larger projects, and the fact that we focused our business on commercial
deals which have a longer sales cycle.  We have begun to build a strong
product pipeline and backlog in the U.S., and we have partnered with several
Power Purchase Agreement providers and expect to begin to have signed projects
from these efforts in future quarters.  The growth in Italian net
sales is a result of the acquisition of our Italian subsidiary in the third
quarter of 2009.  The increase in our Spanish segment is largely the result
of collaboration with a Czech Republic company to perform distribution and
engineering, procurement, and construction services on up to 19 megawatts of
solar projects which began in the second quarter of 2010.





7





Cost
of Sales





Six
      Months Ended June 30,(Dollars
      in thousands)
              
              2010
              
              
              2009
              
              
              Change
      %Cost
      of SalesUnited
      States
              
              $
              2,347
              
              
              $
              5,107
              
              
              
              (54
              )%Italy
              
              
              3,971
              
              
              
              -
              
              
              
              -Spain
              
              
              5,626
              
              
              
              2,904
              
              
              
              94
              %$
              11,944
              
              
              $
              8,011
              
              
              
              49
              %Share-based
      compensation included above
              
              $
              150
              
              
              $
              93
              
              
              
              61
              %Gross
      Margin PercentageUnited
      States
              
              
              -18.3
              %
              
              
              6.6
              %Italy
              
              
              7.8
              %
              
              
              -Spain
              
              
              8.3
              %
              
              
              15.6
              %3.9
              %
              
              
              10.1
              %


Cost of
sales increased $3.9 million, or 49%, for the six months ended June 30, 2010
compared to the six months ended June 30, 2009.  The increase was primarily
the result of increased recognized sales in the Spanish market and the addition
of our Italian operation.  U.S. gross margin decreased to negative 18.3%
due to the recognition of an insufficient volume of net sales to cover fixed
operation costs, the increased competitive nature of the industry and the scope
and size of projects as larger projects typically have lower gross
margins.  The gross margin for our Italian operations was 7.8% and is a
combination of generating less of our revenue from solar projects and
increased lower margin distribution sales.  Cost of sales for our
Spanish operations increased $2.7 million, or 94%, for the six months ended June
30, 2010 compared to the six months ended June 30, 2009.  The increase was
primarily the result of increased in net sales from our new Czech Republic
collaboration.  The gross margin for our Spanish operations decreased to
8.3% due to entry into the Czech Republic market where initially we
are primarily providing procurement, distribution, and engineering
services, which generally have lower margins than those realized on our
construction contracts.





Operating
Expenses





Six
      Months Ended June 30,(Dollars
      in thousands)
              
              2010
              
              
              2009
              
              
              Change
      %Sales
      and marketing expenses
              
              $
              1,512
              
              
              $
              1,389
              
              
              
              9
              %General
      and administrative expenses
              
              $
              3,181
              
              
              $
              2,376
              
              
              
              34
              %As
      a percent of net salesSales
      and marketing expenses
              
              
              12.2
              %
              
              
              15.6
              %General
      and administrative expenses
              
              
              25.6
              %
              
              
              26.7
              %Share-Based
      Compensation Included Above:Sales
      and marketing expenses
              
              $
              66
              
              
              $
              61
              
              
              
              8
              %General
      and administrative expenses
              
              $
              266
              
              
              $
              211
              
              
              
              26
              %


Sales
and Marketing Expenses





Selling
and marketing expense were slightly higher for the six months ended June 30,
2010 by $0.1 million, or 9%, compared to the six months ended June 30, 2009 as
result of the addition of our Italian operations.





8


General
and Administrative Expenses





General
and administrative expenses increased by $0.8 million, or 34%, for the six
months ended June 30, 2010, compared to the six months ended June 30,
2009.  The increase was attributable to the addition of our Italian
operations.





Other
Income and Expenses





Other
income and expense consists of change in fair value of financial instruments,
interest income, interest expense, and other income (expense).  Change in
fair value of financial instruments consists of gain on the fair value and
cancellation of warrant liability and changes in the fair value of contingent
consideration liability.  For the six months ended June 30, 2010, interest
expense increased by $0.1 million compared to the six months ended June 30,
2009, due to increased borrowing in the U.S. and Spain.





Income
Taxes





For the
six months ended June 30, 2010 and 2009, the effective tax rate is different
from the U.S. federal statutory rate primarily due to changes in the valuation
allowance, the fair value of the contingent consideration liability and
financial instruments, and earnings considered as indefinitely reinvested in
foreign operations.  The valuation allowance of $1.4 million related to net
deferred tax assets associated with our U.S. operations was recorded as we
believe based on current U.S. operations that it has become more likely than not
that we will be unable to realize our U.S. net operating loss
carryforwards.





Liquidity





Cash
Flows





For
the Six Months Ended June 30, 2010 and 2009





Six Months Ended June
      30,2010
              
              
              2009(in
      thousands)Net cash used in operating
      activities
              
              $
              (1,732
              )
              
              $
              (5,425
              )Net cash used in investing
      activities
              
              $
              (30
              )
              
              $
              (75
              )Net cash (used in)/provided by
      financing activities
              
              $
              (326
              )
              
              $
              3,351Decrease in cash and cash
      equivalents
              
              $
              (2,231
              )
              
              $
              (2,218
              )





The
Company generates cash from operations primarily from cash collections related
to its installation and distribution sales.  Net cash flow used in
operating activities was $1.7 million for the six months ended June 30, 2010,
compared with net cash used in operating activities of $5.4 million for the six
months ended June 30, 2009.  Our largest source of operating cash flows for
the six months ended June 30, 2010, was the reduction of cost and estimated
earnings in excess of billings on uncompleted contracts.  Our primary uses
of cash from operating activities are our increase in accounts receivable. 
As of June 30, 2010, we had significant projects pending billing upon completion
in our Italian business segment.  Upon billing and receipt, we anticipate
an increase in cash and cash equivalents.





The
change in cash flows from investing activities was minimal for the six months
ended June 30, 2010 and 2009 with minimal capital asset purchases.





The
change in cash flows from financing activities primarily relate to borrowings
and payment under debt facilities as well as costs related to share
registration.  The net cash flows from financing activities for the
six months ended June 30, 2009 was mainly the result of the issuance of our
Series B Convertible Preferred Stock in exchange for net proceeds of $3 million
during the first half of 2009.





Material
Impact of Known Events on Liquidity





Our
expanding large-scale solar power project development business in Italy is
expected to have increasing liquidity requirements in the future. Solar
power project development cycles can take several months to develop. In
certain of our markets, primarily Italy, it is not uncommon to receive payment
at the end of a project. This may require us to make an advancement of costs
prior to cash receipts. To date, we have financed these up-front construction
costs using working capital and cash on hand.





The
disruption in the credit markets has had a significant adverse impact on a
number of financial institutions.  As of June 30, 2010, however, our
liquidity and capital investments have not been materially adversely impacted,
and we believe that they will not be materially adversely impacted in the near
future.  We will continue to closely monitor our liquidity and the credit
markets.  Nonetheless, we cannot predict with any certainty the impact to
us of any further disruption in the credit environment.





There are
no other known events that are expected to have a material impact on our
short-term or long-term liquidity.





9





Capital Resources





As of
June 30, 2010, we had $1.6 million of cash and cash equivalents.  We also
have extended payment terms on certain of our accounts payable from large solar
projects that we believe will provide additional working capital.  We have
financed our operations primarily through operating activities, debt and equity
financings.  We have in place a $7.0 million credit line with Umpqua
Bank that is currently available for working capital and capital expenditures,
which expires on July 13, 2011. We renewed a €100,000 credit line for
Premier Power Spain, which expires on August 1, 2011. The amount available
for borrowing under the Umpqua Bank line is limited by certain financial
calculations.  Please see the discussion below under “Lines of Credit.” At
June 30, 2010, no funds were available under the Umpqua line, and $0.1
million was available under Premier Power Spain’s line of credit.





We also
have backlog in the amount of approximately $60.1 million, as of June 30, 2010,
consisting of non-cancellable signed contracts for projects for approximately 27
MW that the Company expects to complete within the next 12 months, including
projects for 2 MW representing revenues of approximately $9.6 million in the
Italian business segment, projects for 3.5 MW representing revenues of
approximately $9.8 million in the U.S. business segment, and projects for 18 MW
representing revenues of approximately $37.0 million in the Spanish business
segment, of which 8.7 MW and approximately $14.9 million in revenues are for
projects in the Czech Republic. In addition to our cash and cash equivalents and
accounts receivable, we expect to invoice approximately $7.8 million against our
costs and estimated earnings in excess of billings on uncompleted contracts in
the next 90 days. Thus, we believe that our current cash and cash equivalents,
cash flow from operations, and our lines of credit with banks will be sufficient
to meet our anticipated cash needs, including our cash needs for working capital
and capital expenditures for at least the next 12 months.





We may
seek to raise additional cash to fund future project investments or acquisitions
we may decide to pursue. To the extent it becomes necessary to raise additional
cash in the future, we may seek to raise it through the sale of debt or equity
securities, funding from joint-venture or strategic partners, debt financing or
loans, issuance of common stock, or a combination of the foregoing. We cannot
provide any assurances that we will be able to secure the additional cash or
working capital we may require to continue our operations.







Contractual
Obligations and Off-Balance Sheet Arrangements





Line
of Credit





On July
13, 2009, we entered into a loan agreement with Umpqua Bank, an Oregon
corporation, for a line of credit of up to $12 million, maturing on July 13,
2011.  The loan agreement provides for an initial line of credit of $7
million, provided, however, that we may request no more than twice prior to the
maturity date that the line of credit be increased to an amount not to exceed
$12.0 million in the event that we acquire another subsidiary and require
additional working capital for such subsidiary.  The line of credit is
secured by our assets and by the assets of Premier Power California and Bright
Future.  The line of credit bears interest at the prime rate, provided,
however, that the interest rate will not be less than five percent (5%) per
annum.  At June 30, 2010, the interest rate was 5% per annum.  As of
June 30, 2010, there was $1.4 million outstanding under the agreement with
Umpqua Bank.  Additionally, certain financial ratios under the agreement
with Umpqua Bank restrict the amount that we can borrow.




The loan
agreement with Umpqua Bank contains the following financial condition covenants:
(i) minimum debt service charge ratio of 1:20 to 1:00, (ii) minimum current
ratio of 1:20 to 1:00, (iii) maximum debt-to-tangible net worth ratio of 3:00 to
1:00, and (iv) minimum tangible net worth of $6.0 million. Under the loan
agreement, we are also subject to customary non-financial covenants, including
limitations on secured indebtedness and limitations on dividends and other
restricted payments.





As of
June 30, 2010, we were out of compliance with these ratios as our minimum
tangible net worth was $0.1 million and our maximum debt-to-tangible net worth
ratio was negative 143.8:1.00.  In addition, as of June 30, 2010, we
were out of compliance with the minimum current ratio as the ratio was
1.03:1.00.  Certain of these ratios are negatively affected by the
contingent consideration liability.  The minimum current ratio is not
impacted by our contingent consideration liability.  Giving effect to
the removal of the contingent consideration liability, the minimum tangible net
worth and the maximum debt-to-tangible net worth ratios were, at June 30, 2010,
$2.1 million for the minimum tangible net worth and 11.3:1.00 for the maximum
debt-to-tangible worth ratio, resulting in the Company remaining out of
compliance.





10


The bank
is aware of the non-compliance and has not waived the non-compliance. The bank
has verbally indicated that it does not intend to issue a notice of default, nor
institute default rates, nor cut funding under the line. We are in discussions
with the bank to redefine the financial covenants; in the event, however, that
the bank does subject the Company to default provisions, our interest rate would
increase to 5% above the then-current rate and our ability to borrow would be
limited. Additionally, the bank has the right to request repayment of all
outstanding obligations. We believe, however, that our cash and cash equivalent
balances in the amount of approximately $1.6 million at June 30, 2010 and the
anticipated increase from operating cash flows resulting from increased
collections from accounts receivable, extended payment terms on certain of our
accounts payable, our backlog, and our expected realization of our costs and
estimated earnings in excess of billings on uncompleted contracts, as of June
30, 2010, are sufficient to meet working capital needs should the bank issue a
notice of default and demand repayment of all obligations or cut off funding
under the line. We do not expect any of these events to occur, though, and
believe we have the ability to comply with these covenants once the financial
covenants are redefined. Without the redefinition of terms, we are unable to
comply with the ratios with which we are out of compliance.





At June
30, 2010, Premier Power Spain had an unsecured line of credit for $0.1 million,
which has interest terms of Euribor+3.25 and is due in full on August 1,
2011.  As of June 30, 2010, there was $0.03 million outstanding on the
line.





Contractual
Obligations





We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash
flows.





The
following table summarizes our contractual obligations as of June 30, 2010, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Less
      than 1Total
              
              
              year
              
              
              1-3
      Years
              
              
              3-5
      YearsContractual
      Obligations:
              
              
              
              
              (in
      thousands)Bank
      indebtedness
              
              $
              2,048
              
              
              $
              1,689
              
              
              $
              357
              
              
              $
              2Operating
      leases
              
              
              398
              
              
              
              62
              
              
              
              290
              
              
              
              46$
              2,446
              
              
              $
              1,751
              
              
              $
              647
              
              
              $
              48


Off-Balance
Sheet Arrangements





We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
stockholders’ equity or that are not reflected in our financial statements.
Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity, or
market risk support to such entity. We do not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk, or credit
support to us or engages in leasing, hedging, or research and development
services with us.







Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.





Not
applicable to smaller reporting companies.





Item
4.  Controls and Procedures.





Disclosure
Controls and Procedures





As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer (principal executive officer) and Chief Financial
Officer (principal financial and accounting officer), of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).  Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the applicable period to
ensure that the information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act (i) is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms and (ii) is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosures.





11





Changes
in Internal Control over Financial Reporting





There was
no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.




PART
II - OTHER INFORMATION





Item
1.  Legal Proceedings.





There
have been no material developments during the quarter ended June 30, 2010 in any
material pending legal proceedings to which the Company is a party or of which
any of our property is the subject.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





There
were no unregistered sales of equity securities during the quarter ended June
30, 2010 to report.





Item
3.  Defaults Upon Senior Securities.


None.





Item
5.  Other Information.




(a)  None.


(b)  There
were no changes to the procedures by which security holders may recommend
nominees to our board of directors.





Item
6.  Exhibits.





Exhibit
              Number
            
            Description3.1
            
            Certificate
      of Incorporation (1)3.2
            
            Bylaws
      (1)3.3
            
            Certificate
      of Amendment of the Certificate of Incorporation, filed August 19, 2008
      with the Secretary of State of the State of Delaware
(2)3.4
            
            Certificate
      of Amendment of the Certificate of Incorporation, filed August 29, 2008
      and effective September 5, 2008 with the Secretary of State of the State
      of Delaware (3)3.5
            
            Certificate
      of Designation of Preferences, Rights and Limitations of Series A
      Convertible Preferred Stock, filed September 10, 2008 with the Secretary
      of State of the State of Delaware (3)3.6
            
            Amendment
      to Certificate of Incorporation, filed November 24, 2008 with the
      Secretary of State of Delaware (4)3.7
            
            Amendment
      to Bylaws (5)3.8
            
            Certificate
      of Designation of Preferences, Rights and Limitations of Series B
      Convertible Preferred Stock, filed with the Delaware Secretary of State on
      June 12, 2009 (6)10.1
            
            Escrow
      Agreement Amendment No. 3 between Registrant, Rupinvest Sarl, Esdras Ltd.,
      and Capita Trust Company Limited, dated April 24, 2010
  (7)10.2
            
            Limited
      and Temporary Waiver Agreement between Registrant and Genesis Capital
      Advisors, LLC, dated April 28, 2010 (8)10.3
            
            Clarification
      Agreement between Registrant and Genesis Capital Advisors, LLC, dated
      April 28, 2010 (8)10.4
            
            Reseller
      Agreement between EC America, Inc., immixGroup, Inc., and the Registrant,
      dated May 1, 2010 (9)10.5
            
            Employment
      Agreement between Registrant and Dean R. Marks, dated May 17, 2010
      (10)10.6
            
            Employment
      Agreement between Registrant and Miguel de Anquin, dated May 17, 2010
      (10)10.7
            
            Engagement
      Letter between Registrant and Merriman Curhan Ford & Co., dated June
      28, 2010 (11)31.1
            
            Section 302
      Certification by the Corporation’s Principal Executive Officer
      *31.2
            
            Section 302
      Certification by the Corporation’s Principal Financial and Accounting
      Officer *32.1
            
            Section 906
      Certification by the Corporation’s Principal Executive Officer
      *32.2
            
            Section 906
      Certification by the Corporation’s Principal Financial and Accounting
      Officer *





*
            Filed
      herewith.(1)
            Filed
      on February 13, 2007 as an exhibit to our Registration Statement on Form
      SB-2/A, and incorporated herein by reference.(2)
            Filed
      on August 29, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(3)
            Filed
      on September 11, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.




12


(4)
            Filed
      on November 26, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(5)
            Filed
      on January 16, 2009 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(6)
            Filed
      on June 18, 2009 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(7)
            Filed
      on April 27, 2010 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(8)
            Filed
      on April 29, 2010 as an exhibit to our Registration Statement on Form S-1,
      and incorporated herein by reference.(9)
            Filed
      on May 25, 2010 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(10)
            Filed
      on May 28, 2010 as an exhibit to Amendment No. 1 to our Registration
      Statement on Form S-1/A, and incorporated herein by
    reference.(11)
            Filed
      on July 8, 2010 as an exhibit to Amendment No. 2 to our Registration
      Statement on Form S-1/A, and incorporated herein by
    reference.




13


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




PREMIER
      POWER RENEWABLE ENERGY, INC.(Registrant)Date:
      August 16, 2010
            By:
            /s/
      Dean R. MarksDean
      R. MarksChief
      Executive Officer and President (Principal Executive
    Officer)Date:
      August 16, 2010
            By:
            /s/
      Frank J. SansoneFrank
      J. SansoneChief
      Financial Officer (Principal Financial & Accounting
      Officer)





14