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 endedMarch
31, 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, $0.0001 par value per share, are
issued and outstanding as of May 17, 2010.
  
  PREMIER
POWER RENEWABLE ENERGY, INC.
 TABLE OF
CONTENTS
 TO
QUARTERLY REPORT ON FORM 10-Q
 FOR
QUARTER ENDED MARCH 31, 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
                9Item
      4.
                Controls
      and Procedures
                10PART
      II - OTHER INFORMATION
                10Item
      1.
                Legal
      Proceedings
                10Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                10Item
      3.
                Defaults
      Upon Senior Securities
                10Item
      5.
                Other
      Information
                10Item
      6.
                Exhibits
                10Signatures
                12
  
  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 MARCH 31, 2010 AND DECEMBER 31, 2009(in
      thousands, except share data)March
      31,
            
            
            December
      31,2010
            
            
            2009ASSETS
            
            (unaudited)
            
            
            (audited)Current
      assets:Cash
      and cash equivalents
            
            $
            1,332
            
            
            $
            3,792Accounts
      receivable, net of allowance for doubtful accounts of$167
      and $137 at March 31, 2010 and December 31, 2009,
    respectively
            
            
            5,206
            
            
            
            7,676Inventory
            
            
            1,278
            
            
            
            1,824Prepaid
      expenses and other current assets
            
            
            476
            
            
            
            432Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
            
            
            13,483
            
            
            
            13,674Other
      receivables
            
            
            318
            
            
            
            175Deferred
      tax assets
            
            
            459
            
            
            
            473Total
      current assets
            
            
            22,552
            
            
            
            28,046Property
      and equipment, net
            
            
            570
            
            
            
            615Intangible
      assets, net
            
            
            921
            
            
            
            970Goodwill
            
            
            11,532
            
            
            
            12,254Deferred
      tax assets
            
            
            1,646
            
            
            
            1,295Total
      assets
            
            $
            37,221
            
            
            $
            43,180LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            15,845
            
            
            $
            18,347Accrued
      liabilities
            
            
            1,346
            
            
            
            2,043Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
            
            
            559
            
            
            
            374Taxes
      payable
            
            
            248
            
            
            
            293Borrowings,
      current
            
            
            1,704
            
            
            
            1,692Total
      current liabilities
            
            
            19,702
            
            
            
            22,749Borrowings,
      non-current
            
            
            511
            
            
            
            548Contingent
      consideration liability
            
            
            6,471
            
            
            
            7,725Total
      liabilities
            
            
            26,684
            
            
            
            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 March 31, 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 2,8000,000 shares
      issued andoutstanding
      at March 31, 2010 and December 31, 2009, respectively
            
            
            -
            
            
            
            -Common
      stock, par value $.0001 per share; 500,000,000 shares
      authorized;29,099,750
      and 29,050,250 shares issued and outstanding atMarch
      31, 2010 and December 31, 2009, respectively
            
            
            3
            
            
            
            3Additional
      paid-in-capital
            
            
            18,015
            
            
            
            17,822Accumulated
      deficit
            
            
            (6,191
            )
            
            
            (5,385
            )Accumulated
      other comprehensive loss
            
            
            (1,290
            )
            
            
            (282
            )Total
      shareholders' equity
            
            
            10,537
            
            
            
            12,158Total
      liabilities and shareholders' equity
            
            $
            37,221
            
            
            $
            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 MONTHS ENDED MARCH 31, 2010 AND MARCH 31,
2009(in
      thousands, except per share data)2010
                  
                  
                  2009(unaudited)
                  
                  
                  (unaudited)Net
      sales
                  
                  $
                  3,399
                  
                  
                  $
                  4,793Cost
      of sales
                  
                  
                  (3,368
                  )
                  
                  
                  (4,425
                  )Gross
      profit
                  
                  
                  31
                  
                  
                  
                  368Operating
      expenses:Sales
      and marketing
                  
                  
                  742
                  
                  
                  
                  655General
      and administrative
                  
                  
                  1,659
                  
                  
                  
                  1,128Total
      operating expenses
                  
                  
                  2,401
                  
                  
                  
                  1,783Operating
      loss
                  
                  
                  (2,370
                  )
                  
                  
                  (1,415
                  )Other
      income (expense):Interest
      expense
                  
                  
                  (37
                  )
                  
                  
                  (2
                  )Change
      in fair value of contingent consideration liability
                  
                  
                  1,254
                  
                  
                  
                  -Change
      in fair value of warrants
                  
                  
                  -
                  
                  
                  
                  1,475Interest
      income
                  
                  
                  1
                  
                  
                  
                  18Total
      other income (expense), net
                  
                  
                  1,218
                  
                  
                  
                  1,491(Loss)
      income before income taxes
                  
                  
                  (1,152
                  )
                  
                  
                  76Income
      tax benefit
                  
                  
                  346
                  
                  
                  
                  645Net
      (loss) income
                  
                  $
                  (806
                  )
                  
                  $
                  721(Loss)
      Earnings Per Share:Basic
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.03Diluted
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.02Weighted
      Average Shares Outstanding:Basic
                  
                  
                  26,619
                  
                  
                  
                  26,049Diluted
                  
                  
                  26,619
                  
                  
                  
                  30,529




The
accompanying notes are an integral part of these financial
statements.
  F-2
 
  PREMIER
      POWER RENEWABLE ENERGY, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 31,
2009(in
      thousands, except per share data)
  March 31, 2010
                  
                  
                  March 31, 2009(unaudited)
                  
                  
                  (unaudited)Cash
      flows from operating activities:Net
      (loss) income
                  
                  $
                  (806
                  )
                  
                  $
                  721Adjustments
      to reconcile net (loss) income to net cashused
      in operating activities:Stock
      based compensation
                  
                  
                  246
                  
                  
                  
                  145Depreciation
      and amortization
                  
                  
                  90
                  
                  
                  
                  101Change
      in fair value of contingent consideration liability
                  
                  
                  (1,254
                  )
                  
                  
                  -Change
      in fair value of warrant liability
                  
                  
                  -
                  
                  
                  
                  (1,475
                  )Deferred
      taxes
                  
                  
                  (351
                  )
                  
                  
                  (679
                  )Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  2,151
                  
                  
                  
                  522Inventory
                  
                  
                  488
                  
                  
                  
                  (41
                  )Prepaid
      expenses and other current assets
                  
                  
                  (181
                  )
                  
                  
                  77Costs
      and estimated earnings in excess of billingson
      uncompleted contracts
                  
                  
                  (606
                  )
                  
                  
                  (593
                  )Other
      receivables
                  
                  
                  (26
                  )
                  
                  
                  (156
                  )Taxes
      receivable
                  
                  
                  (2
                  )
                  
                  
                  -Accounts
      payable
                  
                  
                  (1,606
                  )
                  
                  
                  (439
                  )Accrued
      liabilities
                  
                  
                  (657
                  )
                  
                  
                  (437
                  )Billings
      in excess of costs and estimated earningson
      uncompleted contracts
                  
                  
                  204
                  
                  
                  
                  (454
                  )Taxes
      payable
                  
                  
                  (28
                  )
                  
                  
                  105Net
      cash used in operating activities
                  
                  
                  (2,338
                  )
                  
                  
                  (2,602
                  )Cash
      flows from investing activities:Acquisition
      of property and equipment
                  
                  
                  (18
                  )
                  
                  
                  (35
                  )Net
      cash used in investing activities
                  
                  
                  (18
                  )
                  
                  
                  (35
                  )Cash
      flows from financing activities:Principal
      payments on borrowings
                  
                  
                  (153
                  )
                  
                  
                  (55
                  )Proceeds
      from borrowings
                  
                  
                  173
                  
                  
                  
                  -Cost
      related to share registration
                  
                  
                  (53
                  )
                  
                  
                  (70
                  )Net
      cash used by financing activities
                  
                  
                  (33
                  )
                  
                  
                  (125
                  )Effect
      of foreign currency
                  
                  
                  (71
                  )
                  
                  
                  (109
                  )Decrease
      in cash and cash equivalents
                  
                  
                  (2,460
                  )
                  
                  
                  (2,871
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  3,792
                  
                  
                  
                  5,770Cash
      and cash equivalents at end of period
                  
                  $
                  1,332
                  
                  
                  $
                  2,899Supplemental
      cash flow information:Interest
      paid
                  
                  $
                  31
                  
                  
                  $
                  2Taxes
      paid
                  
                  $
                  -
                  
                  
                  $
                  9Non-cash
      investing and financing activities:Initial
      valuation of derivative liability
                  
                  $
                  -
                  
                  
                  $
                  11,119Issuance
      of notes to acquire equipment
                  
                  $
                  -
                  
                  
                  $
                  39








F-3
 
  PREMIER
      POWER RENEWABLE ENERGY, INC.CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITYFOR
      THE THREE MONTHS ENDED MARCH 31, 2010(in
      thousands)
                  (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
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (806
                )
                
                
                
                
                
                
                (806
                )Foreign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,008
                )
                
                
                (1,008
                )Comprehensive
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,814
                )Stock
      based compensation
                
                
                50
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                246
                
                
                
                
                
                
                
                
                
                
                
                246Cost
      related to share registration
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (53
                )
                
                
                
                
                
                
                
                
                
                
                (53
                )Balance
      March 31, 2010
                
                
                29,100
                
                
                $
                3
                
                
                
                3,500
                
                
                $
                -
                
                
                
                2,800
                
                
                $
                -
                
                
                $
                18,015
                
                
                $
                (6,191
                )
                
                $
                (1,290
                )
                
                $
                10,537








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.
  F-5
 
 PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
 
 
 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.
 
 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 on Form 10-K 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
– Two customers accounted for 10.9% and 10.2%, respectively, of the
Company’s sales for the three months ended March 31, 2010.  Three
customers accounted for 27%, 10%, and 9%, respectively, of the Company’s sales
for the three months ended March 31, 2009.  Accounts receivable
primarily consist of trade receivables and amounts due from state agencies and
utilities for rebates on solar systems installed.  At March 31, 2010,
the Company had three customers that accounted for 23.5%, 10.7%, and 8.5% of the
Company’s accounts receivable.  At March 31, 2009, the Company had
four customers that accounted for 20%, 18%, 17%, and 14% 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. To date, the Company’s losses on uncollectible
accounts receivable have been immaterial. 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 March 31, 2010 and 2009,
respectively.
  The
Company purchases its solar modules from a limited number of vendors but
believes that in the event it is unable to purchase solar panels from these
vendors, 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, 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 March 31, 2010, the Company had $0.6 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. We did not
recognize any goodwill impairment charges for the three months ended March 31,
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.
  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 Note 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.
  F-7
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
 
 
 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 at the onset of a contract, 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.
  Revenue
related to distribution sales is recognized when we have received either a
purchase order or contract, deem delivery of product to have occurred, when 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 payment and segregation has occurred.
  Advertising – The Company
expenses advertising costs as they are incurred. Advertising costs were $0.1
million and $0.2 million for the three months ended March 31, 2010 and 2009,
respectively.
 
 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 months ended March 31, 2010 and
2009 were as follows:
  March
      31,2010
                                                            
                                                            
                                                            2009(in
      thousands)Beginning
      accrued warranty balance
                                                            
                                                            $
                                                            359
                                                            
                                                            
                                                            $
                                                            367Accruals
      related to warranties issued during period
                                                            
                                                            
                                                            23
                                                            
                                                            
                                                            
                                                            113Reduction
      for labor payments and claims made under the warranty
                                                            
                                                            
                                                            (27
                                                            )
                                                            
                                                            
                                                            (148
                                                            )Ending
      accrued warranty balance
                                                            
                                                            $
                                                            355
                                                            
                                                            
                                                            $
                                                            332
  F-8
 
 PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
 
 
 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 months ended
March 31, 2010 and 2009, the foreign currency transaction gain was $0.08
million and $0.04 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.   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 recognized 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 17 below. We are currently
evaluating the impact of its pending adoption on our consolidated financial
statements.
 .
 F-10
 
 PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
 
 
 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 has 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 Transfer
s 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 has 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 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 has 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.
 
 F-12
 
 PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
   Three Months
      Ended March 31,2010
                                                    
                                                    
                                                    2009(in thousands, except per share
      data)Net
      (loss) income
                                                    
                                                    $
                                                    (806
                                                    )
                                                    
                                                    $
                                                    721Earnings
      Per Share:Basic
                                                    
                                                    
                                                    ($0.03
                                                    )
                                                    
                                                    $
                                                    0.03Diluted
                                                    
                                                    
                                                    ($0.03
                                                    )
                                                    
                                                    $
                                                    0.02Weighted
      Average Shares Outstanding:Basic
                                                    
                                                    
                                                    26,619
                                                    
                                                    
                                                    
                                                    26,049Diluted effect of convertible
      preferred stock, series A
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    3,500Diluted effect of
      warrants
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    980Diluted
                                                    
                                                    
                                                    26,619
                                                    
                                                    
                                                    
                                                    30,529
  At March
31, 2010 and 2009, there were stock options for 1,922,729 and 1,142,479 shares
of common stock, respectively, which 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 March 31, 2010 and 2009, there
were 6,300,000 and 0, respectively, 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 March 31, 2010 and December
31, 2009, such amounts were as follows:
  March
      31, 2010
                                  
                                  
                                  December 31,
      2009Amortizing
      Intangibles
                                  
                                  (in
      thousands)Trademark
                                  
                                  $
                                  801
                                  
                                  
                                  $
                                  814Customer
      List
                                  
                                  
                                  75
                                  
                                  
                                  
                                  89Employee
      contract
                                  
                                  
                                  45
                                  
                                  
                                  
                                  67921
                                  
                                  
                                  
                                  970Goodwill
                                  
                                  
                                  11,532
                                  
                                  
                                  
                                  12,254$
                                  12,453
                                  
                                  
                                  $
                                  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 months
ended March 31, 2010 and 2009 was $0.04 million and $0.06 million,
respectively.  Accumulated amortization was $0.3 million and $0.1
million at March 31, 2010 and 2009, respectively. The change of $0.7 million for
the three months ended March 31, 2010 was due to changes in foreign currency
translation rates.
  The
Company expects amortization expense for the next five years to be as follows
(in thousands):
  Year
                                      
                                      Amount2010
                                      
                                      $
                                      1092011
                                      
                                      
                                      852012
                                      
                                      
                                      712013
                                      
                                      
                                      522014
                                      
                                      
                                      52
 
 F-13
  PREMIER
POWER RENEWABLE ENERGY, INC.
 Notes
to Consolidated Financial Statements
 (unaudited)
  
 5.
            PROPERTY AND
EQUIPMENT
  Property
and equipment consisted of the following:
  March
      31, 2010
                                    
                                    
                                    December 31,
      2009(in
      thousands)Equipment
                                    
                                    $
                                    217
                                    
                                    
                                    $
                                    217Furniture
      and computers
                                    
                                    
                                    202
                                    
                                    
                                    
                                    204Vehicles
                                    
                                    
                                    650
                                    
                                    
                                    
                                    6511,069
                                    
                                    
                                    
                                    1,072Less:
      accumulated depreciation
                                    
                                    
                                    (499
                                    )
                                    
                                    
                                    (457
                                    )$
                                    570
                                    
                                    
                                    $
                                    615
 Depreciation
expense was $0.05 million and $0.04 million for the three months ended March 31,
2010 and 2009, respectively.
 
 6.
            ACCRUED
LIABILITIES
 
 Accrued
liabilities consisted of the following:
  March
      31, 2010
                            
                            
                            December
      31, 2009(in
      thousands)Payroll
                            
                            $
                            464
                            
                            
                            $
                            363Warranty
      reserve
                            
                            
                            355
                            
                            
                            
                            359Accrued
      subcontractors
                            
                            
                            301
                            
                            
                            
                            998Other
      operational accruals
                            
                            
                            169
                            
                            
                            
                            147Sales
      and local taxes
                            
                            
                            57
                            
                            
                            
                            176$
                            1,346
                            
                            
                            $
                            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 and
earnings considered as indefinitely reinvested in foreign
operations.  Our effective tax rate was 30.5% and 47.2% for the three
months ended March 31, 2010 and 2009, respectively.
 
 Our net
deferred tax assets increased from $1.8 million as of December 31, 2009 to $2.1
million as of March 31, 2010, primarily as a result of losses incurred for the
first three months of the 2010 fiscal year.  The Company believes it
is more likely than not that the net deferred tax assets will be realized in the
foreseeable future.  Realization of our net deferred tax assets is
dependent upon our generation of sufficient taxable income in future years in
appropriate tax jurisdictions to obtain benefit from the reversal of temporary
differences, net operating loss carryforwards, and tax credit
carryforwards.  The amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income change.
 
 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 $0.8 million and $0.6 million at March 31, 2010 and December 31,
2009, respectively.  Notes payable of $0.1 million are secured by
vehicles and have maturities through 2014.  Additionally, we have $0.2
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 for $0.5 million with
Instituto de Crédito Oficial as of March 31, 2010, with the first payment due on
December 18, 2010 and the other due June 18, 2011 each additional payment due
six months thereafter until June 18, 2012, which is the last payment due
date.  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 March 31,
2010, the interest rate was 5%. As of March 31, 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
March 31, 2010, the Company was out of compliance with the minimum
current ratio and the maximum debt-to-tangible net worth ratio.  These
ratios did not take into account our contingent consideration liability as
described in Note 12 below.  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 to account for the contingent consideration
liability; 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 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.
 
 The
future principle payments on these balances as of March 31, 2010 are as
follows:
  (in
      thousands)2010
                            
                            $
                            1,7042011
                            
                            
                            2962012
                            
                            
                            2062013
                            
                            
                            62014
                            
                            
                            3$
                            2,215
  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.




F-16





PREMIER
POWER RENEWABLE ENERGY, INC.


Notes
to Consolidated Financial Statements


(unaudited)








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 March 31, 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 March 31, 2010 and 2009,
there were 2,800,000 and 0 Series B Stock outstanding,
respectively.




Warrants





In
September 2008, the Company issued Series A Warrants and Series B Warrants to
purchase 1,750,000 and 1,750,000 shares of common stock, respectively, in
connection with the issuance of Series A Stock. 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-years
                            
                            4
      yrs


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. 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.





10.           RELATED
PARTY TRANSACTIONS





Certain
stockholders have guaranteed certain obligations under the Company’s borrowings
and operating leases.





11.
            COMMITMENTS
AND CONTINGENCIES





Premier
Power Spain is party to three non-cancelable leases for operating facilities in
Navarro, Madrid, and Barcelona, Spain, which expire in 2012, 2013, and 2014,
respectively.  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, California, which expires in 2010.  These
leases provide for annual rent increases tied to the Consumer Price Index. The
leases require the following payments as of March 31, 2010, subject to annual
adjustment, if any:




(in
      thousands)2010
                          
                          $
                          732011
                          
                          
                          742012
                          
                          
                          662013
                          
                          
                          552014
                          
                          
                          30Thereafter
                          
                          
                          17$
                          315




F-17





PREMIER
POWER RENEWABLE ENERGY, INC.


Notes
to Consolidated Financial Statements


(unaudited)






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.




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  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 March
31, 2010 and December 31, 2009, the Company estimated the fair value of the
contingent consideration liability at $6,471,000 and $7,725,000, respectively,
assuming 2,724,270 and 2,801,875 shares of its common stock, respectively,
would be issued, a share price of $2.45 and $2.75, respectively, transaction
costs, and its determination that the adjustment for counterparty performance
risk of $224,000 was taken into consideration at March 31,
2010.   As of March 31, 2010, the Company determined the amount
of earnable shares by the seller was approximately 560,000 for period ended
December 31, 2009.




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, resulting in a decrease in the
liability and other income of $1.5 million for the three months ended March 31,
2009.




F-18





PREMIER
POWER RENEWABLE ENERGY, INC.


Notes
to Consolidated Financial Statements


(unaudited)






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
                                      
                                      
                                      Other
                                      
                                      
                                      RetainedPaid-In-Capital
                                      
                                      
                                      Current
      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
                                      )$
                                      (1,794
                                      )
                                      
                                      $
                                      11,119
                                      
                                      
                                      $
                                      (9,325
                                      )




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 602,000
options in the three months ended March 31, 2010.  An aggregate of
1,922,729 stock options (net of forfeitures) were outstanding under the
Incentive Plan as of March 31, 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 March 31, 2010 and
2009, there were an aggregate of 150,500 and 150,000, respectively, stock awards
outstanding.





Stock-based compensation is included in
the following operating expense line items in our consolidated statement of
operations:





Three Months
      Ended March 31,2010
                                
                                
                                2009(in
    thousands)Cost
      of sales
                                
                                $
                                90
                                
                                
                                $
                                47Sales
      and marketing
                                
                                
                                25
                                
                                
                                
                                30General
      and administrative
                                
                                
                                131
                                
                                
                                
                                68$
                                246
                                
                                
                                $
                                145




F-19





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
three months ended March 31, 2010 and 2009:




Three
      Months Ended March 31,2010
                                  
                                  
                                  2009Expected
      volatitity
                                  
                                  
                                  83.44
                                  %
                                  
                                  
                                  93.60
                                  %Expected
      dividend
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  0
                                  %Expected
      term
                                  
                                  6.5
      years
                                  
                                  
                                  6.5
      yearsRisk-free
      interest rate
                                  
                                  
                                  2.71
                                  %
                                  
                                  
                                  1.88
                                  %Weighted-average
      fair value per share
                                  
                                  $
                                  1.60
                                  
                                  
                                  
                                  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.




F-20




PREMIER
POWER RENEWABLE ENERGY, INC.


Notes
to Consolidated Financial Statements


(unaudited)








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 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 three months ended
March 31, 2010 and 2009, respectively. Employees are vested 100% after 3 years
of service. Neither Bright Future, Premier Power Italy, nor Premier Power
Spain offers 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 is based upon current interest rates for debt instruments with
comparable maturities and characteristics and approximates carrying
values.




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:





March
      31, 2010
                                                                                            
                                                                                            
                                                                                            December
      31, 2009(in
      thousands)
                                                                                            
                                                                                            
                                                                                            (in
    thousands)Level
      1
                                                                                            
                                                                                            
                                                                                            Level
      2
                                                                                            
                                                                                            
                                                                                            Level
      3
                                                                                            
                                                                                            
                                                                                            Level
      1
                                                                                            
                                                                                            
                                                                                            Level
      2
                                                                                            
                                                                                            
                                                                                            Level
      3Liabilities:
      Contingent consideration
                                                                                            
                                                                                            $
                                                                                            -
                                                                                            
                                                                                            
                                                                                            $
                                                                                            -
                                                                                            
                                                                                            
                                                                                            $
                                                                                            6,471
                                                                                            
                                                                                            
                                                                                            $
                                                                                            -
                                                                                            
                                                                                            
                                                                                            $
                                                                                            -
                                                                                            
                                                                                            
                                                                                            $
                                                                                            7,725




Contingent
                Consideration
                Liability(in
      thousands)Beginning
      balance
              
              $
              7,725Total
      gain recognized
              
              
              (1,254
              )Ending
      balance
              
              $
              6,471






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
      warehouses.




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, the segment information
reported includes only net sales, cost of sales, and gross
profit.  The following tables present the operations by each operating
segment:





Three
      Months Ended March 31, 2010United
      States
                                              
                                              
                                              Italy
                                              
                                              
                                              Spain
                                              
                                              
                                              Total(in
      thousands)Net
      sales
                                              
                                              $
                                              971
                                              
                                              
                                              $
                                              926
                                              
                                              
                                              $
                                              1,502
                                              
                                              
                                              $
                                              3,399Cost
      of sales
                                              
                                              
                                              (1,184
                                              )
                                              
                                              
                                              (976
                                              )
                                              
                                              
                                              (1,208
                                              )
                                              
                                              
                                              (3,368
                                              )Gross
    profit
                                              
                                              $
                                              (213
                                              )
                                              
                                              $
                                              (50
                                              )
                                              
                                              $
                                              294
                                              
                                              
                                              
                                              31Total
      operating expenses
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,401Operating
      loss
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (2,370
                                              )
 
 F-23





PREMIER
POWER RENEWABLE ENERGY, INC.


Notes
to Consolidated Financial Statements


(unaudited)





(Restated)
                                                  Three
      Months Ended March 31, 2009United
      States
                                                
                                                
                                                Spain
                                                
                                                
                                                Total(in
    thousands)Net
      sales
                                                
                                                $
                                                2,396
                                                
                                                
                                                $
                                                2,397
                                                
                                                
                                                $
                                                4,793Cost
      of sales
                                                
                                                
                                                (2,466
                                                )
                                                
                                                
                                                (1,959
                                                )
                                                
                                                
                                                (4,425
                                                )Gross
      profit
                                                
                                                $
                                                (70
                                                )
                                                
                                                $
                                                438
                                                
                                                
                                                
                                                368Total
      operating expenses
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,783Operating
      loss
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (1,415
                                                )
  Three Months Ended March
      31,2010
                                
                                
                                2009(in
      thousands)Net
      salesUnited
      States
                                
                                $
                                971
                                
                                
                                $
                                2,396Italy
                                
                                
                                926
                                
                                
                                
                                -Spain
                                
                                
                                1,502
                                
                                
                                
                                2,397$
                                3,399
                                
                                
                                $
                                4,793


At March
31, 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 March 31, 2010 and 2009, property and
equipment located in foreign countries, net of accumulated depreciation and
amortization was approximately $0.3 million and $0.1 million,
respectively.




F-24




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, Power One, Fronius, Watsun, and SunPower
Corporation.  Our profitability is primarily dependent upon revenue
from sales to commercial, governmental, residential, and equity fund
customers.
 
 On
September 9, 2008, we acquired all of the outstanding shares of Premier Power
California in exchange for the issuance by the Company of 24,218,750 restricted
shares of our common stock to the stockholders of Premier Power California,
which represented approximately 93.1% of the then issued and outstanding common
stock of the Company (excluding the shares issued in a related financing). As a
result of this share exchange, Premier Power California became our wholly owned
subsidiary, and we acquired the business and operations of Premier Power
California, Bright Future, and Premier Power Spain.
 
 Concurrently
with the closing of the September 2008 share exchange, we raised $7 million in a
private placement financing by issuing a total of 3.5 million units, with each
unit consisting of one share of our Series A Convertible Preferred Stock,
one-half of one Series A Warrant, and one-half of one Series B Warrant to
investors at $2.00 per unit.
 
 On June
16, 2009, we raised $3 million in a private placement financing by issuing 2.8
million shares of our Series B Preferred Stock.  In connection with
this financing, we also cancelled all issued and outstanding Series A Warrants
and Series B Warrants that were held by the investor.
 
 On July
31, 2009, we purchased 100% of the issued and outstanding equity ownership of
Rupinvest from Esdras. The terms of the transaction are set forth in a Share
Exchange Agreement entered into on June 3, 2009 between the Company, Rupinvest,
and Esdras.  Prior to the closing, Rupinvest was a wholly owned
subsidiary of Esdras.  We acquired Rupinvest from Esdras in exchange
for (i) a cash payment by us to Esdras in the amount of €12,500 (approximately
$18,292) and (ii) the potential transfer to Esdras of up to 3 million
shares of our common stock, with the number of shares to be transferred, if any,
to be calculated based on achieving certain sales and gross margin goals by
Premier Power Italy, Rupinvest’s subsidiary, over a three-year period. Pursuant
to the terms of the transaction, we also made a capital contribution in the
amount of one million, €1,125,000 (approximately $1,580,063) into Premier Power
Italy.
 
 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 the footnotes 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;
  2
  Basis of Pre sentation – 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 financial
statements and related notes to the Company’s 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 on Form 10-K 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.
 
 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 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. We did not recognize any goodwill impairment
charges for the three months ended March 31, 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.
  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 Note 16 to our 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 at the onset of a contract, 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.
  3
  Revenue
related to distribution sales is recognized when we have received either a
purchase order or contract, deem delivery of product to have occurred, when 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 payment and segregation has occurred.
  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.   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 recognized 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 17 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. Effective for interim and
annual periods ending after June 15, 2009, the Company has adopted this
guidance with no material impact to our consolidated financial
statements.
  4
  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 has 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 Transfer
s 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 has 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 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 has 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 March 31, 2010 and March 31, 2009
 
 Our net
sales for the three months ended March 31, 2010 were $3.4 million, a decrease of
$1.4 million, or 29%, from the prior year period.  U.S. net sales were
$1.0 million for the three months ended March 31, 2010, a decrease of $1.4
million, or 59% from the prior year period.  Our Italian operations
provided $0.9 million of net sales for the three months ended March 31,
2010.  There were no Italian operations for the three months ended
March 31, 2009.  Spain’s net sales were $1.5 million for the three
months ended March 31, 2010, a decrease of $0.9 million, or 37% from the prior
year period.
 
 We had a
net loss for the three months ended March 31, 2010 of $0.8 million, or $(0.03)
per share, compared to net income of $0.7 million, or $0.03 per share, for three
months ended March 31, 2009.  An adjustment to fair value of the
contingent consideration liability of $1.3 million reduced the loss for the
three months ended March 31, 2010.  Net income included $1.5 million
for the change in fair value of warrants for the three months ended March 31,
2009.  Cost of sales decreased $1.0 million, or 24%, for the three
months ended March 31, 2010, compared to the prior year period.  The
decrease is primarily a result of lower sales.  Operating expenses
increased by $0.6 million, or 35%, for the three months ended March 31, 2010, as
compared to the prior year period, due primarily to the inclusion of the
operating expenses of Premier Power Italy.
  5
 Three
      Months Ended March 31,(Dollars
      in thousands)
                                                    
                                                    2010
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    Change
      %Net
      salesUnited
      States
                                                    
                                                    $
                                                    971
                                                    
                                                    
                                                    $
                                                    
                                                    2,396
                                                    
                                                    
                                                    (59
                                                    )%Italy
                                                    
                                                    
                                                    926
                                                    
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    -
                                                    %Spain
                                                    
                                                    
                                                    1,502
                                                    
                                                    
                                                    
                                                    
                                                    2,397
                                                    
                                                    
                                                    (37
                                                    )%$
                                                    3,399
                                                    
                                                    
                                                    $
                                                    
                                                    4,793
                                                    
                                                    
                                                    (29
                                                    )%
 Our net sales include revenue
recognized under installation contracts using the percentage of completion
method of accounting.  Additionally, for the three months ended March
31, 2010, we derived sales from our distribution business of $0.8 million in
Italy, which accounted for 76% of our total Italian revenue.  The
decrease in net sales in the United States is 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.  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 our Spanish
market is largely the result of a more protracted sales process resulting from
new permitting laws implemented during 2009 in Spain that have taken permit
timing from as little as one month to more than 6 months.  We do not,
however, expect the decrease in consolidated net sales to continue in
2010.
  Three
      Months Ended March 31,(Dollars
      in thousands)
                                                        
                                                        2010
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        Change
      %Cost
      of SalesUnited
      States
                                                        
                                                        $
                                                        1,184
                                                        
                                                        
                                                        $
                                                        2,466
                                                        
                                                        
                                                        
                                                        (52
                                                        )%Italy
                                                        
                                                        
                                                        976
                                                        
                                                        
                                                        
                                                        -Spain
                                                        
                                                        
                                                        1,208
                                                        
                                                        
                                                        
                                                        1,959
                                                        
                                                        
                                                        
                                                        (38
                                                        )%$
                                                        3,368
                                                        
                                                        
                                                        $
                                                        4,425
                                                        
                                                        
                                                        
                                                        (24
                                                        )%Share-based
      compensation included above
                                                        
                                                        $
                                                        90
                                                        
                                                        
                                                        $
                                                        47
                                                        
                                                        
                                                        
                                                        91
                                                        %Gross
      Margin PercentageUnited
      States
                                                        
                                                        
                                                        -21.9
                                                        %
                                                        
                                                        
                                                        -2.9
                                                        %Italy
                                                        
                                                        
                                                        -5.4
                                                        %
                                                        
                                                        
                                                        -
                                                        %Spain
                                                        
                                                        
                                                        19.6
                                                        %
                                                        
                                                        
                                                        18.3
                                                        %0.9
                                                        %
                                                        
                                                        
                                                        7.7
                                                        %
 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 $1.3 million, or 52%, for the three months ended
March 31, 2010, compared to the prior year period.  The decrease was
primarily the result of cost reductions and lower sales.  U.S. gross
margin decreased to negative 21.9% 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 negative 5.4% as a result of limited
construction contracts, and the quarter’s distribution sales were not sufficient
to cover fixed operational costs.  Typically, large scale solar
projects contribute to our Italian gross margins, and none was recognized in the
three months ended March 31, 2010.  Cost of sales for our Spanish
operations decreased $0.8 million, or 38%, for the three months ended March 31,
2010 compared to the prior year.  The decrease was primarily the
result of a decrease in net sales.  The gross margin for our Spanish
operations increased slightly to 19.6% and remains competitive in the
marketplace. We expect our margins to turn positive in 2010 based on our current
pipeline.
  6
  Three
      Months Ended March 31,(Dollars
      in thousands)
                                                    
                                                    2010
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    Change
      %Sales
      and marketing expenses
                                                    
                                                    $
                                                    742
                                                    
                                                    
                                                    $
                                                    655
                                                    
                                                    
                                                    
                                                    13
                                                    %General
      and administrative expenses
                                                    
                                                    $
                                                    1,659
                                                    
                                                    
                                                    $
                                                    1,128
                                                    
                                                    
                                                    
                                                    47
                                                    %As
      a percent of net salesSales
      and marketing expenses
                                                    
                                                    
                                                    21.8
                                                    %
                                                    
                                                    
                                                    13.7
                                                    %General
      and administrative expenses
                                                    
                                                    
                                                    48.8
                                                    %
                                                    
                                                    
                                                    23.5
                                                    %Share-Based
      Compensation Included Above:Sales
      and marketing expenses
                                                    
                                                    $
                                                    25
                                                    
                                                    
                                                    $
                                                    30
                                                    
                                                    
                                                    
                                                    (17
                                                    )%General
      and administrative expenses
                                                    
                                                    $
                                                    131
                                                    
                                                    
                                                    $
                                                    68
                                                    
                                                    
                                                    
                                                    93
                                                    %
  Sales
and Marketing Expense
 
 Sales and
marketing expenses consist primarily of personnel costs and costs related our
sales force and marketing staff.  They also include expenses relating
to advertising, brand building, marketing promotions and trade show events, lead
generation, and travel.  Commissions are due and payable when customer
payment is received.  Sales and marketing expense for the three months
ended March 31, 2010 increased $0.1 million, or 19% compared to the prior
period, due to the addition of our Italian operations and an expense of $0.2
million for an investor relations campaign.
 
 General
and AdministrativeExpenses
 
 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 $0.5 million, or 38%, for the three months ended March 31, 2010
compared to the prior period.  The increase was attributable to the
addition of our Italian operations and an increase in auditing and legal
professional service fees of $0.2 million.
 
 Operating
loss
 
 As a
result of the above factors, operating loss was $2.4 million for the three
months ended March 31, 2010 compared to $1.4 for the three months ended March
31, 2009.  The combined effect of decreased sales revenue in a
challenging economic environment and the addition of our Italian operations
resulted in a higher operating loss in 2010 as compared to 2009.
 
 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 2009 and changes in the fair value of the contingent
consideration liability in 2010.
 
 Income Tax
Benefit
 
 Our
effective tax rate was 30.5% and 47.2% for the three months ended March 31,
2010, and 2009, respectively.  The effective tax rate in the three
months ended March 31, 2010 differed from the federal statutory rate of 34%
primarily due to the recognition of net operating losses.
  7
  LIQUIDITY
 
 Cash
Flows
  Three Months
      Ended March 31,2010
                          
                          
                          2009(in
      thousands)Net
      cash used in operating activities
                          
                          $
                          (2,338
                          )
                          
                          $
                          (2,602
                          )Net
      cash used in investing activities
                          
                          $
                          (18
                          )
                          
                          $
                          (35
                          )Net
      cash used in financing activities
                          
                          $
                          (33
                          )
                          
                          $
                          (125
                          )Decrease
      in cash and cash equivalents
                          
                          $
                          (2,460
                          )
                          
                          $
                          (2,871
                          )
  The
Company generates cash from operations primarily from cash collections related
to its installation sales.  Net cash flow used in operating activities
was $2.3 million for the three months ended March 31, 2010, compared with net
cash used in operating activities of $2.6 million for the three months ended
March 31, 2009.  Our largest source of operating cash flows is cash
collections from our customers following installation.  Our primary
uses of cash from operating activities are payments to our
vendors.  As of March 31, 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 three months
ended March 31, 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.
 
 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 March 31, 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.
 
 Capital
Resources
 
 As of
March 31, 2010, we had $1.3 million of cash and cash equivalents.  We
have financed our operations primarily through 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, and Premier Power Spain has a
€100,000 credit line that is available for working capital, which expires on May
21, 2010 and which
Premier Power Spain expects to renew upon expiration. 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 March 31, 2010, $0.2 million was available under the Umpqua
line, and $0.2 million was available under Premier Power Spain’s line of credit.
Thus, we believe that our current cash and cash equivalents, anticipated 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. The proceeds from the
private placement financings were used for general working capital purposes,
including funding the purchase of additional inventory and advertising and
marketing expenses.
 
 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. On April 29,
2010, we filed a registration statement on Form S-1 for the sale of equity
securities, which registration statement is currently under review by the
Commission.  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.
  8
  CONTRACTUAL
OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
 
 Lines
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 March 31, 2010, the interest rate was
5%.  As of March 31, 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, we are also subject to customary
non-financial covenants, including limitations on secured indebtedness and
limitations on dividends and other restricted payments.  As of March
31, 2010, we were out of compliance with the minimum current ratio and the
maximum debt-to-tangible net worth ratio. These ratios did not take into account
our contingent consideration liability as described in Note 12 of our footnotes
to the financial statements.  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 to account for the contingent
consideration liability; 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 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.
 
 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 March 31, 2010, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.
  Payments
      Due by PeriodLess
      than 1Total
                                            
                                            
                                            year
                                            
                                            
                                            1-3
      Years
                                            
                                            
                                            3-5
      YearsContractual Obligations:
                                            
                                            
                                            
                                            
                                            (in
      thousands)Bank
      Indebtedness
                                            
                                            $
                                            2,334
                                            
                                            
                                            $
                                            1,794
                                            
                                            
                                            $
                                            537
                                            
                                            
                                            $
                                            3Operating
      Leases
                                            
                                            
                                            315
                                            
                                            
                                            
                                            73
                                            
                                            
                                            
                                            194
                                            
                                            
                                            
                                            48$
                                            2,649
                                            
                                            
                                            $
                                            1,867
                                            
                                            
                                            $
                                            731
                                            
                                            
                                            $
                                            51
  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.
  9
  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.
 
 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 March 31, 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 March
31, 2010 to report that have not already been disclosed in a Current Report on
Form 8-K.
 
 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
              
              Description2.1
              
              Share
      Exchange Agreement between the Company and its majority stockholder, and
      Premier Power Renewable Energy, Inc. and its stockholders, dated September
      9, 2008 (3)2.2
              
              Share
      Exchange Agreement between Premier Power Renewable Energy, Inc., Rupinvest
      Sarl, and Esdras Ltd., dated June 3, 2009 (6)
                (3)3.1
              
              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 (7)10.1
              
              Second
      Amended and Restated Agreement to Serve as Member of the Board of
      Directors between the Registrant and Kevin Murray, dated March 25, 2010
      (8)  10
  10.2
              
              Second
      Amended and Restated Agreement to Serve as Member of the Board of
      Directors between the Registrant and Robert Medearis, dated March 25, 2010
      (8)10.3
              
              Amended
      and Restated Director Agreement between the Registrant and Tommy Ross,
      dated March 25, 2010 (8)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.(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 8, 2009 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(7)
              Filed
      on June 18, 2009 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(8)
              Filed
      on March 25, 2010 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.
  11
  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:
      May 17, 2010
              By:
              /s/
      Dean R. MarksDean
      R. MarksChief
      Executive Officer and President (Principal Executive
    Officer)Date:
      May 17, 2010
              By:
              /s/
      Frank J. SansoneFrank
      J. SansoneChief
      Financial Officer (Principal Financial & Accounting
      Officer)
 
 12