Unassociated Document

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

1. ORGANIZATION AND NATURE OF BUSINESS

Premier Power Renewable Energy, Inc., a Delaware corporation (the “Parent”), through its wholly owned subsidiaries, Premier Power Renewable Energy, Inc., a California corporation (“Premier Power California”), and Rupinvest Sarl (“Rupinvest”), and Premier Power California’s two wholly owned subsidiaries, Bright Future Technologies LLC (“Bright Future”) and Premier Power Sociedad Limitada (“Premier Power Spain”), and Rupinvest’s wholly owned subsidiary, Premier Power Italy S.p.A. (“Premier Power Italy”) (collectively the “Company”), designs, engineers, and installs photovoltaic systems in the United States, Italy, and Spain.

On June 16, 2009, the Company sold to Vision Opportunity Master Fund (“Vision”) 2.8 million shares of Series B Convertible Preferred Stock (bearing no liquidation preference, no coupon payments, and no redemption rights) in exchange for the cancellation of 3.5 million Series A and Series B warrants held by Vision, and $3 million in cash. The cancellation of warrants resulted in the elimination of all the Company’s issued and outstanding warrants.

On July 31, 2009, the Company purchased 100% of the issued and outstanding equity ownership of Rupinvest, a corporation duly organized and existing under the laws of Luxembourg, from Esdras Ltd., a corporation duly organized and existing under the laws of Cyprus (“Esdras”). Rupinvest distributes, develops, and integrates ground mount and rooftop solar power systems in Italy through its then majority-owned subsidiary, Premier Power Italy (formerly known as ARCO Energy, SRL), a private limited liability company organized under the laws of Italy. Prior to the closing, Rupinvest was a wholly owned subsidiary of Esdras. The Company acquired 100% of the issued and outstanding equity ownership interest in Rupinvest from Esdras in exchange for: (a) a cash payment by us to Esdras in the amount of twelve thousand five hundred Euros (€12,500, or approximately $18,292); and (b) the potential transfer to Esdras of up to three million shares of the Company’s restricted common stock, with the number of shares to be transferred, if any, to be calculated based on achieving certain sales by Premier Power Italy over a three-year period. Pursuant to the closing of this transaction, the Company conducts operations in Italy through Premier Power Italy. On December 31, 2009, Rupinvest purchased the remaining 10% interest of Premier Power Italy from Esdras at Esdras’ initial capital contribution per the Share Exchange Agreement, and Premier Power Italy became the wholly owned subsidiary of Rupinvest.

F-5

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information. They should be read in conjunction with the consolidated financial statements and related notes to the Company’s consolidated financial statements for the years ended December 31, 2009 and 2008 appearing in the Company’s Form 10-K for the fiscal year ended December 31, 2009 that is filed with the Securities and Exchange Commission. The March 31, 2010 and 2009 unaudited interim consolidated financial statements on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for smaller reporting companies. Certain information and note disclosures normally included in the annual financial statements have been condensed or omitted pursuant to those rules and regulations, although the Company’s management believes the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

The consolidated financial statements include the accounts of the Parent and its subsidiaries. Intercompany balances, transactions, and cash flows are eliminated on consolidation.

Concentrations and Credit Risk – Three customers accounted for 25.2%, 9.5%, and 7.0%, respectively, of the Company’s sales for the three months ended June 30, 2010. Two customers each accounted for more than 10% of the Company’s sales for the three months ended June 30, 2009 that in the aggregate accounted for 22.3% of the Company’s sales during the quarter. Three customers accounted for aggregate sales of 30.7% for the six months ended, June 30, 2010, or 18.6%, 7.0%, and 5.1% respectively. The Company had two customers that each accounted for 14% of the Company’s sales for the six months ended June 30, 2009. Accounts receivable primarily consist of trade receivables and amounts due from state agencies and utilities for rebates on solar systems installed. At June 30, 2010, the Company had two customers that accounted for 43.9% and 19.8% of the Company’s accounts receivable. At December 31, 2009, the Company had two customers that accounted for 22.9% and 10.9% of the Company’s accounts receivable. The Company monitors account balances and follows up with accounts that are past due as defined in the terms of the contract with the customer. The Company maintains an allowance for doubtful accounts receivable based on the expected collectability of its accounts receivable. The allowance for doubtful accounts is based on assessments of the collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than historical experience, the allowance for doubtful accounts is increased. The allowance for doubtful accounts was $0.2 million and $0.1 million as of June 30, 2010 and December 31, 2009, respectively.

The Company purchases its solar modules from a limited number of suppliers but believes that in the event it is unable to purchase solar panels from these suppliers that alternative sources of solar modules will be available.

F-6

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include revenue recognition and derivative instruments, allowance for doubtful accounts, valuation of goodwill, warranty reserves, the estimated useful life of property and equipment, valuation of the contingent consideration liability and derivative instrument, and income taxes. Actual results could differ from those estimates.

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand or in the bank and short-term investment securities with remaining maturities of 90 days or less at date of purchase. The Company maintains its cash in bank deposit accounts that, at times, may exceed the statutory insured limits of the jurisdiction in which the accounts are held. The Company has not experienced any losses on these investments. At June 30, 2010, the Company had $0.9 million in cash in bank accounts in excess of the various deposit insurance limits of the jurisdictions in which the balances were held.

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

Property and Equipment – Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of 5 years, or in the case of leasehold improvements, the lease term, if shorter. Maintenance and repairs are expensed as they occur. Upon disposition, the cost and related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected in current operations.

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

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

F-7

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

Fair Value of Financial Instruments – The carrying value reported for cash equivalents, accounts receivable, prepaid expenses, other receivables, accounts payable, and accrued liabilities approximated their respective fair values at each balance sheet date due to the short-term maturity of these financial instruments. The fair values of the contingent consideration liability and our borrowings have been determined in accordance with the methodology as disclosed in Notes 12 and 16.

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

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

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

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

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

Advertising – The Company expenses advertising costs as they are incurred. Advertising costs were $0.1 million and $0.2 million the three months ended June 30, 2010 and 2009, respectively. Advertising costs were $0.2 million and $0.4 million for the six months ended June 30, 2010 and 2009, respectively.

F-8

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

Product Warranties – The Company warrants its projects for labor and materials associated with its installations. The Company’s warranty is ten years in California and generally five to ten years elsewhere in the U.S. depending upon each state’s specific requirements. Premier Power Italy provides a ten year warranty covering the labor and materials associated with its installations. Premier Power Spain provides a one year warranty for all contracts signed after December 31, 2006. Since the Company does not have sufficient historical data to estimate its exposure, we have looked to our historical data and the historical data reported by a peer company solar system installer. Solar panels and inverters are warranted by the manufacturer for 25 years and 10 years, respectively. Activity in the Company’s accrued warranty reserve for the three and six months ended June 30, 2010 and 2009 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(in thousands)						(in thousands)
Beginning accrued warranty balance	$	355		$	332		$	359		$	367

Accruals related to warranties issued during period		10			20			33			133

Reduction for labor payments and claims made under warranty		(14	)		(85	)		(41	)		(233	)

Ending accrued warranty balance	$	351		$	267		$	351		$	267

For certain European solar projects, we enter into warranties for the performance of a solar system upon completion of the project. We warrant that the solar system will perform at certain performance ratios based on the energy generated versus irradiance levels. Our exposure under these warranties is currently limited to the amount of fees we are to receive for performing maintenance services over a limited period of time (usually two years) and that would be forgone by us in the event the system did not perform as expected. To date, we have not incurred lost revenue under these arrangements, and the total of future revenues subject to forfeiture is not material.

Foreign Currency – The functional currency of Premier Power Italy and Premier Power Spain is the Euro. Their assets and liabilities are translated at year-end exchange rates including goodwill, except for certain non-monetary balances, which are translated at historical rates. All income and expense amounts of Premier Power Italy and Premier Power Spain are translated at average exchange rates for the respective period. Translation gains and losses are not included in determining net income but are accumulated in a separate component of shareholders’ equity. Foreign currency transaction gains and losses are included in the determination of net income (loss) in the period in which they occur. For the three and six months ended June 30, 2010, the foreign currency transaction gain (loss) was $(0.1) million and $(0.03) million, respectively. For the three and six months ended June 30, 2009, the foreign currency transaction gain was $0.04 million and $0.08 million, respectively.

F-9

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

Comprehensive Income – FASB ASC Topic 220 (Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,”) establishes standards for reporting comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income, as defined, includes all changes in equity during the period from non-owner sources, such as foreign currency translation adjustments.

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

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

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

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

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

Reclassifications – Certain reclassifications have been made to the prior period balances to conform to the current presentation.

F-10

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

Recently Issued Accounting Pronouncements

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

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

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

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

F-11

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

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

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

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

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

3. EARNINGS PER SHARE

Earnings per share is computed in accordance with the provisions of FASB ASC Topic 260 (SFAS No. 128, “Earnings Per Share”). Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding during the period, as adjusted for the dilutive effect of the Company’s outstanding convertible preferred shares using the “if converted” method and dilutive potential common shares. Potentially dilutive securities include convertible preferred stock, employee stock options, restricted shares, and contingently issuable shares for the purchase of Rupinvest. Potentially dilutive common shares from employee incentive plans are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of outstanding restricted stock.

F-12

PREMIER POWER RENEWABLE ENERGY, INC.

Notes to Consolidated Financial Statements

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010			2009
	(in thousands, except per share data)					(in thousands, except per share data)
Net income (loss)	$	727	$	(259	)	$	(79	)	$	462
Earnings (loss) per share:
Basic	$	0.03	$	(0.01	)	$	(0.00	)	$	0.02
Diluted	$	0.02	$	(0.01	)	$	(0.00	)	$	0.02
Weighted average shares outstanding:
Basic		26,602		26,049			26,582			26,049
Diluted effect of convertible preferred stock, series A		3,500		-			-

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (do not check if a smaller reporting company)	Smaller reporting company x

		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	11

PART II – OTHER INFORMATION		12
Item 1.	Legal Proceedings	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	(Removed and Reserved)
Item 5.	Other Information	12
Item 6.	Exhibits	12

Signatures		14

PREMIER POWER RENEWABLE ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2010 AND DECEMBER 31, 2009
(in thousands, except share data)

	June 30,			December 31,
	2010			2009
ASSETS	(unaudited)			(unaudited)
Current assets:
Cash and cash equivalents	$	1,561		$	3,792
Accounts receivable, net of allowance for doubtful accounts of
$227 and $137 at June 30, 2010 and December 31, 2009, respectively		11,374			7,676
Inventory		1,810			1,824
Prepaid expenses and other current assets		1,286			432
Costs and estimated earnings in excess of billings on uncompleted contracts		7,837			13,674
Other receivables		103			175
Deferred tax assets		227			473
Total current assets		24,198			28,046

Property and equipment, net		512			615
Intangible assets, net		871			970
Goodwill		10,508			12,254
Deferred tax assets		-			1,295
Total assets	$	36,089		$	43,180

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	18,078		$	18,347
Accrued liabilities		1,951			2,043
Billings in excess of costs and estimated earnings on uncompleted contracts		436			374
Taxes payable		225			293
Customer deposits		1,268			-
Borrowings, current		1,658			1,692
Total current liabilities		23,616			22,749

Borrowings, non-current		339			548
Contingent consideration liability		1,949			7,725
Total liabilities		25,904			31,022

Commitments and contingencies (Notes 12)
Shareholders' equity:
Series A convertible preferred stock, par value $.0001 per share: 5,000,000 shares
designated; 20,000,000 shares of preferred stock authorized; 3,500,000
shares issued and outstanding at June 30, 2010 and December 31, 2009.		-			-
Series B convertible preferred stock, par value $.0001 per share: 2,800,000 shares designated;
20,000,000 shares of preferred stock authorized; 2,800,000 and 2,800,000 shares issued and
outstanding at June 30, 2010 and December 31, 2009.		-			-
Common stock, par value $.0001 per share; 500,000,000 shares authorized;
29,099,750 and 29,050,250 shares issued and outstanding at
June 30, 2010 and December 31, 2009, respectively		3			3
Additional paid-in-capital		18,251			17,822
Accumulated deficit		(5,464	)		(5,385	)
Accumulated other comprehensive loss		(2,605	)		(282	)
Total shareholders' equity		10,185			12,158
Total liabilities and shareholders' equity	$	36,089		$	43,180

PREMIER POWER RENEWABLE ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009
(in thousands, except per share data)


	For Three Months ended June 30,						For Six Months ended June 30,
	2010			2009			2010			2009
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net sales	$	9,026		$	4,114		$	12,425		$	8,908
Cost of sales		(8,576	)		(3,585	)		(11,944	)		(8,011	)
Gross profit		450			529			481			897

Operating expenses:
Sales and marketing		771			734			1,512			1,389
General and administrative		1,521			1,248			3,181			2,376
Total operating expenses		2,292			1,982			4,693			3,765

Operating loss		(1,842	)		(1,453	)		(4,212	)		(2,868	)

Other income (expense):
Interest expense		(38	)		(6	)		(75	)		(8	)
Other expense		(64	)		-			(64	)		-
Change in fair value of contingent consideration liability		4,522			-			5,776			-
Change in fair value of financial instruments		-			708			-			2,184
Interest income		4			11			5			28
Total other income (expense), net		4,424			713			5,642			2,204

Income (loss) before income taxes		2,582			(740	)		1,430			(664	)

Income tax (expense ) benefit		(1,855	)		481			(1,509	)		1,126

Net income (loss)	$	727		$	(259	)	$	(79	)	$	462

Earnings (loss) Per Share:

Basic	$	0.03		$	(0.01	)	$	(0.00	)	$	0.02
Diluted	$	0.02		$	(0.01	)	$	(0.00	)	$	0.02

Weighted Average Shares Outstanding:

Basic		26,602			26,049			26,582			26,049
Diluted		32,902			26,049			26,582			30,257

PREMIER POWER RENEWABLE ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009
(in thousands)

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

Supplemental cash flow information:
Interest paid	$	63		$	8
Taxes paid	$	-		$	39

Non-cash investing and financing activities:
Warrant liability settled with equity	$	-		$	8,935

PREMIER POWER RENEWABLE ENERGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(in thousands and unaudited)

	Common Stock				Series A - Preferred Stock				Series B - Preferred Stock				Additional Paid			(Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Shares		Amount		Shares		Amount		In Capital			Deficit)			Loss			Total

Balance December 31, 2009		29,050	$	3		3,500	$	-		2,800	$	-	$	17,822		$	(5,385	)	$	(282	)	$	12,158

Net loss																	(79	)					(79	)
Foreign currency translation adjustment																				(2,323	)		(2,323	)
Comprehensive loss																							(2,402	)
Stock based compensation		50												482									482
Cost related to share registration														(53	)								(53	)

Balance June 30, 2010		29,100	$	3		3,500	$	-		2,800	$	-	$	18,251		$	(5,464	)	$	(2,605	)	$	10,185