SPI Energy Co., Ltd. - Annual Report: 2011 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2011

OR

For the transition period from:             to             .

Commission File Number 000-50142

SOLAR POWER, INC.

(Exact name of registrant as specified in its charter)

(916) 770-8100

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.0001

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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. (Check one):

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

The aggregate market value of voting stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2011, was $11,003,966. For purposes of this computation, it has been assumed that the shares beneficially held by directors and officers of registrant were “held by affiliates” this assumption is not to be deemed to be an admission by such persons that they are affiliates of registrant.

The number of shares of registrant’s common stock outstanding as of March 22, 2012 was 184,413,923.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of Stockholders, which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year-ended December 31, 2011, are incorporated by reference into Part III of this Form 10-K; provided, however, that the Compensation Committee Report, the Audit Committee Report and any other information in such proxy statement that is not required to be included in this Annual Report on Form 10-K, shall not be deemed to be incorporated herein by reference or filed as a part of this Annual Report on Form 10-K

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

As used in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,” “us,” “our” and “the Company” refer to Solar Power, Inc., a California corporation and its wholly-owned subsidiaries.

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and information we provide in our press releases, telephonic reports and other investor communications, including those on our website, may contain forward-looking statements with respect to anticipated future events and our projected financial performance, operations and competitive position that are subject to risks and uncertainties that could cause our actual results to differ materially from those forward-looking statements and our expectations.

Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates” and other words of similar meaning. These statements constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements reflect our then current beliefs, projections and estimates with respect to future events and our projected financial performance, operations and competitive position.

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PART I

ITEM 1 — BUSINESS

Overview

Solar Power, Inc. (“SPI”) is a global turnkey developer and Engineering, Procurement and Construction (“EPC”) contractor of large-scale photovoltaic (“PV”) solar energy facilities (“SEF”). We design, engineer, construct, market and sell very high-quality PV SEFs for commercial and utility applications to a global market. Additionally, in the course of producing our systems we manage a supply chain of solar modules, racking and balance of system components that includes our own uniquely designed racking systems, SkyMount® and Peaq^TM. SPI produces its world-class SEFs from concept through creation, and ensures superior SEF performance with its comprehensive operations and maintenance (“O&M”) services program SPIGuardian^TM.

On January 5, 2011, we entered into a stock purchase agreement with LDK Solar Co., Ltd. (“LDK”), a vertically integrated solar wafer, cell and solar module manufacturer. Under the agreement, on an as-converted, fully diluted basis, LDK purchased 70% of our common stock. The transaction complemented LDK’s vertical integration, effectively providing us with strategic capital by making SPI its downstream SEF development platform and a member of the global LDK Solar family. Furthermore, the transaction enables SPI to leverage LDK’s supply chain and economies-of-scale to work as a vertically integrated turnkey solar developer and EPC contractor.

Previously, we sold our manufactured products through three distinct sales channels: 1) direct product sales to international and domestic markets, 2) independent construction of commercial and residential solar systems in the U.S., and 3) authorized dealer networks who sold our Yes! branded products in the U.S., and to the European residential markets through both direct and dealer sales. Subsequent to the January 2011 transaction with LDK, our business strategy and focus shifted solely to the development, design, engineering and construction of commercial and utility PV solar projects, and we closed our PV solar module manufacturing facility in Shenzhen, China. We continue to manufacture balance of system components, including our proprietary racking systems SkyMount® and Peaq^TM, through contract manufacturing and assembly relationships. We maintain a strategic office in Shenzhen, Peoples Republic of China (“PRC”) that is principally responsible for our ongoing procurement, logistics and design support for our products and data systems. It also provides monitoring and management services for those solar energy facilities we either own or maintain under operations and maintenance agreements through our SPIGuardian^TM O&M services program.

The LDK relationship has strengthened our position in the solar industry and provided broader strategic relationships that strengthen our business development position, allowing us to pursue the commercial and utility projects in our pipeline more aggressively. We now intend to grow our pipeline in the Americas, Europe, Africa and the Caribbean with equal aggression while we simultaneously accelerate the active development of multiple projects now under way.

Industry Overview

We believe 2012 will show protracted continued growth in the PV solar market. Government policies, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers and have provided opportunities for developers to construct PV systems as an alternative to more traditional forms of power generation. The PV market is a global one and it has grown from 6.1Gigawatt (“GW”) in 2008 to an estimated 25GW in 2012. Germany has been the single largest driver of this growth from 1.8GW in 2008 to 6GW in 2011.* We anticipate global demand to be in the range of approximately 25GW vs. 24GW in 2011. The German and Italian markets have been slowing while growth is projected in the U.S. and Asia markets.

In the U.S. market, solar is growing as well. The U.S. market is anticipated to reach 3.5GW in 2012, up from 2.5GW in 2011. Incentives have been extended that will support this growth, and a pipeline of projects is in place that substantiate the 3.5GW forecast.*

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Our Strategy

Our business strategy, as an LDK company, is to leverage LDK’s strategic relationships and upstream product supply to effectively extend the vertical integration of both companies to go from silicon to systems. We will maintain control of our supply chain, including engineering, procurement, construction, and manufacturing to ensure top-quality products, systems and margin optimization. SPI provides a strategic downstream complement to LDK that includes turnkey project development and EPC contractor services, essentially consisting of project financing and post construction asset management of the SEFs through the Company’s O&M services offering SPIGuardian^TM. The end results are to deliver highly efficient and cost effective, world-class solar solutions.

As conventional energy costs rise and fossil fuels dwindle globally, the deployment of renewable energy grows. We believe solar energy will play an increasingly important role as a growing number of energy independence strategies are deployed worldwide. We presently are focused on the following steps to implement our business strategy:

Products and Services

We are a designer, integrator and installer of photovoltaic power systems to a variety of customers. In addition to building solar systems using our products, we may sell solar modules and our balance of system components to other integrators in the U.S., Asian, and European markets. For the fiscal year ended December 31, 2011, we recorded net sales of $101,550,000 from the sale of solar panels, balance of system products and sales and installation of our photovoltaic power systems, representing 98.5% of our total net sales. Nine customers in this group represented 96% of our total net sales. We anticipate that our current revenue trend for SEF sales in fiscal year 2012 will continue to grow.

Additionally, for the fiscal year ended December 31, 2011, net sales in our cable, wire and mechanical assemblies segment was $1,522,000 or 1.5% of our total net sales.

Intellectual Property

We rely and will continue to rely on trade secrets, know-how and other unpatented proprietary information in our business. We have the following trademarks: Yes! Solar Solutions, Yes!, and SkyMount®. In addition, we have four Patent Cooperation Treaty applications, four provisional patents pending, one patent application and one design application for certain proprietary technologies.

Competition

The solar power market is intensely competitive and rapidly evolving, and we compete with major international and domestic companies. Our major competitors in the development of SEFs include completely vertically

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integrated companies such as SunPower Corporation and First Solar, and companies such as Sun Edison (a wholly owned subsidiary of MEMC Electronic Materials, Inc.) plus numerous regional developers. We compete in the sale of our balance of system products with other manufacturers of racking systems for solar modules. The entire solar industry also faces competition from other power generation sources, both conventional sources as well as other emerging technologies. Solar power has certain advantages and disadvantages when compared to other power generating technologies. The advantages include the ability to deploy products in many sizes and configurations, install products almost anywhere in the world, provide reliable power for many applications, serve as both a power generator and the skin of a building and eliminate air, water and noise emissions.

Manufacturing and Assembly Capabilities

As described previously, we no longer manufacture solar modules. Through contract manufacturing and assembly relationships, we continue to manufacture balance of system products. Our knowledge and experience of manufacturing and assembly operations in China give us a competitive advantage in the production of balance of system products. Our goal is to continue to reduce costs of the overall solar system to the end customer and ultimately make the actual installed cost of solar equivalent or comparable to the cost of grid-based energy without rebate. These overall reductions in cost will be delivered by reducing labor installation costs through better system design and kit packaging along with reductions in module and balance of system costs through a sustained focus on driving prices down on what are essentially commodity-like products.

Suppliers

There are numerous suppliers of solar modules in the industry, and we have sourced modules from several of them through 2011. There does not appear to be a shortage of modules or raw materials used in the manufacture of solar modules required for our SEFs. We anticipate that our primary source of modules will be through our strategic partner, LDK, although we are not contractually obligated to purchase solely from LDK.

Sales and Marketing

Our products and services are largely represented through our Company’s sales force located in California. To ensure adequate coverage of the markets we are targeting, we also work with outside sales representatives to cultivate opportunities. These representatives currently cover Europe, Asia, and sections of the United States (“U.S.”).

Employees

As of December 31, 2011, we had 68 full-time employees comprised of 46 employees in the U.S, and the balance working in our Shenzhen, China engineering and procurement operation. None of our employees are represented by a labor union nor are we organized under a collective bargaining agreement. We have never experienced a work stoppage and believe that our relations with our employees are good.

Item 1A — RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in our public filings before making an investment decision about our common stock. While the risks described below are the ones we believe are most important for you to consider, these risks are not the only ones that we face. If any of the following risks actually occur, our business, operating results or financial condition could suffer, the trading price of our common stock could decline, and you could lose all or part of your investment.

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Factors, Risks and Uncertainties That May Affect our Business

With the exception of historical facts herein, the matters discussed herein are “forward looking” statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such “forward looking” statements include, but are not necessarily limited to statements regarding anticipated levels of future revenues and earnings from the operations of Solar Power, Inc. and its subsidiaries, projected costs and expenses related to our operations, liquidity, capital resources, and availability of future equity capital on commercially reasonable terms. Factors that could cause actual results to differ materially are discussed below. We disclaim any intent or obligation to publicly update these “forward looking” statements, whether as a result of new information, future events or otherwise. Unless the context indicates or suggests otherwise, reference to “we”, “our”, “us”, and the “Company” in this section refers to the consolidated operations of Solar Power, Inc., a California corporation.

Risks Related to Our Business

Our risks and uncertainties include, without limitation, our ability to raise capital to finance our operations, the effectiveness, profitability and the marketability of our services, our ability to protect our proprietary information, general economic and business conditions, the impact of new or disruptive technological developments and competition, adverse results of any legal proceedings, the impact of current, pending or future legislation and regulation of the solar power industry, our ability to enter into acceptable relationships with one or more of our suppliers for panel components and the ability of such suppliers to manufacture products or components of an acceptable quality on a cost-effective basis, our ability to attract or retain qualified senior management personnel, including sales and marketing and technical personnel and other risks detailed from time to time in our filings with the SEC, including those described below. We do not undertake any obligation to update any forward-looking statements.

We have limited experience constructing solar systems on a commercial basis and changes to our business strategy to SEF construction more recently provides a limited history on which to base our prospects and anticipated results of operations.

We commenced solar power-related operations in June 2006 and began manufacturing solar modules in April 2007. Our IAS (Shenzhen) Electronics Co., Ltd. (“IAS”) subsidiary completed its first mechanical assembly manufacturing line in May 2005 and began commercial shipment of its cable, wire and mechanical products in June 2005. During 2011, we continued to eliminate and/or consolidate our wholly owned subsidiaries, to focus more strategically on commercial and utility construction projects. In the past year, our operating focus has shifted principally to the construction of SEFs. A SEF is a complete solar array that is designed and constructed to produce electricity from the sun (DC power) and then convert it, as necessary, to AC power through an inverter to produce power for the end user. We have constructed SEFs mounted on rooftops, parking lot structures and on the ground. Moreover, due to the strategic change in our focus and revenue generating efforts, our prior operating history and our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. We have incurred net losses since our inception and as of December 31, 2011, had an accumulated deficit of approximately $35,000,000. We may be unable to achieve or maintain profitability in the future.

Our business strategy depends on the widespread adoption of solar power technology and economics for the construction of SEFs, and if demand for such facilities fails to develop sufficiently, our revenues and ability to achieve or maintain profitability could be harmed.

While the demand for SEFs is emerging and rapidly evolving, its future success is uncertain. If solar power technology proves unsuitable for widespread commercial deployment or if demand for SEFs fails to develop sufficiently, we may not be able to generate enough revenues to achieve and sustain profitability. The factors influencing the widespread adoption of solar power technology through the construction of SEFs include but are not limited to:

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The reduction or elimination of government and economic incentives domestically and changes in foreign incentives could cause our revenue to decline.

We believe that the growth of the market for “on-grid” applications, where solar power is used to supplement a customer’s electricity purchased from the utility network, depends in large part on the availability and size of government-generated economic incentives. At present, the cost of producing solar energy generally exceeds the price of electricity in the U.S. from traditional sources. To encourage the adoption of solar technologies, the U.S. government and numerous state governments have provided subsidies in the form of cost reductions, tax write-offs and other incentives to end users, distributors, systems integrators and manufacturers of solar power products. Reduction, elimination and/or periodic interruption of these government subsidies and economic incentives because of policy changes, fiscal tightening or other reasons may result in the diminished competitiveness of solar energy, and materially and adversely affect the growth of these markets and our revenues. Electric utility companies that have significant political lobbying powers may push for a change in the relevant legislation in our markets. The existing Federal Investment Tax Credit was renewed with passage of the 2008 economic stimulus package by the U.S. government. The current Federal Investment Tax Credit allows for a 30% tax credit for both commercial and residential solar installations with no cap and allows the commercial credit to be monetized if it cannot be absorbed by a tax liability.

A significant portion of our prior direct module and balance of system sales occurred outside of the U.S. Changes in the feed-in tariffs in markets like Germany, Spain and Italy, will have a material impact on the financial viability of solar systems in those markets. Consequentially, our ability to sell products into those markets will be impacted. Changes to international programs are not easily forecasted and may happen rapidly, resulting in significant changes in demand for solar products.

The execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for our customers.

For many of our projects, our customers have entered into agreements to pay for solar energy over an extended period of time based on energy savings generated by our solar power systems, rather than paying us to construct a solar power system for them. For these types of projects, most of our customers choose to purchase solar electricity under a power purchase agreement with a financing company that contracts with us for the construction of the SEF. These structured finance arrangements are complex and rely heavily on the creditworthiness of the customer as well as required returns of the financing companies. Today the Company does not have an ownership interest in either the financing companies or its customers. Depending on the status of financial markets, companies may be unwilling or unable to finance the cost of construction of the SEF. Lack of credit for our customers or restrictions on financial institutions extending such credit will severely limit our ability to grow our revenues. In addition, an increase in interest or lending rates or a reduction in the supply of project debt financing could reduce the number of solar projects that receive financing, making it difficult for our customers to secure the financing necessary to develop, build, purchase or install a PV system on favorable terms, or at all, and thus lower demand for our SEFs which could limit our growth or reduce our net sales.

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The preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates, judgments, and assumptions that may ultimately prove to be incorrect.

The accounting estimates and judgments that management must make in the ordinary course of business affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. If the underlying estimates are ultimately proven to be incorrect, subsequent adjustments could have a material adverse effect on our operating results for the period or periods in which the change is identified. Additionally, subsequent adjustments could require us to restate our consolidated financial statements. Restating consolidated financial statements could result in a material decline in the price of our stock.

We act as the general contractor for our customers in connection with the installations of our solar power systems and are subject to risks associated with construction, bonding, cost overruns, delays and other contingencies, which could have a material adverse effect on our business and results of operations.

We act as the general contractor for our customers in connection with the installation of our solar power systems. All essential costs are estimated at the time of entering into the sales contract for a particular project, and these are reflected in the overall price that we charge our customers for the project. These cost estimates are preliminary and may or may not be covered by contracts between us or the other project developers, subcontractors, suppliers and other parties to the project. In addition, we require qualified, licensed subcontractors to install most of our systems. Shortages of such skilled labor could significantly delay a project or otherwise increase our costs. Should miscalculations in planning a project or defective or late execution occur, we may not achieve our expected margins or cover our costs. Additionally, many systems customers require performance bonds issued by a bonding agency. Due to the general performance risk inherent in construction activities, it is sometimes difficult to secure suitable bonding agencies willing to provide performance bonding. In the event we are unable to obtain bonding, we will be unable to bid on, or enter into sales contracts requiring such bonding.

Delays in solar panel or other supply shipments, other construction delays, unexpected performance problems in electricity generation or other events could cause us to fail to meet these performance criteria, resulting in unanticipated and severe revenue and earnings losses and financial penalties. Construction delays are often caused by inclement weather, failure to timely receive necessary approvals and permits, or delays in obtaining necessary solar panels, inverters or other materials. The occurrence of any of these events could have a material adverse effect on our business and results of operations.

If there is an increase in the price of polysilicon, the corresponding increase in the cost of constructing SEFs may reduce the demand for SEFs, resulting in lower revenues and earnings.

Increases in polysilicon pricing could result in substantial downward pressure on the demand for SEFs due to the overall increase in the cost of production for such projects. Lessening demand for new SEFs may have a negative impact on our revenue and earnings and adversely affect our business and financial condition.

Our operating results may fluctuate significantly from period to period; if we fail to meet the expectations of securities analysts or investors, our stock price may decline significantly.

Several factors can contribute to significant quarterly and other periodic fluctuations in our results of operations. These factors may include but are not limited to the following:

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We base our planned operating expenses in part on our expectations of future revenue, and we believe a significant portion of our expenses will be fixed in the short-term. If revenue for a particular quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. This may cause us to miss analysts’ guidance or any guidance announced by us. If we fail to meet or exceed analyst or investor expectations or our own future guidance, even by a small amount, our stock price could fluctuate, perhaps substantially.

We may not be able to efficiently integrate the operations of our acquisitions, products or technologies.

From time to time, we may acquire new and complementary technology, assets and companies. We do not know if we will be able to complete any acquisitions or if we will be able to successfully integrate any acquired businesses, operate them profitably or retain key employees. Integrating any other newly acquired business, product or technology could be expensive and time-consuming, disrupt our ongoing business and distract our management. We may face competition for acquisition targets from larger and more established companies with greater financial resources. In addition, in order to finance any acquisitions, we might be forced to obtain equity or debt financing on terms that are not favorable to us, and in the case of equity financing, our stockholders interests may be diluted. If we are unable to integrate effectively any newly acquired company, product or technology, our business, financial condition and operating results could suffer.

We face intense competition and many of our competitors have substantially greater resources than we do.

We compete with major international and domestic companies. Some of our current and potential competitors have greater market recognition and customer base, longer operating histories and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing, personnel and other resources than we do. In addition, many of our competitors are developing and are currently producing products based on new solar power technologies that may ultimately have costs similar to or lower than our projected costs.

Some of our competitors own, partner with, have longer term or stronger relationships with solar cell providers than we do, which could result in them being able to obtain solar cells on a more favorable basis than us. It is possible that new competitors or alliances among existing competitors could emerge and rapidly acquire significant market share, which would harm our business. If we fail to compete successfully, our business would suffer and we may lose or be unable to gain market share.

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Existing regulations and policies of the electric utility industry and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of our products, which may significantly reduce demand for our products.

The market for electricity generating products is strongly influenced by federal, state and local government regulations and policies concerning the electric utility industry as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the U.S., these regulations and policies are being modified and may continue to be modified. Customer purchases of alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which could result in a significant reduction in the demand for our solar power products. For example, without a regulatory-mandated exception for solar power systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. These fees could increase the cost to our customers and make our solar power products less desirable.

The failure to increase or restructure the net metering caps could adversely affect our business. In the U.S., all grid-tied photovoltaic systems are installed with cooperation by the local utility providers under guidelines created through statewide net metering policies. These policies require local utilities to purchase from end users excess solar electricity for a credit against their utility bills. The amount of solar electricity that the utility is required to purchase is referred to as a net metering cap. If these net metering caps are reached and local utilities are not required to purchase solar power, or if the net metering caps do not increase in the locations where we install our solar product, demand for our products could decrease. The solar industry is currently lobbying to extend these arbitrary net metering caps and replace them with either notably higher numbers or with a revised method of calculation that will allow the industry to continue our expansion in a manner consistent with both the industry and state and federal desires.

Moreover, we anticipate that our solar power installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters.

It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us, our resellers, and our customers and as a result, could cause a significant reduction in demand for our solar power products.

Compliance with environmental regulations can be expensive and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

We are required to comply with extensive environmental laws and regulations at the national, state, local, and international levels. These environmental laws and regulations include those governing the discharge of pollutants into the air and water, the use, management, and disposal of hazardous materials and wastes, the cleanup of contaminated sites, and occupational health and safety. We have incurred and will continue to incur significant costs and capital expenditures in complying with these laws and regulations. In addition, violations of or liabilities under environmental laws or permits may result in restrictions being imposed on our operating activities or in our being subjected to substantial fines, penalties, criminal proceedings, third party property damage or personal injury claims, cleanup costs, or other costs. While we believe we are currently in substantial compliance with applicable environmental requirements, future developments such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of presently unknown environmental conditions may require expenditures that could have a material adverse effect on our business, results of operations, and financial condition.

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We generally recognize revenue on system installations on a “percentage of completion” basis and payments are due upon the achievement of contractual milestones and any delay or cancellation of a project could adversely affect our business.

We generally recognize revenue on our system installations on a “percentage of completion” basis, and as a result, our revenues from these installations are driven by the performance of our contractual obligations, which is generally driven by timelines for the installation of our solar power systems at customer sites. This could result in unpredictability of revenue and in the near term, a revenue decrease. As with any project-related business, there is the potential for delays within any particular customer project. Variation of project timelines and estimates may impact our ability to recognize revenue in a particular period. In addition, certain customer contracts may include payment milestones due at specified points during a project. Because we must invest substantial time and incur significant expense in advance of achieving milestones and the receipt of payments, failure to achieve milestones could adversely affect our business and results.

We are subject to particularly lengthy sales cycles in some markets.

Our focus on developing a customer base that requires installation of a solar power system means that it may take longer to develop strong customer relationships or partnerships. Moreover, factors specific to certain industries also have an impact on our sales cycles. Some of our customers may have longer sales cycles that could occur due to the timing of various state and federal subsidies. These lengthy and challenging sales cycles may mean that it could take longer before our sales and marketing efforts result in revenue, if at all, and may have adverse effects on our operating results, financial condition, cash flows and stock price.

Our competitive position depends in part on maintaining intellectual property protection.

Our ability to compete and to achieve and maintain profitability depends in part on our ability to protect our proprietary discoveries and technologies. We currently rely on a combination of copyrights, trademarks, trade secret laws and confidentiality agreements to protect our intellectual property rights. We also rely upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position.

From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the U.S. Patent and Trademark Office may change the standards of patentability, and any such changes could have a negative impact on our business.

We may face intellectual property infringement claims that could be time-consuming and costly to defend and result in our loss of significant rights and the assessment of damages.

If we receive notice of claims of infringement, misappropriation or misuse of other parties’ proprietary rights, some of these claims could lead to litigation. We cannot provide assurance that we will prevail in these actions or that other actions alleging misappropriation or misuse by us of third-party trade secrets, infringement by us of third-party patents and trademarks or the validity of our patents will not be asserted or prosecuted against us. We may also initiate claims to defend our intellectual property rights. Intellectual property litigation, regardless of outcome, is expensive and time-consuming, could divert management’s attention from our business and have a material negative effect on our business, operating results or financial condition. If there is a successful claim of infringement against us, we may be required to pay substantial damages (including treble damages if we were to be found to have willfully infringed a third party’s patent) to the party claiming infringement, develop non-infringing technology, stop selling our products or using technology that contains the allegedly infringing intellectual property or enter into royalty or license agreements that may not be available on acceptable or commercially practical terms, if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis could harm our business. Parties making infringement claims on future issued patents may be able to obtain an injunction that would prevent us from selling our products or using technology that contains the allegedly infringing intellectual property, which could harm our business.

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We are exposed to risks associated with product liability claims in the event that installation of our solar power systems results in injury or damage, and we have limited insurance coverage to protect against such claims and additionally those losses resulting from business interruptions or natural disasters.

Since our solar power systems are electricity-producing devices, it is possible that users could be injured or killed by our systems, whether by improper installation or other causes. As an installer of products that are used by consumers, we face an inherent risk of exposure to product liability claims or class action suits in the event that the installation of the solar power systems results in injury or damage. Moreover, to the extent that a claim is brought against us, we may not have adequate resources to defend ourselves. We rely on our general liability insurance to cover product liability claims and have not obtained separate product liability insurance. The successful assertion of product liability claims against us could result in potentially significant monetary damages and, if our insurance protection is inadequate, could require us to make significant payments which could have a materially adverse effect on our financial results. Any business disruption or natural disaster could result in substantial costs and diversion of resources.

Since we cannot test solar panels for the duration of our vendors or the industry standard 25-year warranty period, we may be subject to unexpected warranty expense; if we are subject to warranty and product liability claims that our vendors do not cover, such claims could adversely affect our business and results of operations.

The possibility of future product failures could cause us to incur substantial expense to repair or replace defective products. We have agreed to indemnify our customers and our distributors in some circumstances against liability from defects in, or performance from, solar modules that we purchase and install. A successful indemnification claim against us could require us to make significant damage payments, which would negatively affect our financial results.

Standard product warranty for solar panel systems includes a 10-year warranty period for defects in materials and workmanship and a 25-year warranty period for declines in power performance from the modules. We believe our system warranty periods are consistent with industry practice. Due to the long warranty period, we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue. Although we make every attempt to qualify our vendors and their solar panels, solar panels have not been and cannot be tested in an environment simulating the 25-year warranty period. As a result of the foregoing, we may be subject to unexpected warranty expense, which in turn would harm our financial results.

Like other retailers, distributors and manufacturers of products that are used by consumers, we face an inherent risk of exposure to product liability claims in the event that the use of the solar power products in our SEFs results in injury. We may be subject to warranty and product liability claims in the event that our SEFs fail to perform as expected or if a failure of our solar power systems results, or is alleged to result, in bodily injury, property damage or other damages.

Warranty and product liability claims may result from defects or quality issues in certain third-party technologies and components that we incorporate into our solar power systems, particularly solar cells and panels, over which we have no control. While our agreements with our suppliers generally include warranties, those provisions may not fully compensate us for any loss associated with third-party claims caused by defects or quality issues in these products. In the event we seek recourse through warranties, we will also be dependent on the creditworthiness and continued existence of these suppliers.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and construction of SEFs could reduce our ability to compete and could harm our business growth.

We expect that our existing cash and cash equivalents, together with collections of our accounts receivable and other cash flows from operations in 2012, will be sufficient to meet our anticipated cash needs for at least the next twelve months. However, the timing and amount of our working capital and capital expenditure requirements may

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vary significantly depending on numerous factors. The growth of our business depends on our ability to finance multiple services and projects simultaneously. In many cases we will need to fund development costs for large projects that we are going to build short term, pending finalization of project financing. These additional costs may result in greater fixed costs and operating expenses well in advance of the revenues to be gained. Without access to working capital from profitable operations, equity, or debt, our business cannot continue to grow.

We must effectively manage our growth.

Failure to manage our growth effectively could adversely affect our operations. Our ability to manage our planned growth will depend substantially on our ability to sell and manage our construction of SEFs in the market, maintain adequate capital resources for working capital, successfully hire, train and motivate additional employees, including the technical personnel necessary to staff our installation teams.

We may be unable to achieve our goal of reducing the cost of installed solar systems, which may negatively impact our ability to sell our products in a competitive environment, resulting in lower revenues, gross margins and earnings.

To reduce the cost of installed solar systems, as compared against the current cost, we will have to achieve cost savings across the entire value chain from designing to manufacturing to distributing to selling and ultimately to installing solar systems. We have identified specific areas of potential savings and are pursuing targeted goals. However, such cost savings are especially dependent upon factors outside of our direct control including the cost of raw materials, the cost of both manufacturing and installation labor, and the cost of financing systems. If we are unsuccessful in our efforts to lower the cost of installed solar systems, our revenues, gross margins and earnings may be negatively impacted.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We expect to incur increased expense and to devote additional management resources to Section 404 compliance. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Natural disasters and other events outside our control can disrupt our business.

Our business and financial results may be affected by certain events that we cannot anticipate or that are beyond our control, such as natural or man-made disasters, national emergencies, significant labor strikes, work stoppages, political unrest, war or terrorist activities that could curtail production at our facilities and cause delayed deliveries and canceled orders. In addition, we purchase components, raw materials and other services from numerous suppliers, and even if our facilities were not directly affected by such events, we could be affected by interruptions at such suppliers. Such suppliers may be less likely than our own facilities to be able to quickly recover from such events and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. We cannot assure you that we will have insurance to adequately compensate us for any of these events.

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Risks Related to Our International Operations

Concerns regarding the European debt crisis and market perceptions concerning the instability of the euro could adversely affect the Company’s business, results of operations and financing.

Concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. These concerns, or market perceptions concerning these and related issues, could adversely affect the value of the Company’s Euro-denominated assets and obligations and lead to future economic slowdowns.

We may not be able to retain, recruit and train adequate management personnel.

Our continued operations are dependent upon our ability to identify, recruit and retain adequate management personnel in China to perform certain jobs such as engineering of solar systems, developing and maintaining internet based platforms for monitoring of SEFs and producing and facilitating the shipment of materials necessary for the installation of SEFs. We require trained graduates of varying levels and experience and a flexible work force of semi-skilled operators. Many of our current employees come from the more remote regions of China as they are attracted by the wage differential and prospects afforded by our operations. With the growth currently being experienced in China and competing opportunities for our personnel, there can be no guarantee that a favorable employment climate will continue and that wage rates in China, where our products are manufactured, will continue to be internationally competitive.

We face risks associated with international trade and currency exchange.

We transact business in a variety of currencies including the U.S. dollar, the Chinese Yuan Renminbi (“RMB”), and the Euro. We make all sales in both U.S. dollars and the Euro and we incurred 12.1% of our operating expenses, such as payroll, rent, electrical power and other costs associated with running our facilities in China, in RMB. Changes in exchange rates would affect the value of deposits of currencies we hold. In July 2005 the Chinese government announced that the RMB would be pegged to a basket of currencies, making it possible for the RMB to rise and fall relative to the U.S. dollar. We do not currently hedge against exposure to currencies. We cannot predict with certainty future exchange rates and thus their impact on our operating results. We do not have any long-term debt valued in RMB. Movements between the U.S. dollar, the Euro, and the RMB could have a material impact on our profitability.

Changes to Chinese tax incentives and heightened efforts by the Chinese tax authorities to increase revenues could subject us to greater taxes.

Under applicable Chinese law, we have been afforded profits tax concessions by Chinese tax authorities on our operations in China for specific periods of time, which has lowered our cost of operations in China. However, the Chinese tax system is subject to substantial uncertainties with respect to interpretation and enforcement. Recently, the Chinese government has attempted to augment its revenues through heightened tax collection efforts. Continued efforts by the Chinese government to increase tax revenues could result in revisions to tax incentives or new interpretations by the Chinese government of the tax benefits we should be receiving currently.

Changes in the U.S. tax law regarding foreign earnings could materially affect our future results.

There have been proposals to change U.S. tax laws that would significantly impact how U.S. corporations are taxed on foreign earnings. We earn a substantial portion of our income in foreign countries. Although we cannot predict whether or in what form any of these proposals might be enacted into law, if adopted they could have a material adverse impact on our liquidity, results of operations, financial condition and cash flows.

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Risks Related to our Common Stock

LDK controls us and may have conflicts of interest with other shareholders in the future.

LDK owns 70% of our common stock on an as converted, fully-diluted basis. As a result, LDK will have significant control of the election of our directors and may influence our corporate and management policies. LDK also has sufficient voting power to amend our organizational documents. The interests of LDK may not coincide with the interests of other holders of our common stock. LDK may also pursue, for its own account, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as LDK continues to own a significant amount of the outstanding shares of our common stock, it will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions. Although we will operate separately, there are no assurances that conflicts will not arise in the future.

We have not paid and are unlikely to pay cash dividends in the foreseeable future.

We have not paid any cash dividends on our common stock and may not pay cash dividends in the future. Instead, we intend to apply earnings, if any, to the expansion and development of the business. Thus, the liquidity of your investment is dependent upon active trading of our stock in the market.

Any future financings and subsequent registration of common stock for resale will result in a significant number of shares of our common stock available for sale, and such sales could depress our common stock price. Further, no assurances can be given that we will not issue additional shares which will have the effect of diluting the equity interest of current investors. Moreover, sales of a substantial number of shares of common stock in any future public market could adversely affect the market price of our common stock and make it more difficult to sell shares of common stock at times and prices that either you or we determine to be appropriate.

We have significant “equity overhang” which could adversely affect the market price of our common stock and impair our ability to raise additional capital through the sale of equity securities.

As of December 31, 2011, we had 184,413,923 shares of common stock outstanding. LDK holds 131,746,347 shares of common stock. The possibility that substantial amounts of our outstanding common stock may be sold by LDK or the perception that such sales could occur, often called “equity overhang,” could adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future.

Our shareholders may experience future dilution.

Our charter permits our board of directors, without shareholder approval, to authorize shares of preferred stock. The board of directors may classify or reclassify any preferred stock to set the preferences, rights and other terms of the classified or reclassified shares, including the issuance of shares of preferred stock that have preference rights over the common stock with respect to dividends, liquidation, voting and other matters or shares of common stock having special voting rights. Further, substantially all shares of common stock for which our outstanding stock options are exercisable are, once they have been purchased, eligible for immediate sale in the public market.

The issuance of additional shares of our capital stock or the exercise of stock options or warrants could be substantially dilutive to your shares and may negatively affect the market price of our common stock.

ITEM 1B — UNRESOLVED STAFF COMMENTS

None.

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ITEM 2 — PROPERTIES

Our corporate headquarters are located in Roseville, California in a space of 11,300 square feet. The five year lease commenced on August 1, 2011 and expires in July 31, 2017. The base rent of $236,775 for the first year is waived, rent is $236,775 for the second year, $243,878 for the third year, $251,195 for the fourth year and $525,222 for the remainder of the lease. The Company has an option to renew for an additional five years.

On December 1, 2010 we leased 3,900 square feet of office space to accommodate our support services operations in Shenzhen, China. The term of the lease is three years and expires on November 30, 2013 at an annual rent of $36,072.

Our prior solar panel manufacturing facilities consisted of 123,784 square feet, including 101,104 square feet of factories and 23,680 square feet of dorms, situated in an industrial suburb of Shenzhen, Southern China known as Long Gang. Only the state may own land in China. Therefore, we lease the land under our facilities, and our lease agreement gave us the right to use the land until December 31, 2010 at an annual rent of $229,134. The Company continued to lease this location on a month-to-month basis during January and February 2011 and then in March, 2011, extended the lease for a twelve-month term from March 1, 2011 through February 29, 2012 for its cable, wire and assembly business at the same annual rent.

Our prior corporate headquarters was located in Roseville, California in a space of 19,000 square feet. The five year lease commenced on August 1, 2007 and expires on July 31, 2012. The rent was $342,972 per year for the first year, $351,540 for the second year, $360,336 for the third year, is $369,336 for the fourth year and $378,576 for the remainder of the lease. The Company has an option to renew for an additional five years which it does not plan to exercise. The Company continues to use this location for warehousing and storage of balance of system components.

Our retail outlet was located in Roseville, California in a space of 2,000 square feet. The five year lease commenced in October 2007 and expires in December 2012. The rent is currently $79,426 per year and increases to $83,832 in the fifth year. The Company has an option to renew for an additional five years. In October 2010, in conjunction with the discontinuance of our residential installation business, we closed our retail outlet. The Company continues to use this location for quality assurance testing.

On February 1, 2012, we leased approximately 4,000 square feet of office space in San Francisco, California to expand the financial services and corporate activities of the Company. The five year lease begins on February 1, 2012 and expires on January 31, 2017. The base rent will be $120,120 for the first year, $164,964 for the second year, $169,908 for the third year, $175,008 for the fourth year and $180,264 for the fifth year. The Company has an option to renew the lease for an additional five years.

The Company is obligated under operating leases requiring minimum rentals as follows (in thousands):

ITEM 3 — LEGAL PROCEEDINGS

Except as set forth below, we are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are a party that may have a material adverse effect to the Company’s business and consolidated financial position, results of operations or cash flows.

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Rogers v. Kircher, et al.

On January 25, 2011, a putative class action was filed by William Rogers against the Company, the Company’s directors Stephen C. Kircher, Francis Chen, Timothy B. Nyman, Ronald A. Cohan, D. Paul Regan, and LDK, in the Superior Court of California, County of Placer. The Company opposed that action and the complaint was dismissed in December 2011.

Motech Industries, Inc. v. Solar Power, Inc.

Motech Industries, Inc. (“Motech”) filed a complaint against the Company on November 21, 2011, in the Superior Court of California, County of Sacramento, alleging that the Company breached a November 29, 2010 settlement agreement by failing to make payments set forth therein for products supplied to the Company by Motech. Motech has alleged causes of action for breach of contract and breach of the covenant of good faith and fair dealing seeking to recover a total of $339,544.15 in damages from the Company plus its attorneys’ fees and costs. The Company filed its answer on December 22, 2011 generally denying all of the allegations in Motech’s complaint. Specifically, the Company contends that it has paid Motech in full for all monies owed under the settlement agreement. The Company intends to defend the action, which is at its early stage.

From time to time, we also are involved in various other legal and regulatory proceedings arising in the normal course of business. While we cannot predict the occurrence or outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to our consolidated financial condition or cash flows; however, an unfavorable outcome could have a material adverse effect on our results of operations for a specific interim period or year.

ITEM 4 — MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock began trading on the Over the Counter Bulletin Board (OTCBB) under the symbol “SOPW.OB” on September 25, 2007. The quarterly high and low bid information in U.S. dollars on the OTCBB of our common shares during the periods indicated are as follows:

These Over-the-Counter Bulletin Board bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. On December 31, 2011 and 2010, the last reported sale price for our common stock was $0.33 and $0.29 per share, respectively.

Stockholders

As of March 10, 2012 we had approximately 110 holders of record of our common stock.

Dividends

We have paid no dividends on our common stock since our inception and may not do so in the future.

Recent Sales of Unregistered Securities

On January 5, 2011, we entered into a Stock Purchase Agreement (“SPA”) with LDK in connection with the sale and issuance by the Company of convertible Series A Preferred Stock and Common Stock. At the first closing on January 10, 2011, we issued 42,835,947 shares of our common stock at $0.25 per share, receiving proceeds, net of expenses of $10,490,965. At the second closing, at the end of the second quarter of fiscal 2011, we issued 20,000,000 shares of our Series A Preferred Stock and received proceeds of $22,227,654.

The above offerings were offered and sold by us in reliance on Section 506 of Regulation D of the Securities Act and comparable exemptions for sales under state securities laws.

Securities Authorized for Issuance under Equity Compensation Plans

On November 15, 2006, subject to approval of the Stockholders, the Company adopted the 2006 Equity Incentive Plan reserving nine percent of the outstanding shares of common stock of the Company (“2006 Plan”). On February 7, 2007, our stockholders approved the 2006 Plan reserving nine percent of the outstanding shares of common stock of the Company pursuant to the Definitive Proxy on Schedule 14A filed with the Commission on January 22, 2007.

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As of December 31, 2011, we have outstanding 5,171,500 service-based stock options to purchase shares of our common stock issued under the 2006 Plan. The options have an exercise price from $0.23 to $3.45 and are subject to vesting schedules and terms. As of December 31, 2010, we had 2,305,175 service-based and 200,000 performance-based options. The following table provides aggregate information as of December 31, 2011 with respect to all compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance.

Issuer Purchase of Equity Securities

None.

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights what we believe are the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains “forward-looking statements,” which can be identified by the use of words such as “expects,” “plans,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates” and other words of similar meaning. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these forward-looking statements. Such risks and uncertainties include, without limitation, the risks described in Part I on page 4 of this Annual Report, and the risks described in Item 1A, Page 7 above.

The following discussion is presented on a consolidated basis, and analyzes our financial condition and results of operations for the years ended December 31, 2011 and 2010.

Unless the context indicates or suggests otherwise reference to “we”, “our”, “us” and the “Company” in this section refers to the consolidated operations of Solar Power, Inc.

Overview

We are a global turnkey developer and Engineering, Procurement and Construction (“EPC”) contractor of large-scale photovoltaic (“PV”) solar energy facilities (“SEF”). We design, engineer, construct, market and sell very high-quality PV SEFs for commercial and utility applications to a global market. Additionally, in the course of producing our systems, we manage a supply chain of solar modules, racking and balance of system components that includes our own uniquely designed racking systems, SkyMount® and Peaq^TM. We produce world-class SEFs from concept through creation and ensure a lifetime of superior SEF performance with our comprehensive operations and maintenance (O&M) services program SPIGuardian^TM.

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On January 5, 2011, we entered into a stock purchase agreement with LDK, a vertically integrated solar wafer, cell and solar module manufacturer. Under the agreement, on an as-converted, fully diluted basis, LDK purchased 70% of our common stock. The transaction complemented LDK’s vertical integration, effectively providing us with strategic capital by making us its downstream SEF development platform and a member of the global LDK family. Furthermore, the transaction enables us to leverage LDK’s supply chain and economies-of-scale to work as a vertically integrated turnkey solar developer and EPC contractor.

Previously, we sold our manufactured products through three distinct sales channels: 1) direct product sales to international and domestic markets, 2) independent construction of commercial and residential solar systems in the U.S., and 3) authorized dealer networks who sold our Yes! branded products in the U.S., and to the European residential markets through both direct and dealer sales. Subsequent to the January 2011 transaction with LDK, our business strategy and focus shifted solely to the development, design, engineering and construction of commercial and utility PV solar projects, and we ceased PV solar module manufacturing at our facility in Shenzhen, China. We continue to manufacture balance of system components, including our proprietary racking systems SkyMount® and Peaq^TM through contract manufacturing and assembly relationships. We maintain a strategic office in Shenzhen, China that is principally responsible for our ongoing procurement, logistics and design support for our products and data systems. It also provides monitoring and management services for those solar energy facilities we either own or maintain under operations and maintenance agreements through our SPIGuardian^TM O&M services program.

The LDK relationship has strengthened our position in the solar industry and provided broader strategic relationships that strengthen our business development position, allowing us to pursue the commercial and utility projects in our pipeline more aggressively. We now intend to grow our pipeline in the Americas, Europe, Africa and the Caribbean with equal aggression while we simultaneously accelerate the active development of multiple projects now under way.

Critical Accounting Policies and Estimates

Revenue recognition — The Company’s two primary business segments include photovoltaic installation, integration and sales, and cable, wire and mechanical assemblies.

Photovoltaic Installation, integration and sales — In our photovoltaic systems installation, integration and sales segment, there are two revenue streams.

Revenue on product sales is recognized when there is evidence of an arrangement, title and risk of ownership have passed (generally upon delivery), the price to the buyer is fixed or determinable and collectability is reasonably assured. Customers do not have a general right of return on products shipped therefore we make no provisions for returns.

Revenue on photovoltaic system construction contracts is generally 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 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 costs and estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. The Company determines its customer’s credit worthiness at the time the order is accepted. Sudden and unexpected changes in customer’s financial condition could put recoverability at risk.

The percentage-of-completion method requires the use of various estimates including among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. We have a history of making reasonable estimates of the extent of progress towards completion, contract revenues and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs may vary from estimates.

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For those projects where the Company is considered to be the owner, the project is accounted for under the rules of real estate accounting. In the event of a sale, the method of revenue recognition is determined by considering the extent of the buyer’s initial and continuing investment and the nature and the extent of the Company’s continuing involvement. Generally, revenue is recognized at the time of title transfer if the buyers investment is sufficient to demonstrate a commitment to pay for the property and the Company does not have a substantial continuing involvement with the property. When continuing involvement is substantial and not temporary, the Company applies the financing method, whereby the asset remains on the balance sheet and the proceeds received are recorded as a financing obligation. When a sale is not recognized due to continuing involvement and the financing method is applied the Company records revenue and expenses related to the underlying operations of the asset in the Company’s Consolidated Financial Statements.

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

Cable, wire and mechanical assemblies — In our cable, wire and mechanical assemblies business the Company recognizes the sales of goods when there is evidence of an arrangement, title and risk of ownership have passed, the price to the buyer is fixed or determinable and collectability is reasonably assured. There are no formal customer acceptance requirements or further obligations related to our assembly services once we ship our products. Customers do not have a general right of return on products shipped therefore we make no provisions for returns. We make determination of our customer’s credit worthiness at the time we accept their order.

Product and Performance Warranties — The Company offers the industry standard of 25 years for our solar modules and industry standard five (5) years on inverter and balance of system components. Due to the warranty period, we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue. In our cable, wire and mechanical assemblies business, historically our warranty claims have not been material. In our solar photovoltaic business, our greatest warranty exposure is in the form of product replacement. Until the third quarter of 2007, the Company purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards we considered our financial exposure to warranty claims immaterial. Certain photovoltaic construction contracts entered into during the year ended December 31, 2007 included provisions under which the Company agreed to provide warranties to the buyer, and during the quarter ended September 30, 2007 and continuing through the fourth quarter of 2010, the Company installed its own manufactured solar panels. As a result, the Company recorded the provision for the estimated warranty exposure on these contracts within cost of sales. Since the Company does not have sufficient historical data to estimate its exposure, we have looked to our own historical data in combination with historical data reported by other solar system installers and manufacturers. The Company now only installs panels manufactured by unrelated third parties and its parent LDK Solar Co., Ltd. We provide their pass through warranty and reserve for unreimbursed costs, such as labor, material and transportation costs to replace panels and balance of system components provided by third-party manufacturers. To the extent our estimate of warranty cost is inaccurate we may incur additional costs to satisfy our contractual obligations, and those costs may be material to our financial condition, results of operations and cash flows.

Inventories — Certain factors could impact the realizable value of our inventory, so we continually evaluate the recoverability based on assumptions about customer demand and market conditions. The evaluation may take into consideration historic usage, expected demand, anticipated sales price, product obsolescence, customer concentrations, product merchantability and other factors. The reserve or write-down is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, inventory reserves or write-downs may be required that could negatively impact our gross margin and operating results.

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Inventories are stated at the lower of cost or market, determined by the first in first out cost method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. Provisions are made for obsolete or slow-moving inventory based on management estimates. Inventories are written down based on the difference between the cost of inventories and the net realizable value based upon estimates about future demand from customers and specific customer requirements on certain projects.

Stock based compensation — The Company measures the stock-based compensation costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the employee requisite service period.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

Allowance for doubtful accounts — The Company regularly monitors and assesses the risk of not collecting amounts owed to the Company by customers. This evaluation is based upon a variety of factors including an analysis of amounts current and past due along with relevant history and facts particular to the customer. It requires the Company to make significant estimates and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts.

Income taxes — The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between 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. Should we determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount, we would record an adjustment to the deferred tax asset valuation allowance. This adjustment would increase income in the period such determination is made.

Profit from non-U.S. activities is subject to local country taxes but not subject to U.S. tax until repatriated to the U.S. It is our intention to permanently reinvest these earnings outside the U.S. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will more likely than not be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities may result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate tax assessment, a further charge to expense may result.

The Company recognizes uncertain tax positions in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis.

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Segment Information

The Company’s two primary business segments include: (1) photovoltaic installation, integration, and sales and (2) cable, wire and mechanical assemblies the Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Recent Accounting Pronouncements

In December 2010, the FASB issued ASU 2010-28, Intangibles — Goodwill and Other (Topic 350). ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company expects that the adoption of ASU 2010-28 will have no material impact on results of operations, cash flows or financial position.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 increases the prominence of other comprehensive income in financial statements. Under this ASU, an entity will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option in U.S. GAAP to present other comprehensive income in the statement of changes in equity. ASU 2011-05 is effective on a retrospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company expects that the adoption of ASU 2011-05 will not have an impact on results of operations, cash flows or financial position.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not need to perform the two-step impairment test for that reporting unit. Goodwill must be tested for impairment at least annually, and prior to the ASU, a two-step test was required to assess goodwill for impairment. In Step 1, the fair value of a reporting unit is compared to the reporting unit’s carrying amount. If the fair value is less than the carrying amount, Step 2 is used to measure the amount of goodwill impairment, if any. The Company expects that the adoption of ASU 2011-05 will not have a material impact on results of operations, cash flows or financial position.

Results of Operations

Comparison of the year ended December 31, 2011 to the year ended December 31, 2010

Net sales — Net sales for the year ended December 31, 2011 increased 191.6% to $103,072,000 from $35,353,000 for the year ended December 31, 2010.

Net sales in the photovoltaic installation, integration and sales segment increased 217.0% to $101,550,000 from $32,036,000 for the year earlier comparative period. The increase in revenue was primarily due to larger system development projects in construction as the Company concentrates on development of utility scale and larger distributive generation projects. Included in photovoltaic installation, integration and sales were related party sales to LDK of $12,903,000. The Company expects that its continued focus on larger system development projects and utility scale projects will result in increased revenues in fiscal 2012.

Net sales in the cable, wire and mechanical assemblies segment decreased 54.1% to $1,522,000 from $3,317,000 for the year earlier comparative period. This is the legacy segment of the Company’s business. The Company

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expects to continue to service the customers it has in this segment as it continues to concentrate on its solar segment, but is not actively seeking new customers. The decrease in revenue is attributed to a decrease in demand from existing customers and is expected to continue to fluctuate in fiscal 2012.

Cost of goods sold — Cost of goods sold were $90,237,000 (87.5% of net sales) and $30,066,000 (85.0% of net sales) for the years ended December 31, 2011 and 2010, respectively.

Cost of goods sold in the photovoltaic installation, integration and sales segment was $89,100,000 (86.4% of sales) for the year ended December 31, 2011 compared to $27,804,000 (78.6% of net sales) for the year ended December 31, 2010. Included in photovoltaic installation, integration and sales cost of goods sold were costs related to sales to related party LDK of $12,561,000. Cost of goods sold as a percentage of sales remain relatively unchanged over the comparative period. Prior to 2011, the Company used solar panels it manufactured in its China manufacturing facility or purchased from third-party manufacturers. In 2011, the Company no longer manufactured solar panels, but used SPI designed panels manufactured by LDK or third-party manufactured panels. New projects currently in the design phase will use LDK solar panels which have a lower cost than the SPI manufactured as well as third-party panels. It is expected that cost of goods sold will decrease as a percentage of sales in future quarters due to decreased solar panel costs.

Cost of goods sold in the cable, wire and mechanical assembly segment were $1,136,000 (1.1% of net sales) for the year ended December 31, 2011 compared to $2,262,000 (6.7% of net sales) for the year ended December 31, 2010. The decrease as a percentage of net sales is attributable to product mix. The Company expects that the costs will continue to vary with product mix and output in this segment.

General and administrative expenses — General and administrative expenses were $7,161,000 for the year ended December 31, 2011 and $7,639,000 for the year ended December 31, 2010, a decrease of 6.3%. As a percentage of net sales, general and administrative expenses were 6.9% and 21.6%, for the years ended December 31, 2011 and 2010, respectively. The Company initiated cost reduction efforts during the year including reductions in employee costs of $535,000, decrease in legal expenses of $278,000, decrease in information technology costs of $88,000 and decrease in other expense of $3,000. These decreases were offset by an increase in bad debt expenses of $310,000, increase in audit fees of $113,000, increase in insurance costs of $118,000 and increase in stock compensation expense of $298,000. The Company expects the general and administrative expenses to remain consistent with prior periods, as a percentage of sales, as it expands its operations internationally.

Significant elements of general and administrative expenses for the year ended December 31, 2010 include employee related expense of $3,342,000, information technology costs of approximately $194,000, insurance costs of $261,000, professional and consulting fees of $1,473,000, rent of $310,000, travel and lodging costs of $131,000, stock compensation expense of $162,000 and bad debt expense of $523,000. The bad debt expense pertains primarily to one product sale subsequently deemed to be uncollectable.

Sales, marketing and customer service expense — Sales, marketing and customer service expenses were $3,018,000 for the year ended December 31, 2011 and $3,652,000 for the year ended December 31, 2010. As a percentage of net sales, sales, marketing and customer service expenses were 2.9% and 10.3% for the years ended December 31, 2011 and 2010, respectively. The decrease in cost is primarily due to decreases in employee related costs of $274,000 as a result of restructuring and eliminating the residential business, commissions expenses decreases of $521,000, and reductions in stock compensation expense of $39,000. These decreases were offset by increases in recruiting costs of $87,000, rent expenses of $40,000 and professional fees of $77,000. The Company expects these expenses to increase in 2012, but as a percentage of sales to remain at similar level.

Significant elements of sales, marketing and customer service expense for the year ended December 31, 2010 were payroll related expenses of $1,773,000, advertising and trade show expenses of $185,000, commission expense of $809,000, stock-based compensation costs of $84,000, business development costs of $119,000 and travel and lodging costs of $109,000.

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Engineering, design and product management expense — Engineering, design and product management expenses were $657,000 and $947,000 for the year ended December 31, 2011 and 2010, respectively, a decrease of 30.6%. The decrease was primarily attributed to the reduction in staff of $77,000, product certification costs of $76,000, professional fees of $68,000, and stock compensation expense of $48,000. As a percentage of net sales, product development expenses were 0.6% and 2.7% for the years ended December 31, 2011 and 2010, respectively. The Company expects these expenses to continue at the current dollar-value run rate in 2012 as it expands operations worldwide.

Significant elements of engineering, design and product management expense for the year ended December 31, 2010 were payroll and related expenses of $599,000, product certification and testing of $159,000 and stock-based compensation expense of $60,000.

Impairment charge — During the second quarter of 2011, we recorded an impairment charge of $400,000 to reduce the carrying amount of the asset held for sale to the revised estimate of fair value less cost to sell. Refer to Note 13 of the Consolidated Financial Statements for details on the asset held for sale. The fair value was estimated based on a discounted cash flow analysis using level 3 unobservable inputs. There was no additional impairment recorded during the remainder of the year ended December 31, 2011.

Interest income / expense — Interest expense, net was $1,332,000 and $1,433,000 for the years ended December 31, 2011 and 2010, respectively. Interest expense, net consisted primarily of $964,000 of imputed interest on a real estate sales transaction accounted for under the financing method, $8,000 on the Company’s line of credit and construction financing, $30,000 on the Company’s capital leases and loans payable, $375,000 on the loan financing for the Company’s power generating facility recorded as an asset held for sale and $144,000 to suppliers on accounts payable financing, offset by earnings on the Company’s bank deposits of $34,000 and interest from trade accounts receivable balances of $151,000.

Interest expense, net for the year ended December 31, 2010, consisted of $983,000 of imputed interest on a real estate sales transaction accounted for under the financing method, $188,000 paid on the loan securing our power generating facility at Aerojet, $29,000 paid on our installment loans and capital leases and $233,000 of finance charges on trade accounts payable.

Other income / expense — Other expense, net was $469,000 and $1,138,000 for the years ended December 31, 2011 and 2010, respectively. The decrease was primarily related to large exchange losses due to decline in value of the Euro in 2010 as it related to the collection of Euro denominated accounts receivable.

In 2010, other income, net consisted primarily of income related to a government stimulus of $70,000 from the Chinese government, other income of $6,000 and expenses of $1,000 related to the sub-lease of the Company’s retail outlet, $142,000 of costs related to the preliminary design of a new factory facility and currency exchange losses of $1,071,000.

Income tax expense / benefit — The Company provided income tax expense of $259,000 for the year ended December 31, 2011 and an income tax benefit of $141,000 for the year ended December 31, 2010. The Company is currently in a net cumulative loss position and has significant net operating loss carry forwards. The income tax expense for the year ended December 31, 2011 consisted of $150,000 for Federal Alternative Minimum Tax, not covered by the Company’s deferred tax assets, $207,000 of state income tax for California and New Jersey and $1,000 of tax expense related to our China support entity. There is a moratorium imposed by the State of California that prevents the use of operating losses to offset future tax liability until the state budget crisis is resolved resulting in income tax expense related to our California earnings. The income tax benefit for the year ended December 31, 2010 was primarily due to a decrease in tax liability for one of our foreign subsidiaries.

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Liquidity

A summary of the sources and uses of cash and cash equivalents is as follows:

As of December 31, 2011, we had $23,855,000 in cash and cash equivalents and as of December 31, 2010, we had $1,441,000 in cash and cash equivalents. This change in cash and cash equivalents is primarily attributable to cash generated from financing activities offset by cash used in operating activities.

Operating Activities – Net cash used in operating activities of $30,439,000 for the year ended December 31, 2011 was a result of a net loss of $461,000, offset by non-cash items included in net loss, consisting of depreciation of $999,000, amortization of loan fees of $(14,000), impairment charge of $400,000, stock-based compensation expense and stock issued for services of $517,000, bad debt expense of $819,000, provision for obsolete inventory of $253,000, operating income from solar system subject to financing obligation of $(749,000), and loss on disposal of fixed assets of $4,000. Cash used in operations also included an increase in accounts and related notes receivable of $77,980,000 primarily related to a number of large scale development projects where milestones have been met and invoices issued, including $18,201,000 due from our parent company LDK relating to two EPC contracts between SPI and LDK; an increase in costs and estimated earnings in excess of billings on uncompleted projects of $7,020,000 related to the construction projects, of which $360,000 is related to two EPC contracts entered into between the Company and LDK; increases in inventories of $3,044,000 primarily due to increases in raw material and finished goods inventory; decreases in prepaid expenses and other current assets of $135,000 due to decreased supplier deposits at our manufacturing facility in the People’s Republic of China (“PRC”); an increase in accounts payable of $47,806,000 of which $46,125,000 is to LDK for solar panel purchases; increases in income taxes payable of $254,000; decreases in accrued liabilities of $399,000 for our solar project development activities; and increases in billings in excess of costs and estimated earnings on uncompleted contracts of $2,180,000 from contractual milestone billings in excess of percentage of completion on our EPC agreements, of which $2,992,000 is related to LDK projects, offset by $812,000 on non-related customers. As we continue to seek out and undertake larger solar system projects we anticipate that the cash provided by or used in operating activities will continue to be significantly influenced by the payment terms of our projects and the financing terms provided to us by our solar cell vendors and third party financing from banks.

Net cash used in operating activities of $12,119,000 for the year ended December 31, 2010 was a result of a net loss of $9,381,000, offset by non-cash items included in net loss, consisting of depreciation of $1,269,000, amortization of loan fees of $5,000, stock-based compensation expense of $306,000, bad debt expense of $523,000, operating income from solar system subject to financing obligation of $(232,000) and loss on disposal of fixed assets of $21,000. Cash used in operations also included a decrease in accounts receivable of $3,302,000, decrease in costs and estimated earnings in excess of billings on uncompleted projects of $18,000 related to the construction project we now carry as an asset held for sale, decreases in inventories of $1,126,000 primarily due to decreases in raw material and finished goods inventory, increase in an asset held for sale of $1,112,000 related to our assumption of the contract for the Aerojet 2 project, decreases in prepaid expenses and other current assets of $856,000 due to decreased supplier deposits at our PRC manufacturing facility, a decrease in accounts payable of $10,055,000 related to payment on our accounts payable, decreases in accrued liabilities of $89,000 for our solar project development activities, increase in our billings in excess of costs and estimated earnings on uncompleted contracts of $1,613,000 due to prepayment from our development contracts and decreases in income taxes payable of $289,000 due to estimated tax payments required at our Hong Kong subsidiary.

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Investing Activities – Net cash used in investing activities of $5,983,000 for the year ended December 31, 2011 primarily related to a note receivable and acquisition of property and equipment.

Net cash used in investing activities of $63,000 for the year ended December 31, 2010 primarily related to acquisition of property and equipment.

Financing Activities – Net cash generated from financing activities of $58,365,000 for the year ended December 31, 2011 was a result of net proceeds of $32,719,000 from the sale of common stock LDK, $25,200,000 from proceeds on a line of credit and construction loans, $4,500,000 generated from loan proceeds from the re-financing of our Aerojet 2 solar facility by our subsidiary, Solar Tax Partners 2, LLC, decrease in restricted cash of $674,000 primarily related to reduction in reserves required by our lender, offset by principal payments on notes and capital leases payable of $3,956,000 and payment of loan fees of $772,000.

Net cash generated from financing activities of $10,505,000 for the year ended December 31, 2010 was a result of payments of approximately $8,172,000 related to the Aerojet 1 solar development project and $3,899,000 generated from loan proceeds from the financing of our Aerojet 2 solar facility by our subsidiary, Solar Tax Partners 2, LLC, offset by an increase in restricted cash of $1,064,000 primarily related to reserves required by our lender, principal payments on notes and capital leases payable of $359,000 and prepayment of loan fees of $102,000.

Capital Resources and Material Known Facts on Liquidity

On January 5, 2011, we entered into a Stock Purchase Agreement (“SPA”) with LDK in connection with the sale and issuance by the Company of convertible Series A Preferred Stock and Common Stock. At the first closing on January 10, 2011, we issued 42,835,947 shares of our common stock at $0.25 per share and received proceeds net of expenses of $10,491,000. At the second closing, on March 30, 2011 we issued 20,000,000 shares of our Series A Preferred Stock receiving proceeds of $22,228,000. On June 22, 2011, following the approval of the shareholder of the increase in authorized common shares of the Company, the 20,000,000 Series A Preferred Stock was converted to 88,910,400 shares of our common stock per the SPA.

On December 23, 2011, we entered into credit facility with Cathay Bank for an aggregate principle amount of $9,000,000. On February 15, 2012, the Company’s Board of Directors approve the issuance of a warrant agreement for Cathay General Bancorp to purchase 300,000 shares of the Company’s stock at $0.75 per share related to the line of credit. At December 31, 2011, the Company’s outstanding balance on the credit facility with Cathay Bank was $6,000,000.

On December 30, 2011, we secured construction finance facilities totaling $42,800,000 from China Development Bank (“CDB”) to fund construction of two solar energy facility (“SEF”) projects for which the Company has entered into EPC agreements under a preferred provider agreement with KDC Solar LLC (“KDC”).

We will continue to seek additional sources of financing through our own and LDK’s network of financial institutions, private placements of our stock, and sale of our asset held for sale into equity funds.

In the short-term we do not expect any material change in the mix or relative cost of our capital resources. As of December 31, 2011, we had $23,855,000 in cash and cash equivalents, $670,000 of restricted cash held in our name consisting of $400,000 as a reserve pursuant to our guarantees of Solar Tax Partners 1, LLC with the bank providing the debt financing on the Aerojet 1 solar generating facility (see Note 15 of the consolidated financial statements), $250,000 as a reserve pursuant to our loan agreement with the bank providing the debt financing for the solar generating facility owned by our subsidiary, Solar Tax Partners 2, LLC and $20,000 held by our bank as collateral for our corporate credit card, net accounts receivable of $77,115,000 and costs and estimated earnings in excess of billings on uncompleted contracts of $9,245,000. Our focus will be to continue development of large-scale photovoltaic solar energy facilities.

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Pricing of solar modules has significantly decreased over the last year primarily due to the overcapacity of Chinese solar manufacturers. Coupled with continuous solar incentives provided by the US, European and other countries, the adoption of solar systems worldwide has been on the rise. While it is still a challenging economic environment, we anticipate our sales pipeline to grow both domestically and internationally.

While our sales pipeline of solar system construction projects continues to grow, such projects encumber associated working capital until project completion or earlier customer payment, and our revenues are highly dependent on third party financing for these projects. As a result, revenues remain difficult to predict and we cannot assure shareholders and potential investors that we will be successful in generating positive cash from operations. Knowing that revenues are unpredictable, our strategy has been to manage spending tightly, and to outsource the majority of our construction workforce.

Over the past three years we have sustained losses from operations and have relied on equity financing to provide working capital. We have been actively working with additional potential investors to ensure that we have additional equity available to us as needed. In addition, we are working on sources of project financing as well as asset backed credit facilities. The issues involved with receiving payment on two major projects (Aerojet 1 and Aerojet 2) have severely hindered the Company’s ability to create and leverage working capital. The impact of waiting for that working capital required the Company to optimize cash on hand and negotiate extended terms with our suppliers resulting in increased accounts payable. The limits on available working capital caused by these events and inability to obtain additional credit from our suppliers impacted the Company’s ability to start and complete projects per original schedules. The Company received payment for the outstanding receivable due on Aerojet 1 from STP in August 2010, allowing the Company to satisfy obligations to suppliers and enabling more effective management of working capital. The inability of our customer to complete its purchase of the Aerojet 2 project, resulting in the Company taking possession of the project and recording it as an asset held for sale, caused further constraints on our working capital. To mitigate future impact on working capital requirements the Company is planning to finance future projects through construction financing or payment terms from the end customer.

We have extended payment terms for one of our major customers up to 310 days and 364 days respectively for 40% and 50% of the receivable that amounted to $42 million as of December 31, 2011. Payments terms also include a 5% interest rate per year from the date that is thirty days after the date that title passes from us to this customer until the date such amount is paid.

We believe the funds generated by the collection of our accounts receivable, notes receivable and costs and estimated earnings in excess of billings on uncompleted contracts, the anticipated revenues of our operations, the sale of our asset held for sale and reductions in operating expenses, continued management of our supply chain, financing support provided by our parent company, LDK, and potential funds available to us through debt and equity financing, are adequate to fund our anticipated cash needs through the next twelve months. We anticipate that we will retain all earnings, if any, to fund future growth in the business. Although we believe we have effectively implemented cash management controls to meet ongoing obligations, there are no assurances that we will not be required to seek additional working capital through debt or equity offerings. If such additional working capital is required, there are no assurances that such financing will be available on favorable terms to the Company, if at all.

Contractual Obligations

While the Company has accounted for receipts from the Aerojet 1 project as a financing arrangement, there are potential cash outflows that may be required under guarantees related to this project.

At December 31, 2011 and 2010, the amounts recorded on the Company’s balance sheet were $113,000 and $127,000, respectively, net of amortization.

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Performance Guaranty — On December 18, 2009, the Company entered into a 10-year energy output guaranty related to the photovoltaic system installed for STP at the Aerojet facility in Rancho Cordova, CA. The guaranty provided for compensation to STP’s system lessee for shortfalls in production related to the design and operation of the system, but excluding shortfalls outside the Company’s control such as government regulation. The Company believes that the probability of shortfalls is unlikely and if they should occur they would be covered under the provisions of its current panel and equipment warranty provisions. For the fiscal year ended December 31, 2011, there were no charges against our reserves related to this performance guaranty.

Other Guarantee — On December 22, 2009, in connection with an equity funding of STP related to the Aerojet 1 project, the Company, along with STP’s other investors entered into a Guaranty (“Guaranty”) to provide the equity investor, Greystone Renewable Energy Equity Fund (“Greystone”), with certain guarantees, in part, to secure investment funds necessary to facilitate STP’s payment to the Company under the EPC Agreement. Specific guarantees made by the Company include the following in the event of the other investors’ failure to perform under the operating agreement:

Operating leases — The Company leases premises under various operating leases which expire through 2017. The leases requiring minimum rentals as follows (in thousands):

Loans Payable — The Company was obligated under loans payable requiring minimum payments as follows (in thousands):

These minimum payments do not include the $13.9 million financing obligation for Aerojet 1 solar development.

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Certain loans payable are collateralized by trucks used in the Company’s solar photovoltaic business, bear interest rates between 1.9% and 2.9% and are payable over sixty months. The loan payable by our wholly-owned subsidiary, Solar Tax Partners 2, LLC, is collateralized by the power generating facility it owns, bearing interest at 6% and payable over 120 months. This loan contains certain affirmative and negative covenants related to the performance of underlying solar system.

The line of credit with Cathay Bank is for a term of twelve months, is collateralized by the Company’s accounts receivable and other non-pledged assets, and bears an interest rate of prime plus 1.25% with a floor of 5.5% payable monthly. The line of credit has certain reporting and financial performance covenants consisting of a profitability requirement and financial statement ratio components.

The loan from China Development Bank is collateralized by the accounts receivable of the projects financed, with a term of twenty-four months from the date of first advance and bears interest at the rate of Libor plus 5.1%, payable semi-annually.

Capital Leases — The Company leases equipment under capital leases. The leases expire from 2012 to 2013. The Company was obligated for the following minimum payments under these leases (in thousands):

Restricted Cash — At December 31, 2011, the Company had restricted bank deposits of $670,000. The restricted bank deposits consist of $400,000 as a reserve pursuant to our guarantees of STP with the bank providing the debt financing on the Aerojet 1 solar generating facility, $250,000 as a reserve pursuant to our loan agreement with the bank providing the debt financing for the solar generating facility owned by our subsidiary, Solar Tax Partners 2, LLC, and $20,000 securing our corporate credit card.

At December 31, 2010, the Company had restricted bank deposits of $1,344,000. The restricted bank deposits consist of $1,004,000 as a reserve pursuant to our guarantees of STP with the bank providing the debt financing on the Aerojet 1 solar generating facility, $285,000 as a reserve pursuant to our loan agreement with the bank providing the debt financing for the solar generating facility owned by our subsidiary, Solar Tax Partners 2, LLC, $20,000 securing our corporate credit card and $35,000 as retention by our bank for our merchant credit card service.

Off-Balance Sheet Arrangements

At December 31, 2011, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements that constitute Item 8 are included at the end of this report beginning on page F-1.

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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Item 9A — CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide assurance that the information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods required by the Securities and Exchange Commission. An evaluation of the effectiveness of the design and operations of the Company’s disclosure controls and procedures at the end of the period covered by this report was carried out under the supervision and with the participation of the management of Solar Power, Inc., including the Chief Executive Officer and the Chief Financial Officer. Based on such an evaluation, the Chief Executive Officer and the Chief Financial Officer concluded the Company’s disclosure controls and procedures were effective as of the end of such period.

Management’s Report on Internal Control over Financial Reporting

Solar Power, Inc. is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments.

We, as management of Solar Power, Inc., are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; provide reasonable assurance that receipts and expenditures of the company are only being made in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are noted.

Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Company’s system of internal control over financial reporting as of December 31, 2011, in relation to the criteria for effective control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2011, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control — Integrated Framework.”

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

The Company filed an amended annual report on Form 10K/A for the year ended December 31, 2010, and amended quarterly reports on Form 10Q/A for the three interim quarters for 2011 because it was determined that the

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Company had improperly recognized revenue for a single solar development project initiated in 2009, due to incorrect selection of the accounting policy. The Company reevaluated its internal controls on accounting and reporting and concluded that it did not have adequate controls over the selection and application of accounting policies for complex and non-routine transactions which resulted in a material weakness in its internal controls over financial reporting as of December 31, 2010.

To remediate this material weakness, the Company hired a seasoned Chief Financial Officer with technical accounting and reporting experience. The Company has implemented a detailed methodology and procedure for revenue recognition to avoid such recurrence in the future. The Chief Financial Officer interacts upfront with the business development teams in deal structuring so that any potential accounting issues can be addressed real time. In addition the Company is in the process of hiring a Corporate Controller and a Financial Reporting Manager to further improve technical accounting skills and also to plan for growth in the business.

Based on the above steps, the Company’s management, including its Chief Executive Officer and its Chief Financial Officer have concluded that as of December 31, 2011, the Company’s internal control over financial reporting was effective based on the criteria described in the COSO Internal Control—Integrated Framework.”

ITEM 9B — OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item will be included in and is hereby incorporated by reference from our Proxy Statement for the 2011 Annual Meeting of Stockholders. We have adopted a Code of Ethics applicable to all employees including our CEO and CFO. A copy of the Code of Ethics is available at www.spisolar.com.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item will be included in and is hereby incorporated by reference from our Proxy Statement for the 2011 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item will be included in and is hereby incorporated by reference from our Proxy Statement for the 2011 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item will be included in and is hereby incorporated by reference from our Proxy Statement for the 2011 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item will be included in and is hereby incorporated by reference from our Proxy Statement for the 2011 Annual Meeting of Stockholders.

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PART IV

ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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Footnotes to Exhibits Index

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SIGNATURES

In accordance with Section 13 or 15(d) 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.

Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

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Index to Financial Statements

Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Solar Power, Inc.

We have audited the accompanying consolidated balance sheet of Solar Power, Inc. and subsidiaries as of December 31, 2011 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Solar Power, Inc. and subsidiaries at December 31, 2011, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Solar Power, Inc.

We have audited the accompanying consolidated balance sheet of Solar Power, Inc. and subsidiaries (the “Company”) as of December 31, 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Solar Power, Inc. and subsidiaries as of December 31, 2010, and the results of their operations and their cash flows for the year in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

The December 31, 2010 financial statements have been restated to reflect revised accounting treatment for a single solar development project under the financing method as opposed to the full accrual method as was previously reported.

/s/ Perry-Smith LLP

Sacramento, California

March 14, 2011, (April 16, 2012 as to the effects of the restatement discussed in our report)

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SOLAR POWER, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2011 and 2010

(Dollars in thousands, except for share data)

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

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SOLAR POWER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except for share data)

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

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SOLAR POWER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

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

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SOLAR POWER, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31, 2011 and 2010

(Dollars in thousands, except for share data)

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

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SOLAR POWER, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Financial Statement Presentation

Solar Power, Inc. and its subsidiaries, (collectively “SPI” or the “Company”) is engaged in development, sales, installation and integration of photovoltaic systems and sells solar panels and related hardware and cable, wire and mechanical assemblies. Solar Power, Inc. was incorporated in the State of California in 2006.

In December 2006, SPI, a California corporation, became a public company through its reverse merger with Solar Power, Inc., a Nevada corporation (formerly Welund Fund, Inc.) SPI was considered the accounting acquirer after that merger. The accompanying consolidated financial statements reflect the results of the operations of Solar Power, Inc., a California corporation and its subsidiaries.

On January 5, 2011, the Company entered into a stock purchase agreement with LDK Solar Co., Ltd. (“LDK”), a vertically integrated solar wafer, cell and solar module manufacturer. Under the agreement, on an as-converted, fully diluted basis, LDK purchased 70% of our common stock. The transaction complemented LDK’s vertical integration, effectively providing us with strategic capital by making SPI its downstream SEF development platform and a member of the global LDK Solar family. Furthermore, the transaction enables SPI to leverage LDK’s supply chain and economies-of-scale to work as a vertically integrated turnkey solar developer and EPC contractor.

Reclassifications – Certain reclassifications have been made to prior year’s balances to conform to classifications used in 2011. Reclassifications had no effect on prior year results of operations or retained earnings.

2. Summary of Significant Accounting Policies

Basis of Presentation — The consolidated financial statements include the accounts of Solar Power, Inc., and its subsidiaries. Intercompany balances, transactions and cash flows are eliminated in consolidation.

Cash and cash equivalents — Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and all highly liquid investments with original maturities of three months or less, when purchased.

Inventories — Inventories are stated at the lower of cost or market, determined by the first in first out cost method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. Provisions are made for obsolete or slow-moving inventories based on management estimates. Inventories are written down based on the difference between the cost of inventories and the net realizable value based upon estimates about future demand from customers and specific customer requirements on certain projects.

Anti-dilutive Shares — Basic earnings per share are computed by dividing income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by adding other common stock equivalents, including common stock options, warrants, and restricted common stock, in the weighted average number of common shares outstanding for a period, if dilutive. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. For the years ended December 31, 2011 and 2010, potentially dilutive securities excluded from the computation of diluted earnings per share were 7,237,802 and 5,371,477 respectively.

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The following table illustrates the computation of the weighted average shares outstanding used in computing earnings per share in our financial statements: