SPI Energy Co., Ltd. - Quarter Report: 2013 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended June 30, 2013

Commission File Number 000-50142

SOLAR POWER, INC.

(Exact name of registrant as specified in its charter)

(916) 770-8100

(Issuer’s telephone number)

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   ☒     No   ☐

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

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

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

The number of outstanding shares of the registrant’s common stock as of August 14, 2013 was 198,214,456.

 TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

SOLAR POWER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

(unaudited)

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

SOLAR POWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share data)

(unaudited)

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

SOLAR POWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

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

SOLAR POWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

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

SOLAR POWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business and Basis of Presentation

Description of Business

Solar Power, Inc. and its subsidiaries (collectively the “Company”) consist of the combination of the legacy reporting entity Solar Power, Inc. and Solar Green Technology S.p.A. (“SGT”) and their respective subsidiaries. Refer to Note 5— Acquisition of Solar Green Technology for further details of the accounting impact of the SGT acquisition.

The Company is a global solar energy facility (“SEF”) developer offering our own brand of high-quality, low-cost distributed generation and utility-scale SEF development services. Primarily, the Company partners with developers around the world who hold large portfolios of SEF projects for whom it serves as co-developer and engineering, procurement and construction (“EPC”) contractor.

Basis of Presentation and Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. They should be read in conjunction with the financial statements and related notes to the financial statements of Solar Power, Inc. for the years ended December 31, 2012 and 2011 appearing in Solar Power, Inc.’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 19, 2013. The June 30, 2013 and 2012 unaudited interim Condensed Consolidated Financial Statements on Form 10-Q have been prepared pursuant to the rules and regulations of the SEC for smaller reporting companies and include the accounts of Solar Power, Inc. and its subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated.

Preparation of these financial statements requires management to make certain judgments, estimates and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting period. Key estimates used in the preparation of our financial statements include: contract percentage-of-completion and cost estimates, construction in progress, allowance for doubtful accounts, stock-based compensation, warranty reserve, deferred taxes, valuation of inventory, and valuation of other intangible assets. Actual results could differ from those estimates upon subsequent resolution of identified matters.

Certain information and note disclosures normally included in the annual financial statements on Form 10-K have been condensed or omitted pursuant to those rules and regulations, although the Company’s management believes the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operation for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

The accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.

3. Summary of Significant Accounting Policies

These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2012. There have been no significant changes in the Company’s significant accounting policies for the six months ended June 30, 2013, as compared to the significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2012.

4. Recently Adopted and Issued Accounting Pronouncements

In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. An organization is now allowed to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. The Company adopted these changes on January 1, 2013. Adoption of this update did not have an impact on the Condensed Consolidated Financial Statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted these changes on January 1, 2013. Adoption of these changes did not have an impact on the Consolidated Financial Statements.

In March 2013, FASB issued ASU No. 2013-05, Foreign Currency Matters—Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, which allows an entity to release cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. These changes become effective for the Company on January 1, 2014. Management does not expect the adoption of these changes to have a material impact on the Consolidated Financial Statements.

In April 2013, the FASB issued ASU 2013-07, Liquidation Basis of Accounting, which require an entity to use the liquidation basis of accounting to present its financial statements when it determines that liquidation is imminent, unless the liquidation is the same as that under the plan specified in an entity’s governing documents created at its inception. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). These changes become effective for the Company on January 1, 2014. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Management does not expect the adoption of these changes to have a material impact on the Consolidated Financial Statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. These changes become effective for the Company on January 1, 2014. Management does not expect the adoption of these changes to have a material impact on the Consolidated Financial Statements.

5. Acquisition of Solar Green Technology

On June 27, 2012, Solar Power, Inc. entered into an Acquisition and Stock Purchase Agreement dated as of June 25, 2012 (the “SGT Agreement”) with the shareholders of SGT, an Italian-based limited liability company. Under the SGT Agreement, Solar Power, Inc. acquired 100% of the issued and outstanding shares of SGT from SGT shareholders in exchange for 5.0 million Euros (approximately $6.3 million U.S. Dollars) payable in cash and common stock of the Company (the “Purchase Price”). The acquisition of SGT complements the Company’s global growth strategy. The shareholders of SGT consisted of LDK Solar Europe Holding S.A (“LDK Europe”) and the two founders of SGT. LDK Europe, through its 70% ownership of the outstanding common stock of SGT, controlled SGT prior to the close of the transaction. LDK Europe is the wholly owned subsidiary of LDK, which owned approximately 71% of the issued and outstanding common stock of the Company prior to and after the date of the acquisition of SGT. In July 2012, the Company issued 9,771,223 shares of its Common Stock to LDK Europe and 1,814,655 shares of its Common Stock to each of the two founders of SGT. In addition, the Company agreed to pay each of the two founders 100,000 Euros in cash, the payments of which were made in July 2012. The amount of shares of the Company’s Common Stock that were issued under the SGT Agreement were determined by calculating the amount of the Purchase Price payable to each shareholder divided by the daily volume-weighted average price of the Company’s Common Stock for each of the 90 trading days prior to June 11, 2012.

Because SGT and Solar Power, Inc. were under the common control of LDK as of the June 27, 2012 acquisition date, the acquisition is treated as a transaction between entities under common control. In accordance with ASC Topic 805, Business Combinations these financial statements reflect the combination of Solar Power, Inc. and SGT’s financial statements for all periods presented under which both entities were under the common control of LDK. The predecessor entity was determined to be SGT due to the fact that SGT was the first entity controlled by LDK. LDK obtained a controlling interest in SGT on July 10, 2009. LDK obtained a controlling interest in Solar Power, Inc. on March 31, 2011. As such, the Company recognized the assets and liabilities of SGT (the accounting receiving entity) at their historical carrying values in accordance with U.S. GAAP and has recast the assets and liabilities of the legacy Solar Power, Inc. entity (the transferring entity) to reflect carrying value of the parent, LDK, which were stepped up to fair value on March 31, 2011 upon LDK obtaining a controlling interest in Solar Power, Inc. Refer to Note 7 —Goodwill and Other Intangible Assets for details of the balances carried by LDK now reflected in the Condensed Consolidated Financial Statements.

6. Notes Receivable

 On April 27, 2012, the Company made a secured loan of $1.0 million to Solar Hub Utilities, LLC (“Solar Hub”), to be used for pre-development costs, and recorded the amount in notes receivable, noncurrent. On June 8, 2012, the Company agreed to advance Solar Hub up to $9.0 million under a new $9.0 million secured promissory note, which refinanced the original $1.0 million advance and bears a 6 percent annual interest rate. In March 2013, the interest was changed to a 10% annual interest rate in accordance with the Amended and Restated Secured Promissory Note. This note receivable is secured by the project assets. Repayment in full of all borrowed amounts was due on December 31, 2013 but, in March 2013, was extended to a new maturity date of July 1, 2014 in accordance with the Amended and Restated Secured Promissory Note. As of June 30, 2013 and December 31, 2012, the balance of the note receivable from Solar Hub was $8.4 million and $7.1 million, respectively. These amounts are recorded in notes receivable, noncurrent as of June 30, 2013 and notes receivable, a current account, as of December 31, 2012.

7. Goodwill and Other Intangible Assets

Goodwill

The carrying value of goodwill was $5.2 million at December 31, 2011, all of which was allocated to the Company’s single reportable segment. Of this balance, $4.7 million reflected the balance of Solar Power, Inc. carried by its parent company, LDK, as required under the accounting guidelines for a transfer of an entity under common control (refer to Note 5— Acquisition of Solar Green Technology ). During the three months ended September 30, 2012, due primarily to the reduction in the Company’s market capitalization, the Company’s market value was significantly below its book value, thus triggering an impairment analysis. As a result of this analysis, the Company recorded a goodwill impairment charge of $5.2 million. As a result, the balance of goodwill as of June 30, 2013 and December 31, 2012 was zero.

Other Intangible Assets

Resulting from the June 2012 acquisition of SGT, reflected in the Condensed Consolidated Balance Sheets of the Company are certain intangible assets, namely patent and customer relationships, and related amortization expense from March 31, 2011 forward. During the three months ended December 31, 2012, the Company determined that the carrying value of certain intangible assets related to customer relationships were no longer recoverable based on a discrete evaluation of the nature of the intangible assets, incorporating the effect of the Company’s decision during the three months ended December 31, 2012 to no longer maintain the customer relationships. As a result, the Company recorded an impairment charge of $0.1 million on its Consolidated Statement of Operations for the year ended December 31, 2012. The balance of intangible assets as of June 30, 2013 and December 31, 2012 was $1.4 million and $1.7 million, respectively.

Other intangible assets consisted of the following (in thousands):

As of June 30, 2013, the future amortization expense related to other intangible assets is as follows (in thousands):

8. Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

In 2009, Solar Power, Inc. capitalized a photovoltaic (“PV”) solar system relating to the Aerojet 1 solar development project along with the associated financing obligation, recorded under loans payable, financing and capital lease obligations, net of current portion, in the Consolidated Balance Sheets. Due to certain guarantee arrangements as disclosed in Note 13— Commitments and Contingencies, the Company will continue to record this $14.9 million solar system in property, plant and equipment with its associated financing obligation in loans payable and financing obligations as long as it maintains its continuing involvement with this project. The income and expenses relating to the underlying operation of the Aerojet 1 project are recorded in the Condensed Consolidated Statement of Operations.

During the year ended December 31, 2011, the Company’s subsidiary, SGT, completed construction of two SEFs, which was classified as held for sale (refer to Note 9 —Assets Held for Sale) as of December 31, 2011. In May 2012, SGT sold to and leased back the assets from a leasing company. The gross amount of assets recorded under the capital leases was $6.0 million, with accumulated depreciation of $0.2 million, as of June 30, 2013 and December 31, 2012. The SEFs are classified as PV solar systems under capital leases, which were recorded in loans payable, financing and capital lease obligations, net of current portion, on the Condensed Consolidated Balance Sheets. Refer to Note 13 —Commitments and Contingencies for more information related to the capital leases.

Depreciation expense for the three months ended June 30, 2013 and 2012 was $0.3 million. Depreciation expense for the six months ended June 30, 2013 and 2012 was $0.6 million. 

9. Assets Held for Sale

During the year ended December 31, 2010, Solar Power, Inc. recorded an asset held for sale of $10.0 million. The asset held for sale resulted from Solar Power, Inc. taking possession of a solar facility for which the customer was unable to complete payment. During 2010, the asset held for sale was reduced by $3.3 million to $6.7 million by funds received from the United States Treasury under Section 1603, Payment for Specified Energy Property in Lieu of Tax Credits. Although this asset had been held for sale for the past eighteen months as of December 31, 2011, during the period of the closing of the stock purchase by LDK, this asset was not actively marketed to third parties at LDK’s request and Solar Power, Inc. could not accept offers to sell the facility under the provisions of the LDK stock purchase agreement. Subsequent to the stock purchase by LDK, Solar Power, Inc. proceeded to actively market the asset to third parties and expected that this asset would be sold within the next twelve months. Accordingly, the asset held for sale was recorded as a current asset in the Consolidated Balance Sheet at December 31, 2011. During the quarter ended June 30, 2011, Solar Power, Inc. recorded an impairment charge of $0.4 million to reduce the carrying amount to the estimate of fair value less cost to sell. As such, the asset held for sale was recorded at $6.3 million as of December 31, 2011. The fair value was estimated based on a discounted cash flow analysis using level 3 unobservable inputs such as estimated future revenues and government incentives, less estimated future operating expenses. In May 2012, the Company recorded further impairment of $0.7 million, based on qualitative changes in the solar market. In June 2012, the Company sold the asset and assigned the related loan obligation, in the amount of $4.2 million, to HEK, LLC (“HEK”), a related party, and received net proceeds from the sale of $1.5 million consistent with the new fair value of the asset.

During the year ended December 31, 2011, the Company’s subsidiary, SGT, completed construction of two SEFs, which were classified in the amount of $5.5 million as assets held for sale on the Consolidated Balance Sheet. In May 2012, these Italian assets held for sale were sold to and leased back from a leasing company. Refer to Note 8 —Property, Plant and Equipment for more information related to the assets. The fair value of the Italian assets held for sale was estimated using a discounted cash flow analysis using level 3 unobservable inputs.

At June 30, 2013 and December 31, 2012, the balance of the account assets held for sale was zero and zero, respectively.

10. Stockholders’ Equity

Issuance of common stock

On June 8, 2012, the Company issued 400,000 shares of restricted Common Stock pursuant to the Company’s 2006 Equity Incentive Plan (defined below) as compensation to its non-employee directors. The fair value of the shares was $0.265 per share, the closing price of the Company’s Common Stock on June 12, 2012, the date of the grant. The shares vested on the date of grant.

In July 2012, the Company issued 9,771,223 shares of its Common Stock to LDK Europe, a wholly-owned subsidiary of LDK, and 1,814,655 of its Common Stock to each of the two founders of SGT pursuant to the SGT Acquisition and Stock Purchase Agreement as part of an aggregate purchase price of 5.0 million Euros (approximately $6.3 million in U.S. Dollars at June 30, 2012). For further discussion of the transaction, refer to Note 5 —Acquisition of Solar Green Technology.

Issuance of warrants to purchase common stock

On February 15, 2012, the Company’s Board of Directors approved the issuance of a warrant agreement for Cathay General Bancorp to purchase 300,000 shares of the Company’s Common Stock at $0.75 per share related to the credit facility entered into with Cathay Bank for an original aggregate principal amount of $9.0 million. The fair value of $0.29 per share was determined using the Black-Scholes-Merton model. Assumptions used in calculating fair value were as follows: a risk free interest rate of .38%, expected volatility of 103%, zero expected dividend yield, and an expected term of 3 years. The warrant expires on February 15, 2015 and is exercisable anytime within that period for an exercise price of $0.75 per share. The value of the warrant was amortized over the remaining term of the associated credit facility through December 31, 2012. For the three month period ended June 30, 2013 and 2012, zero and $37,000 was amortized to interest expense. For the six month period ended June 30, 2013 and 2012, zero and $55,000 was amortized to interest expense.

11. Stock-based Compensation

The Company measures stock-based compensation expense for all stock-based compensation awards based on the grant-date fair value and recognizes the cost in the financial statements over the employee requisite service period.

The following table summarizes the consolidated stock-based compensation expense, by type of awards for the periods as follows (in thousands):

The following table summarizes the consolidated stock-based compensation by line item for the periods as follow (in thousands):

Stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Valuation Assumptions

Valuation and Amortization Method —The Company estimates the fair value of time-based and performance-based stock options, if any, granted using the Black-Scholes-Merton option-pricing formula. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Time-based and performance-based options, if any, typically have a five-year life from date of grant and vesting periods of three to four years. There were no performance-based options outstanding at June 30, 2013 or December 31, 2012.

Expected Term —The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. For awards granted subject only to service vesting requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of historical exercise data.

Expected Volatility —The Company uses the historical volatility of the price of its common shares.

Expected Dividend —The Company has never paid dividends on its common shares and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate —The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation method upon the implied yield curve currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

There were no new grants or awards issued in the three and six months ended June 30, 2013. Assumptions used in the determination of the fair value of share-based payment awards using the Black-Scholes model for stock option grants during the three and six months ended June 30, 2013 and 2012 were as follows:

Equity Incentive Plan

On November 15, 2006, subject to approval of the stockholders, the Company adopted the 2006 Equity Incentive Plan (the “Plan”) which permits the Company to grant stock options to directors, officers or employees of the Company or others to purchase shares of common stock of the Company through awards of incentive and nonqualified stock options (“Option”), stock (Restricted Stock or Unrestricted Stock) and stock appreciation rights (“SARs”). The Plan was approved by the stockholders on February 7, 2007.

The Company currently has time-based options outstanding. The time-based options generally vest 25% annually and expire three to five years from the date of grant. The restricted shares were fully vested as of December 31, 2012. Total number of shares reserved and available for grant and issuance pursuant to this Plan is equal to nine percent (9%) of the number of outstanding shares of the Company. Not more than 2,000,000 shares of stock shall be granted in the form of incentive stock options. Shares issued under the Plan will be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. Outstanding shares of the Company shall, for purposes of such calculation, include the number of shares of stock into which other securities or instruments issued by the Company are currently convertible (e.g. convertible preferred stock, convertible debentures, or warrants for common stock), but not outstanding options to acquire stock. At June 30, 2013 there were 12,816,606 shares available for grant under the plan (9% of the outstanding shares of 198,214,456 plus outstanding warrants of 300,000 less options outstanding and exercises since inception).

The following table summarizes the Company’s stock option activities for the three and six month periods ended June 30, 2013 and 2012:

The following table summarizes the Company’s restricted stock activities for the three and six month periods ended June 30, 2013 and 2012:

12. Line of Credit, Loans Payable and Financing Obligations

Lines of Credit

Under the Business Loan Agreement, the Company is required to adhere to certain covenants, including a profitability requirement and financial statement ratio covenants. On June 15, 2012, the Company and Cathay executed a modification to the terms of the line of credit to adjust the required debt to worth ratio from three to one from two and one-half to one, and to subject all future advances to seventy percent of the receipts related to EPC agreements reviewed and approved by Cathay. Due to the accounting treatment related to the Aerojet 1 solar project development, the Company’s debt to worth covenant was in violation at December 31, 2011 and continues to be in violation until the related financial obligation is satisfied. The Company obtained a waiver from Cathay that excludes the financial impact of the Aerojet 1 transaction from the calculation of the debt to worth ratio through the term of the loan.

Related to the financial concerns of the Company’s parent, LDK, as discussed in Note 2— Going Concern Considerations and Management’s Plan, the Cathay line of credit contains a material adverse change (“MAC”) clause under which the bank can declare amounts immediately due and payable. Due to the subjectivity of the MAC clause, it is not clear whether the events described above would represent a material adverse change. Should the banks declare amounts immediately due and payable under the MAC clause, the Company does not have the ability to make the payments without additional sources of financing or accelerating the collection of outstanding receivables.

On August 15, 2013, the Company entered into an agreement with Cathay whereby Cathay agreed, subject to certain conditions precedent, to forbear from foreclosing on the security interest securing the Loan Agreement until September 30, 2013. In connection with the forbearance, the Company agrees to pay Cathay the outstanding and unpaid balance of the loan on September 30, 2013. In addition, as of August 15, 2013, the interest rate under the loan equals 11 percent. All proceeds from the sale of projects and any payments received from KDC shall be applied to loan payment.

During 2011 and 2012, SGT entered into various unsecured revolving credit agreements with six Italian financial institutions under which SGT may borrow up to 4.0 million Euros (approximately $5.1 million U.S. Dollars). Amounts borrowed for advances on customer invoices or for performance bonds to customers may be repaid and reborrowed after repayment. The Company is required to pay interest on outstanding borrowings at interest rates ranging from 4.4% to 9.9%, compounded quarterly. Repayment is due for each invoice advance upon repayment by the customer, up to one-hundred twenty days from utilization of each facility. As of June 30, 2013 and December 31, 2012, $4.9 million and $4.4 million, respectively, were outstanding under the revolving credit facilities, classified in the current account lines of credit.

Loans Payable

On December 30, 2011, the Company and CDB entered into a Security Agreement (the “CDB Security Agreement”), whereby the Company granted CDB a security interest in certain collateral. The CDB Security Agreement is providing CDB with security for two term loan facilities that CBD, as lender, is extending to a wholly owned subsidiary of the Company, SPI Solar New Jersey, Inc. (“SPI New Jersey”) as discussed below (collectively, the “Facility Agreements” and each a “Facility Agreement”). Under the CDB Security Agreement, CDB may, among other rights involving the collateral, sell the collateral or withdraw funds from certain accounts of the Company in the event of a default under a Facility Agreement. The CDB Security Agreement terminates upon satisfaction in full of the obligations under the Facility Agreements.

On December 30, 2011, SPI New Jersey entered into two facility agreements with CDB. The first Facility Agreement is for a $3.6 million facility and a RMB 72,150,000 ($11.5 million at current exchange rates) facility and relates to EPC Financing for one of the Company’s customers. The second Facility Agreement is for a $15.6 million facility and a RMB 77,850,000 ($12.3 million at current exchange rates) facility and relates to EPC financing for another of the Company’s customers. SPI New Jersey has twelve months to draw upon the facilities. The interest rate is a variable interest rate based on either LIBOR plus a margin, in the case of a loan under a U.S. dollar portion, or the standard RMB interest rate for similar loans, in the case of a loan under a RMB portion. The interest is payable every six months. Under each Facility Agreement, SPI New Jersey is obligated to pay a front-end fee of 1.5% of the total amount of the U.S. dollars portion of a Facility Agreement upon the first drawing under the U.S. dollars portion of that Facility Agreement. Further, SPI New Jersey is obligated to pay a front-end fee of 1.5% of the total amount of the RMB portion of a Facility Agreement upon the first drawing under the RMB portion of that Facility Agreement. Additionally, SPI New Jersey is obligated to pay a fee equal to 0.5% per annum of the available but undrawn funds. The loans under a facility may be prepaid in whole or in part. However, any repaid portion cannot be re-borrowed. The full amount outstanding under a facility is required to be paid in full twenty-four months from the date the facility was first utilized, which was December 2011. The loans outstanding under the facility also become payable on the occurrence of certain events, including a change of control of SPI New Jersey. During the three months ended March 31, 2012, SPI New Jersey repaid the first Facility Agreement of $3.6 million upon completion of the related solar development project. During the three months ended June 30, 2012, the Company drew down the remaining amount of RMB 77,850,000 (or $12.3 million in USD) under the second Facility Agreement. As of June 30, 2013 and December 31, 2012, the outstanding balance under these two credit facilities was $28.6 and $27.9 million, respectively, which was recorded in the current account loans payable and capital lease obligations.

The CDB Facility Agreements also contain a MAC clause. LDK financial issues may trigger an acceleration of the CDB loans if CDB reasonably believes that LDK’s financial concerns would have a material adverse effect on the Company. While the Company currently does not believe that it is probable that repayment of these debts will be accelerated by CDB, given inherent uncertainty on this determination by CDB and because the amounts outstanding relate to ongoing EPC projects and are expected to be paid within one year following the end of the construction, in the second quarter 2012 the Company reclassified the related balance from a noncurrent liability account to the current account loans payable and capital lease obligations.

13. Commitments and Contingencies

Commitments

Restricted cash —At June 30, 2013 and December 31, 2012, the Company had restricted bank deposits of $0.5 million and $0.4 million, respectively. The restricted bank deposits consist of a reserve pursuant to our guarantees of Solar Tax Partners 1, LLC (“STP”) with the bank providing the debt financing on the Aerojet 1 solar generating facility (see below for additional details related to the Aerojet 1 development project) and reserves pursuant to SGT’s performance bonds and surety guarantees held at various foreign banks.

      Guarantee —On December 22, 2009, in connection with an equity funding of STP related to the Aerojet 1 solar development 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. Specific guarantees made by Solar Power, Inc. include the following in the event of the other investors’ failure to perform under the operating agreement:

The Company has recorded on its Condensed Consolidated Balance Sheet the guarantees of $0.1 million at June 30, 2013 and December 31, 2012, respectively, which approximates their fair value (refer to Note 14— Fair Value of Financial Instruments). These amounts, less related amortization, are included in accrued liabilities. These guarantees for the Aerojet 1 project are accounted for separately from the financing obligation related to the Aerojet 1 project because they are with different counterparties.

Financing Obligation —The guarantees associated with Aerojet 1 constitute a continuing involvement in the project. While the Company maintains its continuing involvement, it will apply the financing method and, therefore, has recorded and classified the proceeds received of $12.3 million and $12.8 million from the project in long-term liabilities within financing and capital lease obligations, net of current portion, at June 30, 2013 and December 31, 2012, respectively, in the Condensed Consolidated Balance Sheets.

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 1 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 three and six months ended June 30, 2013 and 2012, there were no charges against the Company’s reserves related to this performance guaranty.

Product Warranties —Solar Power, Inc. offers the industry standard of 25 years for our solar modules and industry standard five years on inverter and balance of system components. Due to the warranty period, Solar Power, Inc. bears the risk of extensive warranty claims long after the Company has 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, Solar Power, Inc. purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards it 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 Solar Power, Inc. agreed to provide warranties to the buyer, and during the quarter ended September 30, 2007 and continuing through the fourth quarter of 2010, Solar Power, Inc. 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 Solar Power, Inc. does not have sufficient historical data to estimate its exposure, it has looked to its 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. The Company provides the manufacturer’s pass through warranty, and reserves for unreimbursed costs, such as labor, material and transportation costs to replace panels and balance of system components provided by third-party manufacturers. The current portion is presented in accrued liabilities and the non-current portion is presented in the noncurrent account other liabilities on the Condensed Consolidated Balance Sheets.

The accrual for warranty claims consisted of the following (in thousands):

Capital Lease Commitments — The Company’s subsidiary, SGT, completed construction of two SEFs in fiscal year 2011, which they sold to and leased back from a leasing company in May 2012. The balances of these Italian assets as of December 31, 2012 are under capital leases. Refer to Note 8 —Property, Plant and Equipment for further details on the related asset. The leases expire in 2030. The following is the aggregate minimum future lease payments under capital leases as of June 30, 2013 (in thousands):

 Contingencies

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 contended that it had paid Motech in full for all monies owed under the settlement agreement. On January 25, 2013, the Court denied Motech’s motion for summary judgment. During the quarter ended June 30, 2013, the parties settled the dispute and the Company paid a settlement amount to Motech in the amount of $150,000 to resolve the matter in exchange for a mutual release of all claims.

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

14. Fair Value of Financial Instruments

Our financial instruments consist principally of cash and cash equivalents, notes receivable, guarantees and long-term debt. The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), or unobservable inputs for assets or liabilities (Level 3), depending on the nature of the item being valued.

15. Income Taxes

The Company calculates its interim income tax provision in accordance with ASC 740-270 —Income Taxes. At the end of each interim period, the Company estimates the annual effective tax rate and applies that rate to its ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect, is recognized in the interim period in which those items occur. The Company evaluates its ability to recover deferred tax assets, in full or in part, by considering all available positive and negative evidence, including past operating results and our forecast of future taxable income on a jurisdictional basis. The Company bases its estimate of current and deferred taxes on the tax laws and rates that are currently in effect in the appropriate jurisdiction. Changes in laws or rates may affect the tax provision as well as the amount of deferred tax assets or liabilities.

The Company and its subsidiaries did not have any unrecognized tax benefits or liabilities as of June 30, 2013 and December 31, 2012. The Company does not anticipate that its unrecognized tax benefits or liability position will change significantly over the next twelve months.

16. Net Loss Per Share

Basic loss per share is 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 three months ended June 30, 2013 and 2012, 4.9 million and 7.7 million potentially dilutive securities, respectively, were excluded from the computation of diluted loss per share because their effect on net loss per share was anti-dilutive. For the six months ended June 30, 2013 and 2012, 4.9 million and 7.6 million potentially dilutive securities, respectively, were excluded from the computation of diluted loss per share because their effect on net loss per share was anti-dilutive. As a result of the net loss for each of the three months and six months ended June 30, 2013 and 2012 there is no dilutive impact to the net loss per share calculation for the periods.

17. Related Party Transactions

In September 2012, Solar Green Technology SA (“SGT”) transferred its interest in its wholly owned subsidiary, Moiac Solare Srl (“Moiac”), to Terrasol Solar SA (“Terrasol”). Terrasol’s parent, Century Solar Jewel SA is 40% owned by LDK Solar Europe Holding SA, a wholly owned subsidiary of LDK. The total contract value from the EPC agreements for the construction of 641kW solar development projects owned by Moiac is $1.9 million.

In June 2012, SGT began construction on multiple solar development projects under EPC agreements with Terrasol. The total contract value from the construction of these solar development projects is $16.1 million.

As of June 30, 2013 and December 31, 2012, the Company had accounts payable to LDK of $47.6 million and $51.8 million, respectively, primarily related to purchases of solar panels for solar development projects. See Note 2 —Going Concern Considerations and Management’s Plan for further discussion related to the accounts payables with LDK.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors That May Affect Future Results

This Quarterly Report on Form 10-Q and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “should,” “intend,” “forecast,” “project” the negative or plural of these words, and other comparable terminology. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company’s filings with the SEC, especially the Company’s Annual Report on Form 10-K and the Company’s Quarterly Reports on Form 10-Q. In various filings the Company has identified important factors that could cause actual results to differ from expected or historic results. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete list of all potential risks or uncertainties.

The following discussion is presented on a consolidated basis, and analyzes our financial condition and results of operations for the three and six months ended June 30, 2013 and 2012. 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. and its subsidiaries, as defined in Note 1 —Description of Business and Basis of Presentation to the Condensed Consolidated Financial Statements.

Overview

In June 2012, we acquired Solar Green Technology S.p.A. (“SGT”), a SEF developer headquartered in Milan, Italy, from LDK Solar Europe Holding S.A (“LDK Europe”) and the two founders of SGT. Because LDK Europe is a wholly-owned subsidiary of our parent, LDK, the acquisition was treated as a transaction between entities under common control. In accordance with ASC Topic 805, Business Combinations, these financial statements reflect the combination of Solar Power, Inc., and SGT’s financial statements for all periods presented under which both entities were under the common control of LDK. LDK obtained a controlling interest in SGT on July 20, 2009. LDK obtained a controlling interest in Solar Power, Inc. on March 31, 2011. As such, the Company recognized the assets and liabilities of SGT (the accounting receiving entity) at their historical carrying values in accordance with U.S. GAAP and has recast the assets and liabilities of the legacy Solar Power, Inc. entity (the transferring entity) to reflect carrying value of the parent, LDK, which were stepped up to fair value on March 31, 2011 upon LDK obtaining a controlling interested in Solar Power, Inc. The acquisition of SGT complemented the Company’s global growth strategy. See Note 5— Acquisition of Solar Green Technology of the Notes of the Consolidated Financial Statements for further discussion related to the accounts payables with LDK. As a result of the transaction, in July 2012, we issued 9,771,223 shares of its Common Stock to LDK Europe, a wholly owned subsidiary of LDK, wherein LDK retained ownership of approximately 71% of our outstanding Common Stock as of December 31, 2012.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to revenue recognition, allowances for doubtful accounts, assets held for sale, warranty reserves, inventory reserves, stock-based compensation expense, goodwill, definite-lived intangible asset and long-lived asset valuations, accounting for income taxes and deferred income tax asset valuation allowances, and other loss contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes in any of our critical accounting policies and estimates during the six months ended June 30, 2013.

Results of Operations

Three and six months ended June 30, 2013, as compared to three and six months ended June 30, 2012

Net sales

Net sales were $4.2 million and $24.4 million for the three months ended June 30, 2013 and 2012, respectively, a decrease of $20.2 million, or 82.8%. Net sales were $6.0 million and $50.7 million for the six months ended June 30, 2013 and 2012, respectively, a decrease of $44.8 million, or 88.2%. Included in net sales for the six months ended June 30, 2012 were related party sales to LDK and North Palm Springs Investments, LLC (“NPSLLC”), a wholly owned subsidiary of LDK Solar USA, Inc., of $16.2 million, primarily consisting of solar development project costs. The decrease in net sales for the three months ended June 30, 2013 over the comparative period was primarily due to a decline in utility-scale solar projects in Italy and in the U.S. as well as a decrease in the volume of sales of solar panel and a decrease in the average selling prices. We expect that net sales will increase in the near term as a result of construction ramp-up on a large scale utility project in New Jersey along with a second project that is beginning construction. Absent third party debt financing for project construction, future development will be dependent on positive internal cash flow.

Cost of goods sold

  Gross margins were 21.9% and 14.4% for the three months ended June 30, 2013 and 2012, respectively. Gross margins were 23.5% and 12.8% for the six months ended June 30, 2013 and 2012, respectively. Gross margins attributable to non-related parties were 21.9 and 15.5% for three months ended June 30, 2013 and 2012, respectively. Gross margins attributable to non-related parties were 23.5% and 16.7% for six months ended June 30, 2013 and 2012, respectively. The increase in gross margin from non-related parties for the three months ended June 30, 2013 over that of the comparative period was due to EPC arrangements with higher negotiated margins constructed in 2013. The increase in gross margin from non-related parties for the six months ended June 30, 2013 over that of the comparative period was due to lower cost on operational, high profit projects. There were no related party sales or cost of sales for the three months ended June 30, 2013. The sales and cost of sales to related parties for the three months ended June 30, 2012 reduced the overall gross margin percentage for the three months ended June 30, 2012 compared to the gross margin percentage for the three months ended June 30, 2013.

 General and administrative expenses

General and administrative expenses were $6.7 million (159.3% of net sales) and $2.7 million (10.9% of net sales) for the three months ended June 30, 2013 and 2012, respectively, an increase of $4.0 million, or 151.4%. General and administrative expenses were $9.0 million (150.1% of net sales) and $5.4 million (10.6% of net sales) for the six months ended June 30, 2013 and 2012, respectively, an increase of $3.6 million, or 65.9%. The increase in general and administrative expenses for the three months ended June 30, 2013 over the comparative period was primarily due to an increase in $3.7 million in bad debt expense offset by $0.6 million gain on sale of fixed assets and decreases in personnel-related costs of $0.1 million and rent expense of $0.2 million. The increase in general and administrative expenses for the six months ended June 30, 2013 over the comparative period was primarily due to an increase in $3.7 million in bad debt expense offset by $0.6 million gain on sale of fixed assets and decreases in personnel-related costs of $0.1 million and rent expense of $0.2 million. Excluding the bad debt write-off taken in the second quarter of 2013, we expect that general and administrative expenses, specifically personnel-related costs and professional services for the Company, will continue to scale downward from the current period due to our on-going cost reduction actions.

Sales, marketing and customer service expenses

Sales, marketing and customer service expenses were $0.4 million (10.5% of net sales) and $2.2 million (8.8% of net sales) for the three months ended June 30, 2013 and 2012, respectively, a decrease of $1.7 million, or 79.6%. Sales, marketing and customer service expenses were $1.2 million (19.7% of net sales) and $3.0 million (5.9% of net sales) for the six months ended June 30, 2013 and 2012, respectively, a decrease of $1.8 million, or 60.8%. The decrease in sales, marketing and customer service expense for the three and six months ended June 30, 2013 over the comparative periods was primarily due to cost reduction efforts implemented at the end of 2012, including reductions in headcount and consulting services. We expect that sales, marketing and customer service expenses will continue to trend downward in the near term on reduced sales commissions and related expenses.

Engineering, design and product management expenses

Engineering, design and product management expenses were $0.3 million (7.4% of net sales) and $0.8 million (3.3% of net sales) for the three months ended June 30, 3013 and 2012, respectively, a decrease of $0.5 million, or 61.5%. Engineering, design and product management expenses were $0.8 million (12.7% of net sales) and $1.4 million (2.7% of net sales) for the six months ended June 30, 3013 and 2012, respectively, a decrease of $0.6 million, or 45.2%. The decrease in engineering, design and product management costs for the three and six months ended June 30, 2013 over the comparative period was primarily due

to decreases in personnel-related costs related to the cost reductions implemented at the end of 2012. We expect these expenses to continue downward due to cost reduction measures of our Italian subsidiary’s design and engineering services.

Interest expense

Interest expense was $1.0 million and $0.9 million, respectively, for the three months ended June 30, 2013 and 2012. Interest expense was $2.0 million and $1.8 million, respectively, for the six months ended June 30, 2013 and 2012. The increase in interest expense of $0.1 million, or 11.1%, for the three months ended June 30, 2013 over the comparative period was due to increases in the average principal balance of borrowings to fund SEF project construction and operations. The increase in interest expense of $0.2 million, or 10.4%, for the six months ended June 30, 2013 over the comparative period was due to increases in the average principal balance of borrowings to fund SEF project construction and operations. We expect that interest expense will continue to fluctuate in future periods depending on the utilization of debt financing in our operations.

Interest income

Interest income was $0.9 million and $0.6 million for the three months ended June 30, 2013 and 2012, respectively. Interest income was $1.4 million and $1.3 million for the six months ended June 30, 2013 and 2012, respectively. The increase in interest income of approximately $0.3 million and $0.1 million over the three and six months ended June 30, 2012, respectively was because of the continued shift of accounts receivable to notes receivable where we are receiving more interest income. We expect that we will continue to earn interest income at similar levels in the future until the notes are repaid by the customers. The notes for each customer were due in 2013 and 2014, respectively.

Other income, net

Other income, net was a net expense $0.1 million and $0.1 million for the three months ended June 30, 2013 and 2012, respectively. Other income, net was net income of $0.2 million and $0.1 million for the six months ended June 30, 2013 and 2012, respectively. Other income, net for the three month period was unchanged over the comparative period. Other income, net for the six month period increased by $0.1 million over the comparative period due to changes in currency gains and losses. We expect that we will continue to be exposed to fluctuations in currency gains and losses in the future.

Provision for (benefit from) income taxes

Liquidity and Capital Resources

A summary of the sources and uses of cash and cash equivalents is as follows (in thousands):

As of June 30, 2013 and December 31, 2012, we had $0.2 million and $17.8 million in cash and cash equivalents, respectively. The substantial decrease in cash from-end year was related to funding the construction of a large utility-scale project in New Jersey. We expect that anticipated collections of trade accounts receivables will sustain us at least through the third quarter of 2013. Due to delays in solar development projects, collections of related accounts receivable have also been delayed. As a result, a significant amount of accounts receivable are currently contractually past due but are deemed to be collectible.

Net cash from operating activities of $3.7 million for the six months ended June 30, 2013 included a net loss of $10.0 million offset in part by non-cash items included in net loss, consisting of bad debt expense of $4.1 million depreciation and amortization of $0.6 million related to property and equipment, amortization of intangible assets of $0.3 million, stock-based compensation expense of $0.1 million, offset by operating income from the solar system subject to financing obligation of $0.6 million. Also contributing to cash from operating activities were decreases in accounts receivable of $2.9 million, decreases in costs and estimated earnings in excess of billing on uncompleted contracts of $12.9 million, decreases in billings in excess of costs and estimated earnings on uncompleted contracts of $4.2 million, decreases of accounts payable of $3.7 million, decreases in related party accounts payable of $1.7, increases in accrued liabilities of $1.6 million, decreases in construction in progress of $1.2 million and decreases in inventories of $0.2 million.

Net cash from investing activities of $18.4 million for the six months ended June 30, 2013 resulting from cash loaned to customers in exchange for a promissory note of $21.9 million and payments for the acquisition of property, plant and equipment of $0.2 million, and proceeds from repayment on notes receivable of $3.6 million.

           Net cash from financing activities was $3.3 million for the six months ended June 30, 2013 and resulted primarily from proceeds from lines of credit and construction loans of $2.6 million, offset by principal payments on loans and lease obligations of $5.8 million and an increase in restricted cash of $0.1 million.

Capital Resources and Material Known Facts on Liquidity

As of June 30, 2013, we had $0.2 million in cash and cash equivalents, $0.5 million of restricted cash held in our name in interest bearing accounts, $80.8 million in accounts and notes receivable of which $11.7 million is due from our parent, LDK, and $18.5 million in costs and estimated earnings in excess of billings on uncompleted contracts and $14.8 million in construction in progress, none of which is related to construction projects between the Company and our parent, LDK.

On April 27, 2012, we made a secured loan of $1.0 million to Solar Hub Utilities, LLC (“Solar Hub”), to be used for pre-development costs, and recorded the amount in notes receivable, noncurrent. On June 8, 2012, we agreed to advance Solar Hub up to $9.0 million under a new $9.0 million secured promissory note, which refinanced the original $1.0 million advance and had a 6 percent annual interest rate. In March 2013, in accordance with the Amended and Restated Secured Promissory Note, the interest rate was changed to 10% and the maturity date was extended to July 1, 2014 from December 31, 2013. This note receivable is secured by the project assets. As of June 30, 2013 and December 31, 2012, the balance of the note receivable from Solar Hub was $8.4 million and $7.1 million, respectively. The amount is recorded in the account notes receivable, a current account, as of December 31, 2012 and notes receivable, a noncurrent account as of June 30, 2013.

On December 30, 2011, we secured construction finance facilities totaling $42.8 million from China Development Bank (“CDB”) to fund the construction of two solar energy facility (“SEF”) projects under EPC agreements with KDC Solar LLC. As of June 30, 2013 and December 31, 2012, the Company’s outstanding balance on the credit facility with CDB was $28.6 million and $27.9 million, respectively. As a result of the solar projects in development under the various EPC agreements, we had notes receivable of $37.6 million from KDC as of June 30, 2013.

The significant risks and uncertainties described above could have a significant negative impact on our financial viability and raise substantial doubt about our ability to continue as a going concern. Management has made changes to the Company’s business model to increase working capital by managing cash flow, securing project financing before commencing further project development, and requesting that the Company’s customers make cash payments for solar panels for projects under development. If the noted banks should call the debt or LDK demand payment of amounts owed by the Company prior to collection of the related receivables, management plans to obtain additional debt or equity financing. There is no assurance that management’s plans to accelerate the collection of outstanding receivables or to obtain additional debt or equity financing will be successfully implemented, or implemented on terms favorable to the Company. The Condensed Consolidated Financial Statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might result from the outcome of this uncertainty.

The current economic conditions in the U.S. and Europe, the tariffs imposed on Chinese-manufactured solar panels imported into the U.S., and the reductions of solar incentives in Europe have presented challenges to us in generating the revenues and/or margins necessary to maintain positive working capital. Any new and existing projects requires additional increases in working capital as we incur significant costs from the time EPC agreements are executed until project completion or customer payment. Additionally, our revenues are highly dependent on third party financing for these projects. As a result, revenue recognition and collections remain difficult to predict and we cannot assure shareholders and potential investors that we will be successful in generating positive cash flows from operations. As the timing of revenue recognition and collection of related receivables are unpredictable, our strategy is to manage spending. This effort continues, as reflected in our revised business strategy as announced in the third quarter 2012 and reduction of our workforce, in order to focus on our core expertise of maximizing operating efficiencies and financial resources. Further cost reduction measures may be implemented by management as deemed necessary.

Recent Accounting Pronouncements

See Note 4— Recently Adopted and Issued Accounting Pronouncements, to our unaudited financial statements in Part I, Item 1 of this Quarterly Report for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our Condensed Consolidated Financial Statements.

 Item 3.

Qualitative and Quantitative Disclosures About Market Risk.

Pursuant to Item 305(e) of Regulation S-K the Company, as a smaller reporting company, is not required to provide the information required by this item.

 Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and under the supervision of our principal executive officer and our principal financial officer, reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2013 for the interim period covered by this report, as required by Securities Exchange Act Rule 13a-15, and concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 is accumulated and communicated to management timely, including our principal executive officer and principal 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 not effective as of the end of such period. In making this conclusion, the Company considered, among other factors, the previously identified material weaknesses as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 related to the application of generally accepted accounting principles to material complex and non-routine transactions.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, striving to achieve an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, acquisition integration, consolidating activities and migrating processes.

 There were no changes in our internal control over financial reporting that occurred during our latest fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

 Item 1. Legal Proceedings

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. On January 25, 2013, the Court denied Motech’s motion for summary judgment. During the quarter ended June 30, 2013, the parties settled the dispute and the Company paid a settlement amount to Motech in the amount of $150,000to resolve the matter in exchange for a mutual release of all claims.

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 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” below and in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. The risks described below and in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.

Our ability to secure project financing for project development and our outstanding loans and line of credit from CDB and Cathay Bank, respectively, may be adversely impacted by LDK Solar’s financial concerns.

The significant risks and uncertainties described above could have a significant negative impact on our financial viability and raise substantial doubt about our ability to continue as a going concern. Management has made changes to our business model to increase working capital by managing cash flow, securing project financing before commencing further project development, and requesting that our customers make cash payments for solar panels for projects under development. If the noted banks should call the debt or LDK demand payment of amounts owed by us prior to collection of the related receivables, management plans to obtain additional debt or equity financing. There is no assurance that management’s plans to accelerate the collection of outstanding receivables or to obtain additional debt or equity financing will be successfully implemented, or implemented on terms favorable to us. As of June 30, 2013 and December 31, 2012, we had $0.2 million and $17.8 million, respectively, in cash and cash equivalents. We expect that anticipated collections of trade accounts receivable will sustain us at least through the third quarter of 2013. The Condensed Consolidated Financial Statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might result from the outcome of this uncertainty.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Resignation of Dennis Wu as Director

On August 11, 2013, Mr. Dennis Wu resigned from the board of directors of Solar Power, Inc. (the “Company”) effective immediately. To the knowledge of the Company, there were no disagreements with the Company on any matter relating to the Company’s operations, policies or practices. There are no severance terms, deferred compensation or other financial arrangements between Mr. Wu and the Company.

Resignation of Francis W. Chen as Director

On August 13, 2013, Mr. Francis W. Chen resigned from the board of directors of the Company effective immediately. To the knowledge of the Company, there were no disagreements with the Company on any matter relating to the Company’s operations, policies or practices. There are no severance terms, deferred compensation or other financial arrangements between Mr. Chen and the Company.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

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