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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.
This Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and information we provide in our press releases, telephonic reports and other investor communications, including those on our website, contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Annual Report on Form 10-K, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, among other things, with respect to anticipated future events, including anticipated trends and developments in and management plans for our business and the markets in which we operate and plan to operate; future financial results, operating results, revenues, gross profit, operating expenses, projected costs, and capital expenditures; sales and marketing initiatives; competitive position; and liquidity, capital resources, and availability of future equity capital on commercially reasonable terms. Forward-looking statements can be identified by the 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. Our forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Annual Report on Form 10-K are based upon information available to us as of the filing date of this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled Item 1A — Risk Factors, and elsewhere in this Annual Report on Form 10-K. You should carefully consider the risks and uncertainties described under this section.
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ITEM 1. BUSINESS
Overview
Solar Power, Inc. and its subsidiaries (collectively the “Company”), a California corporation, consist of the combination of the legacy reporting entity Solar Power, Inc. and Solar Green Technology S.p.A. (“SGT”) and their respective subsidiaries. We are a global solar energy facility (“SEF”) developer offering high-quality, low-cost distributed generation and utility-scale SEF development services. Primarily, we partner with developers around the world who hold large portfolios of SEF projects for whom we serve as co-developer and engineering, procurement and construction (“EPC”) contractor. In addition to developing SEFs using products manufactured by LDK Solar Co., Ltd. (“LDK”), our parent company, we also sell solar modules and balance of system components manufactured by third party vendors to other integrators in the U.S., Asian, and European markets.
In addition to designing, engineering and constructing large-scale SEFs, we also provide long-term operations and maintenance (“O&M”) services through our proprietary O&M program SPIGuardianTM. This service program provides a comprehensive suite of services that commence upon a facility’s commissioning to provide performance monitoring, system reporting, preventative maintenance and full warranty support over the anticipated life of the SEF. While we still consider our O&M services to be within our core competencies, we are currently exploring third party outsourcing for these services on a going forward basis to assist in the reduction of operating expenses.
As shown in the accompanying Consolidated Financial Statements, we incurred a net loss of $25.4 million during the year ended December 31, 2012 and had an accumulated deficit of $23.8 million as of December 31, 2012. Working capital levels have decreased significantly from $61.1 million at December 31, 2011 to $22.4 million at December 31, 2012. Our parent company, LDK Solar Co., Ltd. (“LDK”), who owns approximately 71% of our outstanding Common Stock, has disclosed publicly that it had a net loss and negative cash flows from operations for the year ended December 31, 2011 and has a working capital deficit and was not in compliance with certain financial covenants on its indebtedness at December 31, 2011. LDK’s publicly available interim financial information for 2012 shows no significant improvement. The liquidity issues experienced by LDK have impacted our relationship with China Development Bank (“CDB”), who was to partner with us to provide construction and term financing for the New Jersey and Greek solar development projects. Since the LDK disclosure of their substantial doubt in their ability to continue as a going concern, we have experienced cash flow issues due to delays in connection with CDB financing and an inability to extract working capital from completed projects. As a result, we have reduced large portions of our operations and focused on maintaining minimal operating expenses via outsourcing EPC services on our existing projects in New Jersey and elsewhere. In addition, we are solely focusing on managing our current development portfolio in Hawaii and New Jersey and have ceased our sales efforts in other regions until the longer term cash flow requirements significantly improve. The release of CDB term financing for projects completed and commissioned would significantly improve the cash flow situation and our ability to expand project development efforts. These factors raise substantial doubt as to our ability to continue as a going concern. While our management believes that it has a plan to satisfy liquidity requirements for a reasonable period of time, there is no assurance that our plan will be successfully implemented. For further discussion, see Note 2—Going Concern Considerations and Management’s Plan of the Notes to the Consolidated Financial Statements for the year ended December 31, 2012.
In December 2006, we became a public company through a reverse merger with Solar Power, Inc., a Nevada corporation (formerly Welund Fund, Inc.). On March 31, 2011, LDK obtained a controlling interest in Solar Power, Inc. by making a significant investment in our business that provided working capital and broader relationships that allowed us to more aggressively pursue commercial and utility projects globally in 2011. With LDK’s investment in Solar Power, Inc. in 2011, we expanded and engaged in business development activities that allowed us to grow our global pipeline while accelerating our construction of multiple projects simultaneously. LDK’s modules have been used in the majority of the systems we produce; however, we maintain relationships with other module manufacturers when circumstances call for an alternative to LDK’s line of modules. See Note 2—Going Concern Considerations and Management’s Plan to the Notes to the Consolidated Financial Statements for further discussion related to the accounts payables with LDK.
In June 2012, we acquired 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 period from January 1, 2011 through March 31, 2011 represents SGT’s financial results only, given that it was the predecessor entity in the transaction. Upon LDK acquiring its controlling interest in Solar Power, Inc. on March 31, 2011, the equity of the new reporting entity for the combined financial statements of Solar Power, Inc. and SGT reflects the Preferred and Common Stock of Solar Power, Inc. and associated additional paid-in capital and SGT’s retained earnings (accumulated deficit) and foreign currency translation at March 31, 2011. Adjustments to eliminate the capital share accounts of SGT were recorded to additional paid-in capital. The acquisition of SGT complemented the Company’s global growth strategy.
In January 2012, the Company reassessed its reportable segments and determined that the former cable, wire and mechanical assemblies operating segment no longer meets the qualitative and quantitative characteristics that require separate reporting. The basis for the change from reporting two reportable segments to a single segment is the decline in revenues related to this former segment due to the changes in business strategy. As such, effective January 2012, the Company operates in one reportable segment. The prior periods have been restated to conform to the current period presentation.
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 maintain control of our supply chain, including engineering, procurement, construction, and manufacturing to ensure top-quality products, systems and margin optimization. We 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 GuardianTM. The end results are to deliver highly efficient and cost effective, world-class solar solutions.
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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 in the long term as a growing number of energy independence strategies are deployed worldwide. We presently are focused on the following steps to implement our business strategy:
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Engineering, procurement, and construction excellence. As an experienced designer and builder of small- and large-scale solar systems, we are in a position to identify potential efficiencies at a system level. Our experience in design and construction has lead to innovative products and construction techniques that result in lower-cost-per-watt installations than our competitors.