10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission File Number 001-34044

REAL GOODS SOLAR, INC.

(Exact name of registrant as specified in its charter)

COLORADO	26-1851813
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

833 W. SOUTH BOULDER ROAD

LOUISVILLE, COLORADO 80027-2452

(Address of principal executive offices)

(303) 222-8400

(Registrant’s telephone number, including area code)

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period 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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Outstanding at November 5, 2009
Class A Common Stock ($.0001 par value)	16,131,424
Class B Common Stock ($.0001 par value)	2,153,293

REAL GOODS SOLAR, INC.

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements (Unaudited):	2
	Condensed consolidated balance sheets at September 30, 2009 and December 31, 2008	3
	Condensed consolidated statements of operations For the Three and Nine Months Ended September  30, 2009 and 2008	4
	Condensed consolidated statements of cash flows For the Nine Months Ended September 30, 2009 and 2008	5
	Notes to interim condensed consolidated financial statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4T.	Controls and Procedures	11
PART II. OTHER INFORMATION		12
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3	Defaults Upon Senior Securities	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 5.	Other Information	12
Item 6.	Exhibits	12
	SIGNATURES	13

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements that involve risks and uncertainties. The words “anticipate,” “believe,” “plan,” “estimate,” “expect,” “strive,” “future,” “intend” and similar expressions as they relate to us are intended to identify such forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk”, “Risk Factors” and elsewhere in this report. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, competition, adoption of solar energy technologies, loss of key personnel, pricing including pricing of conventional energy sources, the level of government subsidies and economic incentives for solar energy, changing energy technologies, our geographic concentration, brand reputation, consumer trends, acquisitions, new initiatives we undertake, security and information systems, legal liability for website content, merchandise and solar panel supply problems, product liabilities, failure of third parties to provide adequate service, our reliance on centralized customer service, overstocks and merchandise returns, our reliance on a centralized fulfillment center, increases in postage and shipping costs, E-commerce trends, future Internet related taxes, our majority shareholder’s control of us, our dependence on Gaiam, Inc. for certain services, fluctuations in quarterly operating results, customer interest in our products, the effect of government regulation and other risks and uncertainties included in our filings with the Securities and Exchange Commission. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements which reflect our view only as of the date of this report. We undertake no obligation to update any forward-looking information.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of September 30, 2009, the interim results of operations for the three and nine months ended September 30, 2009 and 2008, and cash flows for the nine months ended September 30, 2009 and 2008. These interim statements have not been audited. The balance sheet as of December 31, 2008 was derived from our audited consolidated financial statements included in our annual report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited financial statements, including the notes thereto, for the year ended December 31, 2008.

2

REAL GOODS SOLAR, INC.

Condensed consolidated balance sheets

(in thousands, except share and per share data)	September 30, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,086		$	12,339
Accounts receivable, net		12,655			7,711
Inventory, net		4,095			9,170
Deferred costs on uncompleted contracts		387			970
Deferred advertising costs		499			251
Receivable and deferred tax assets		570			704
Other current assets		668			332
Total current assets		32,960			31,477
Property and equipment, net		5,103			5,298
Goodwill		732			—
Deferred tax assets		3,471			2,239
Other assets		896			1,051
Total assets	$	43,162		$	40,065
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,205		$	6,501
Accrued liabilities		2,326			1,135
Deferred revenue on uncompleted contracts		49			400
Payable to Gaiam		527			1,111
Total current liabilities		13,107			9,147
Commitments and contingencies
Shareholders’ equity:
Class A common stock, $.0001 par value, 150,000,000 shares authorized, 16,131,424 and 15,736,683 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		1			1
Class B common stock, $.0001 par value, 50,000,000 shares authorized, 2,153,293 shares issued and outstanding at September 30, 2009 and December 31, 2008		—			—
Additional paid-in capital		60,303			59,372
Accumulated deficit		(30,249	)		(28,455	)
Total shareholders’ equity		30,055			30,918
Total liabilities and shareholders’ equity	$	43,162		$	40,065

See accompanying notes to the interim condensed consolidated financial statements.

3

REAL GOODS SOLAR, INC.

Condensed consolidated statements of operations

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
(in thousands, except per share data)	2009		2008			2009			2008
	(unaudited)					(unaudited)
Net revenue	$	22,966	$	10,333		$	45,210		$	25,742
Cost of goods sold		17,952		7,527			34,616			18,461
Gross profit		5,014		2,806			10,594			7,281
Expenses:
Selling and operating		4,098		2,946			11,881			7,461
General and administrative		658		341			1,646			922
Total expenses		4,756		3,287			13,527			8,383
Income (loss) from operations		258		(481	)		(2,933	)		(1,102	)
Interest income		1		118			1			202
Income (loss) before income taxes and noncontrolling interest		259		(363	)		(2,932	)		(900	)
Income tax expense (benefit)		101		(137	)		(1,138	)		(346	)
Net income (loss)		158		(226	)		(1,794	)		(554	)
Net (income) loss attributable to noncontrolling interest		—		—			—			(5	)
Net income (loss) attributable to Real Goods Solar, Inc	$	158	$	(226	)	$	(1,794	)	$	(559	)
Net income (loss) per share attributable to Real Goods Solar, Inc. common shareholders:
Basic	$	0.01	$	(0.01	)	$	(0.10	)	$	(0.04	)
Diluted	$	0.01	$	(0.01	)	$	(0.10	)	$	(0.04	)
Weighted-average shares outstanding:
Basic		18,271		15,816			18,145			14,045
Diluted		18,273		15,816			18,145			14,045

See accompanying notes to the interim condensed consolidated financial statements.

4

REAL GOODS SOLAR, INC.

Condensed consolidated statements of cash flows

	For the Nine Months Ended September 30,
(in thousands)	2009			2008
	(unaudited)
Operating activities
Net loss	$	(1,794	)	$	(559	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		315			142
Amortization		—			105
Noncontrolling interest in consolidated subsidiary		—			5
Deferred income tax benefit		(1,257	)		(194	)
Share-based compensation expense		216			104
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net		(4,945	)		(1,810	)
Inventory, net		5,075			(1,240	)
Deferred costs on uncompleted contracts and advertising		336			838
Income taxes receivable and other current assets		(34	)		(343	)
Accounts payable		3,704			1,138
Accrued liabilities and deferred revenue on uncompleted contracts		840			(1,682	)
Payable to Gaiam		(584	)		1,649
Net cash provided by (used in) operating activities		1,872			(1,847	)
Investing activities
Purchase of property and equipment		(125	)		(216	)
Purchase of business, net of proceeds from sale of minority interest		—			(5,778	)
Net cash used in investing activities		(125	)		(5,994	)
Financing activities
Proceeds from initial public offering, net		—			48,154
Repayment of borrowings from Gaiam, net		—			(16,749	)
Net cash provided by financing activities		—			31,405
Net change in cash and cash equivalents		1,747			23,564
Cash and cash equivalents at beginning of period		12,339			542
Cash and cash equivalents at end of period	$	14,086		$	24,106
Supplemental cash flow information
Common stock issued for acquisitions	$	732		$	2,176

See accompanying notes to the interim condensed consolidated financial statements

5

Notes to interim condensed consolidated financial statements

1. Organization, Nature of Operations, and Principles of Consolidation

We are a leading residential solar energy integrator. We were incorporated in Colorado on January 29, 2008 under the name Real Goods Solar, Inc. (“Real Goods Solar”, “we”, “us”, or “our”) to hold our operating subsidiaries. Our initial public offering of common stock occurred on May 7, 2008. As of September 30, 2009, we were 54.7% owned by Gaiam, Inc. (“Gaiam”). The accompanying unaudited interim condensed consolidated financial statements represent the solar energy business of Gaiam and its subsidiaries as though the transfer of such business and the related net assets occurred on January 1, 2008.

Until our initial public offering, we did not operate as a separate business within Gaiam. Accordingly, the unaudited interim condensed consolidated financial statements prior to our initial public offering have been prepared on a “carve-out” basis. The unaudited interim condensed consolidated financial statements have been prepared in accordance with Regulation S-X, Article 3, General instructions to financial statements, and Staff Accounting Bulletin Topic 1-B1, Costs reflected in historical financial statements (“SAB 1-B1”). The accompanying unaudited interim condensed consolidated financial statements include allocations of certain Gaiam expenses, including costs of fulfillment, customer service, financial, and other administrative services. The expense allocations have been determined on bases that Gaiam and we consider to be reasonable reflections of the utilization of services provided or the benefits we received.

The unaudited interim condensed consolidated financial statements include the accounts of Real Goods Solar and its majority-owned or otherwise controlled subsidiaries. We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, and they include our accounts and those of our subsidiaries. Intercompany transactions and balances have been eliminated. Noncontrolling interests in operations of consolidated subsidiaries represents the minority holders’ percentage share of income or losses from the subsidiaries in which we hold a majority, but less than 100 percent, ownership interest and consolidate the subsidiaries’ results in our unaudited interim condensed consolidated financial statements. We have included the results of operations of acquired companies from the effective date of acquisition.

The unaudited condensed consolidated financial position, results of operations and cash flows for the interim periods disclosed in this report are not necessarily indicative of future financial results.

2. Significant Accounting Policies

No changes were made to our significant accounting policies during the three and nine months ended September 30, 2009, except for the adoption of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, which doesn’t change any existing accounting principles, along with new pronouncements related to business combinations, fair value measurements, noncontrolling interests in consolidated financial statements, and disclosures about derivatives and hedging activities. The business combination changes require an entity to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions, and changes the accounting treatment for certain specific items. The fair value measurement guidance defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The noncontrolling interests guidance establishes new accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary and directs that gains from the issuance of subsidiary stock must be recognized in additional paid-in capital. The derivatives guidance enhances required disclosures regarding derivatives and hedging activities. We have applied the noncontrolling interests guidance by reclassifying amounts formerly referred to as minority interests in our condensed consolidated balance sheets and condensed consolidated statements of operations. Aside from this presentation change, the implementation of these pronouncements did not have a material impact on our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2009 and 2008.

In May 2009, the FASB issued subsequent events guidance, which defines further disclosure requirements for events which occur after the balance sheet date but before financial statements are issued. This was effective for us beginning on April 1, 2009. We have evaluated events subsequent to September 30, 2009 through November 6, 2009, which is the issuance date of this report, and concluded no material event occurred in this period which would either impact the results reflected in this report or our results going forward.

Use of Estimates and Reclassifications

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and disclosures. Although we base these estimates on our best knowledge of current events and actions that we may undertake in the future, actual results may be different from the estimates. We have made certain reclassifications to prior period amounts to conform to the current period presentations.

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3. Unbilled Receivables

We bill our large installation customers for contract performance progress each month. The prerequisite for billing is the completion of an application and certificate of payment form as per the contract, which is done after each month end. As a result, the accounts receivable on our condensed consolidated balance as of September 30, 2009 included $3.4 million of unbilled receivables.

4. Shareholders’ Equity

During the nine months ended September 30, 2009, we issued 31,237 shares of our Class A common stock valued at $64,000 to our independent directors, in lieu of cash compensation, for services rendered during 2009 and issued 163,504 shares as purchase price true-up and 200,000 shares as contingent consideration at a combined value of $0.7 million for a business acquired in 2008 (see Note 7. Mergers and Acquisitions). Following these transactions, Gaiam owned 54.7% of our outstanding common stock.

5. Share-Based Payments

During the nine months ended September 30, 2009, we granted 499,500 new stock options and cancelled 192,000 stock options under the Real Goods Solar 2008 Long-Term Incentive Plan. The cancelled options resulted primarily from the nonattainment of the performance condition for 2008 and other vesting requirements. The new stock options commence vesting only upon the attainment of a certain amount of pre-tax income for the year ending December 31, 2009 and vest 2% over 50 months thereafter.

For these performance based stock options, the attainment of the performance condition was not probable as of September 30, 2009 and, therefore, no compensation expense for these grants has been recorded. Total share-based compensation recognized was $0.1 million for each of the three months ended September 30, 2009 and 2008, and $0.2 million and $0.1 million for the nine months ended September 30, 2009 and 2008, respectively, and is shown in general and administrative expenses on our condensed consolidated statements of operations.

6. Net Income (Loss) Per Share Attributable to Real Goods Solar, Inc. Common Shareholders

We compute net income (loss) per share attributable to our common shareholders by dividing our net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share attributable to our shareholders reflects the potential dilution that could occur if options and warrants to acquire shares of our Class A common stock were exercised. We excluded common equivalent shares of 884,000 and 305,000 for the three months ended September 30, 2009 and 2008, respectively, and 823,000 and 204,000 for the nine months ended September 30, 2009 and 2008, respectively, from the computation of diluted net income (loss) per share because their effect was antidilutive. Net income (loss) per share attributable to our shareholders is calculated as if the 10,000,000 shares of common stock, which we issued to Gaiam on January 29, 2008, were issued on January 1, 2008.

7. Mergers and Acquisitions

Effective October 1, 2008, we acquired 100% ownership of Regrid Power, Inc., a northern California designer and installer of residential and commercial solar electric systems. As purchase price true-up and contingent consideration related to this acquisition, we issued 163,504 shares and 200,000 shares, respectively, of our Class A common stock with an estimated combined fair value of $0.7 million and allocated the additional consideration to goodwill, which is not expected to be tax deductible. We used a period beginning two days before and two days after the date that the consideration became payable in determining the estimated fair value of the securities issued. The securities were issued to a trust benefiting the former owners of Regrid Power, one of whom served as our chief executive officer for eleven months after the acquisition.

We are still in the process of finalizing our assessment of the estimated fair value of the net assets related to our Regrid Power acquisition during the fourth quarter of 2008 and, thus, the allocation of the purchase price for this acquisition is subject to refinement. We include results from operations of acquired companies in our condensed consolidated financial statements from their respective effective acquisition dates.

The following is supplemental unaudited interim pro forma information for the Regrid Power acquisition as if we had acquired this business on January 1, 2007. The pro forma adjustments are based on currently available information and upon assumptions that we believe are reasonable in order to reflect, on a pro forma basis, the impact of this acquisition on our historical financial information.

	Pro Forma
(in thousands, except per share data)	Three Months Ended September 30, 2008			Nine Months Ended September 30, 2008
	(unaudited)
Net revenue	$	15,564		$	37,201
Net loss	$	(357	)	$	(918	)
Net loss per share - basic and diluted	$	(0.02	)	$	(0.07	)

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Item 2. Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information that will assist in understanding our condensed consolidated financial statements, changes in certain items in those statements from period to period, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect the condensed consolidated financial statements.

Overview

We are a leading residential and small commercial solar energy integrator. We offer turnkey services to our solar energy system customers, including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction activities. Our solar energy systems use high-quality solar PV modules from manufacturers such as Sharp, SunPower and Kyocera Solar. We use proven technologies and techniques to help customers achieve meaningful savings by reducing their utility costs. In addition, we help customers lower their emissions output and reliance upon fossil fuel energy sources.

We have over 30 years of experience in residential solar energy, beginning with our sale in 1978 of the first solar photovoltaic, or PV, panels in the United States. We have sold a variety of solar products to more than 30,000 customers since our founding.

Our focused customer acquisition approach and our efficiency in converting leads into customers enable us to have what we believe are low customer acquisition costs. We believe that our Real Goods Solar brand has a national reputation for high quality customer service in the solar energy market, which leads to a significant number of word-of-mouth referrals and new customers. In addition, our majority shareholder, Gaiam, is a leader in the sustainable lifestyle market and has a base of over 8 million direct customers, providing us additional lead generation for potential solar energy customers. We also generate leads by selling solar and other renewable energy and sustainable living products and resources through our nationally distributed catalog and website, including books and DVDs on renewable energy and sustainable living, products for solar and other water heating, green building products and systems, air purification products, water conservation and purification products and other solar and sustainable living related products. Our Solar Living Center in Hopland features interactive demonstrations for renewable energy and environmentally sensible technologies and is the largest facility of its kind, with more than 2 million visitors since it opened in 1996.

Results of Operations

The following table sets forth certain financial data as a percentage of revenue for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	78.2	%	72.8	%	76.6	%	71.7	%
Gross profit	21.8	%	27.2	%	23.4	%	28.3	%
Expenses:
Selling and operating	17.8	%	28.5	%	26.3	%	29.0	%
General and administrative	2.9	%	3.3	%	3.6	%	3.6	%
Total expenses	20.7	%	31.8	%	29.9	%	32.6	%
Income (loss) from operations	1.1	%	(4.6	)%	(6.5	)%	(4.3	)%
Interest and other income	0.0	%	1.1	%	0.0	%	0.8	%
Income tax expense (benefit)	0.4	%	(1.3	)%	(2.5	)%	(1.3	)%
Net (income) loss attributable to noncontrolling interest	0.0	%	0.0	%	0.0	%	0.0	%
Net income (loss) attributable to Real Goods Solar, Inc.	0.7	%	(2.2	)%	(4.0	)%	(2.2	)%

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Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Net revenue. Net revenue increased $12.6 million, or 122.3%, to $23.0 million during the third quarter of 2009 from $10.3 million during the third quarter of 2008. This increase in net revenue is primarily the result of organic growth and our acquisitions of Independent Energy Systems in the third quarter of 2008 and Regrid Power in the fourth quarter of 2008.

Gross profit. Gross profit increased $2.2 million, or 78.7%, to $5.0 million during the third quarter of 2009 from $2.8 million during the third quarter of 2008. As a percentage of net revenue, gross profit decreased to 21.8% during the third quarter of 2009 from 27.2% during the third quarter of 2008. The decrease in gross profit percentage is primarily the result of an increased mix of lower margin commercial installations and the inclusion of acquisitions which have traditionally produced lower gross profit margins.

Selling and operating expenses. Selling and operating expenses increased $1.2 million, or 39.1%, to $4.1 million during the third quarter of 2009 from $2.9 million during the third quarter of 2008. As a percentage of net revenue, selling and operating expenses decreased to 17.8% during the third quarter of 2009 from 28.5% during the third quarter of 2008. The increase in selling and operating expenses primarily reflects the impact of the inclusion of Regrid Power and Independent Energy Systems and integration costs related to our acquisitions.

General and administrative expenses. General and administrative expenses increased $0.3 million, or 93.0%, to $0.7 million during the third quarter of 2009 from $0.3 million during the third quarter of 2008. As a percentage of net revenue, general and administrative expenses decreased to 2.9% during the third quarter of 2009 from 3.3% during the third quarter of 2008. The increase in general and administrative expenses primarily reflects an increase in our infrastructure to support our recent acquisitions.

Net income (loss) attributable to Real Goods Solar, Inc. As a result of the above factors, net income attributable to Real Goods Solar, Inc. increased $0.4 million to $0.2 million during the third quarter of 2009 from a net loss of $0.2 million during the third quarter of 2008. Net income per share attributable to our shareholders increased $0.02 per share to net income of $0.01 per share during the third quarter of 2009 from a net loss of $0.01 per share during the third quarter of 2008.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Net revenue. Net revenue increased $19.5 million, or 75.6%, to $45.2 million during the nine months ended September 30, 2009 from $25.7 million during the nine months ended September 30, 2008. This increase in net revenue is primarily the result of organic growth and our acquisitions of Independent Energy Systems in the third quarter of 2008 and Regrid Power in the fourth quarter of 2008.

Gross profit. Gross profit increased $3.3 million, or 45.5%, to $10.6 million during the nine months ended September 30, 2009 from $7.3 million during the nine months ended September 30, 2008. As a percentage of net revenue, gross profit decreased to 23.4% during the nine months ended September 30, 2009 from 28.3% during the nine months ended September 30, 2008. The decrease in gross profit percentage is primarily the result of an increased mix of lower margin commercial installations and the inclusion of acquisitions which have traditionally produced lower gross profit margins.

Selling and operating expenses. Selling and operating expenses increased $4.4 million, or 59.2%, to $11.9 million during the nine months ended September 30, 2009 from $7.5 million during the nine months ended September 30, 2008. As a percentage of net revenue, selling and operating expenses decreased to 26.3% during the nine months ended September 30, 2009 from 29.0% during the nine months ended September 30, 2008. The increase in selling and operating expenses primarily reflects the impact of the inclusion of Regrid Power and Independent Energy Systems, integration costs related to our acquisitions and severance costs from a reduction in work force.

General and administrative expenses. General and administrative expenses increased $0.7 million, or 78.5%, to $1.6 million during the nine months ended September 30, 2009 from $0.9 million during the nine months ended September 30, 2008. As of percentage of net revenue, general and administrative expenses remained constant at 3.6% during the nine months ended September 30, 2009 and 2008. The increase in general and administrative expenses primarily reflects an increase in our infrastructure to support our recent acquisitions, severance costs from a reduction in work force, and incremental costs associated with being a public company.

Net loss attributable to Real Goods Solar, Inc. As a result of the above factors, net loss attributable to Real Goods Solar, Inc. increased $1.2 million to $1.8 million during the nine months ended September 30, 2009 from $0.6 million during the nine months ended September 30, 2008. Net loss per share attributable to our shareholders increased $0.06 per share to a net loss of $0.10 per share during the nine months ended September 30, 2009 from $0.04 per share during the nine months ended September 30, 2008.

Seasonality

Our quarterly net revenue and operating results for solar energy system installations are difficult to predict and have in the past and may in the future fluctuate from quarter to quarter as a result of changes in state, federal, or private utility company subsidies, as well as weather and other factors. We have historically experienced seasonality in our solar installation business, with the first quarter representing our slowest installation quarter of the year. Additionally, the fourth quarter is often impacted by unfavorable weather in certain geographic regions. Much of the seasonality in our business in past years has been offset by the timing of government activities as well as organic growth.

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Liquidity and Capital Resources

Our capital needs arise from working capital required to fund our purchases of solar PV modules and inverters, capital related to acquisitions of new businesses, improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including business acquisitions, the ability to attract new solar energy system installation customers, market acceptance of our product offerings, the cost of ongoing upgrades to our product offerings, the level of expenditures for sales and marketing, the level of investment in support systems and facilities and other factors. The timing and amount of these capital requirements are variable and cannot accurately be predicted. We did not have any material commitments for capital expenditures as of September 30, 2009, and we do not presently have any plans for future material capital expenditures. In the past 18 months, we acquired four solar energy system installation businesses. We plan to continue to pursue business acquisition and other opportunities to expand our sales territories, technologies, and products and increase our sales and marketing programs as needed.

Cash Flows

The following table summarizes our primary sources (uses) of cash during the periods presented:

	Nine Months Ended September 30,
(in thousands)	2009			2008
Net cash provided by (used in):
Operating activities	$	1,872		$	(1,847	)
Investing activities		(125	)		(5,994	)
Financing activities		—			31,405
Net increase in cash and cash equivalents	$	1,747		$	23,564

Operating activities. Our operating activities provided net cash of $1.9 million and used net cash of $1.9 million during the nine months ended September 30, 2009 and 2008, respectively. Our net cash provided by operating activities during the nine months ended September 30, 2009 was primarily attributable to decreased inventory of $5.1 million and deferred costs of $0.3 million and increased accounts payable and accrued liabilities and deferred revenue of $4.5 million, partially offset by increased accounts receivable of $4.9 million, net loss of $1.8 million, noncash adjustments to our net loss of $0.7 million and decreased payable to Gaiam of $0.6 million. Our net cash used in operating activities during the nine months ended September 30, 2008 was primarily attributable to increased accounts receivable, inventory, and other current assets of $1.8 million, $1.2 million, and $0.3 million, respectively, decreased accrued liabilities and deferred revenue of $1.7 million, and our net loss of $0.6 million, partially offset by increased payable to Gaiam, accounts payable and deferred costs of $1.6 million, $1.1 million and $0.8 million, respectively, and noncash adjustments to our net loss of $0.2 million.

Investing activities. Our investing activities used net cash of $0.1 million and $6.0 million during the nine months ended September 30, 2009 and 2008, respectively. Our cash used in investing activities during the nine months ended September 30, 2009 was used to acquire property and equipment. The cash used in investing activities during the nine months ended September 30, 2008 was used primarily to acquire Carlson Solar and Independent Energy Systems.

Financing activities. Our financing activities provided net cash of $31.4 million during the nine months ended September 30, 2008. The financing net cash provided during the nine months ended September 30, 2008 primarily reflects net proceeds from our IPO of $48.2 million, partially offset by cash used to repay borrowings from Gaiam of $16.8 million that we used to initially capitalize our Company and to acquire additional businesses.

We believe our available cash and cash expected to be generated from operations should be sufficient to fund our business for the foreseeable future. However, our projected cash needs may change as a result of possible acquisitions, unforeseen operational difficulties, or other factors.

In the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, minority investment, strategic relationship and other business combination opportunities in the solar energy markets. For any future investment, acquisition, or joint venture opportunities, we may consider using then-available liquidity, issuing equity securities, or incurring additional indebtedness.

Off-Balance Sheet Arrangements

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities or variable interest entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.

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Contractual Obligations

We have commitments under operating leases and various service agreements with Gaiam, but do not have any outstanding commitments under long-term debt obligations or purchase obligations. The following table shows our commitments to make future payments under our operating leases:

(in thousands)	Total		< 1 year		1-3 years		3-5 years		> 5 yrs
Operating lease obligations	$	769	$	449	$	316	$	4	$	—

To the extent we become entitled to utilize pre-IPO loss carryforwards from our separate tax returns, we will distribute to Gaiam the tax effect (estimated to be 34% for federal income tax purposes) of the amount of such tax loss carryforwards so utilized. Accordingly, we recognized a valuation allowance against certain of our deferred tax assets as of May 13, 2008, the effective date of our tax sharing agreement with Gaiam. As of that date, we had net operating loss carryforwards, or NOLs, of approximately $6.2 million, meaning that such potential future payments to Gaiam, which would be made over a period of several years, would therefore aggregate to approximately $2.4 million. These NOLs expire beginning in 2020 if not utilized. Due to Gaiam’s step acquisitions of our businesses, we experienced “ownership changes” as defined in the Internal Revenue Code. Accordingly, our use of these NOLs is limited by annual limitations described in the Internal Revenue Code. However, we expect our NOL balances at September 30, 2009 to be fully recoverable.

Risk Factors

We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward looking statements that we make from time to time in filings with the Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications as well as oral forward looking statements made from time to time by our representatives. These risks and uncertainties include, but are not limited to, those risks listed in our Annual Report on Form 10-K for the year ended December 31, 2008. Additional risks and uncertainties that we currently deem immaterial may also impair our business operations, and historical results are not necessarily an indication of the future results. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risk and uncertainties, including, but not limited to, general economic and business conditions, competition, pricing, brand reputation, consumer trends, and other factors which are often beyond our control. We do not undertake any obligation to update forward-looking statements except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, which include changes in U.S. interest rates and foreign exchange rates. We do not engage in financial transactions for trading or speculative purposes.

We purchase a significant amount of inventory from vendors outside of the United States in transactions that are primarily U.S. dollar denominated transactions. Since the percentage of our international purchases denominated in currencies other than the U.S. dollar is small, any currency risks related to these transactions are immaterial to us. However, a decline in the relative value of the U.S. dollar to other foreign currencies could lead to increased purchasing costs. In order to mitigate this exposure, we make virtually all of our purchase commitments in U.S. dollars.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) of Real Goods Solar at the end of the period covered by this report. Based on such evaluation, our President and Chief Financial Officer concluded that, at the end of such period, the disclosure controls and procedures of Real Goods Solar were effective in alerting them, on a timely basis, to material information required to be disclosed in the reports that we file or furnish under the Securities Exchange Act of 1934.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the three and nine months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

11

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We do not believe that any of these proceedings will have a material adverse effect on our business.

Item 1A. Risk Factors

No material changes.

Item 2. Sales of Unregistered Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

a) Exhibits.

Exhibit No.	Description
31.1	Certification of the President pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith).
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith).
32.1	Certification of the President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

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Signatures

In accordance with the requirements of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

Real Goods Solar, Inc.
(Registrant)
November 9, 2009
By:	/S/ JOHN SCHAEFFER
	John Schaeffer
	President
By:	/S/ ERIK ZECH
	Erik Zech
	Chief Financial Officer
	(principal accounting officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, John Schaeffer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Real Goods Solar, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2009

/s/ John Schaeffer

John Schaeffer

President

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Erik Zech, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Real Goods Solar, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2009

/s/ Erik Zech

Erik Zech

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Real Goods Solar, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2009, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, John Schaeffer, President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2009

/s/ John Schaeffer

John Schaeffer

President

EX-32.2

Exhibit 32.2

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Real Goods Solar, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2009, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Erik Zech, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2009

/s/ Erik Zech

Erik Zech

Chief Financial Officer