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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 March 31, 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.:

Large accelerated filer   ̈            Accelerated filer   ̈            Non-accelerated filer   ̈            Smaller reporting company  x

( Do not check if a smaller reporting company )

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 May 11, 2009
|Class A Common Stock ($.0001 par value) |  | 15,752,107                 
|Class B Common Stock ($.0001 par value) |  | 2,153,293                  









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REAL GOODS SOLAR, INC.

FORM 10-Q

INDEX



|                              |  |                                                                                                    |  |   
|----------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  | 2                                                                                                 
|                              |  |                                                                                                   
|Item 1.                       |  | Financial Statements (Unaudited):                                                                  |  | 2 
|                              |  | Condensed consolidated balance sheets at March 31, 2009 and December 31, 2008                      |  | 3 
|                              |  | Condensed consolidated statements of operations For the Three Months Ended March 31, 2009 and 2008 |  | 4 
|                              |  | Condensed consolidated statements of cash flows For the Three Months Ended March 31, 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              |  | 7 
|                              |  |                                                                                                   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 10
|                              |  |                                                                                                   
|Item 4T.                      |  | Controls and Procedures                                                                            |  | 10
|                              | 
|PART II. OTHER INFORMATION    |  | 11                                                                                                
|                              |  |                                                                                                   
|Item 1.                       |  | Legal Proceedings                                                                                  |  | 11
|                              |  |                                                                                                   
|Item 1A.                      |  | Risk Factors                                                                                       |  | 11
|                              |  |                                                                                                   
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 11
|                              |  |                                                                                                   
|Item 3                        |  | Defaults Upon Senior Securities                                                                    |  | 11
|                              |  |                                                                                                   
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                |  | 11
|                              |  |                                                                                                   
|Item 5.                       |  | Other Information                                                                                  |  | 11
|                              |  |                                                                                                   
|Item 6.                       |  | Exhibits                                                                                           |  | 11
|                              |  |                                                                                                   
|                              |  | SIGNATURES                                                                                         |  | 12



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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 March 31, 2009, the interim results of operations
for the three months ended March 31, 2009 and 2008, and cash flows for the three months ended March 31, 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.



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REAL GOODS SOLAR, INC.

Condensed consolidated balance sheets



|                                                                                                                                                                                     |  |                   |          |                      |   |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | -------- | -------------------- | - | --------
|(in thousands, except share and per share data)                                                                                                                                      |  | March 31,    2009 |          | December 31,    2008
|                                                                                                                                                                                     |  | (Unaudited)       |          |                     
|ASSETS                                                                                                                                                                               |  |                   |          |                      |   |         
|Current assets:                                                                                                                                                                      |  |                   |          |                      |   |         
|Cash and cash equivalents                                                                                                                                                            |  | $                 | 12,887   |                      | $ | 12,339  
|Accounts receivable, net                                                                                                                                                             |  |                   | 5,747    |                      |   | 7,711   
|Inventory                                                                                                                                                                            |  |                   | 5,408    |                      |   | 9,170   
|Deferred costs on uncompleted contracts                                                                                                                                              |  |                   | 1,004    |                      |   | 970     
|Deferred advertising costs                                                                                                                                                           |  |                   | 331      |                      |   | 251     
|Deferred tax assets                                                                                                                                                                  |  |                   | 188      |                      |   | 515     
|Other current assets                                                                                                                                                                 |  |                   | 524      |                      |   | 521     
|                                                                                                                                                                                     |  |                   |          |                      |   |         
|Total current assets                                                                                                                                                                 |  |                   | 26,089   |                      |   | 31,477  
|                                                                                                                                                                                     |  |                  
|Property and equipment, net                                                                                                                                                          |  |                   | 5,210    |                      |   | 5,298   
|Deferred tax assets                                                                                                                                                                  |  |                   | 3,571    |                      |   | 2,239   
|Other assets                                                                                                                                                                         |  |                   | 1,269    |                      |   | 1,051   
|                                                                                                                                                                                     |  |                   |          |                      |   |         
|Total assets                                                                                                                                                                         |  | $                 | 36,139   |                      | $ | 40,065  
|                                                                                                                                                                                     |  |                   |          |                      |   |         
|                                                                                                                                                                                     |  |                  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                 |  |                   |          |                      |   |         
|Current liabilities:                                                                                                                                                                 |  |                   |          |                      |   |         
|Accounts payable                                                                                                                                                                     |  | $                 | 2,048    |                      | $ | 6,501   
|Accrued liabilities                                                                                                                                                                  |  |                   | 1,719    |                      |   | 1,135   
|Deferred revenue on uncompleted contracts                                                                                                                                            |  |                   | 331      |                      |   | 400     
|Payable to Gaiam                                                                                                                                                                     |  |                   | 2,420    |                      |   | 1,111   
|                                                                                                                                                                                     |  |                   |          |                      |   |         
|Total current liabilities                                                                                                                                                            |  |                   | 6,518    |                      |   | 9,147   
|                                                                                                                                                                                     |  |                  
|Commitments and contingencies                                                                                                                                                        |  |                   |          |                      |   |         
|                                                                                                                                                                                     |  |                  
|Shareholders equity:                                                                                                                                                                |  |                   |          |                      |   |         
|Class A common stock, $.0001 par value, 150,000,000 shares authorized, 15,752,107 and 15,736,683 shares issued and outstanding
at March 31, 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 March 31, 2009 and
December 31, 2008                                |  |                   |         |                      |   |        
|Additional paid-in capital                                                                                                                                                           |  |                   | 59,446   |                      |   | 59,372  
|Accumulated deficit                                                                                                                                                                  |  |                   | (29,826) |                      |   | (28,455)
|                                                                                                                                                                                     |  |                   |          |                      |   |         
|Total shareholders equity                                                                                                                                                           |  |                   | 29,621   |                      |   | 30,918  
|                                                                                                                                                                                     |  |                   |          |                      |   |         
|Total liabilities and shareholders equity                                                                                                                                           |  | $                 | 36,139   |                      | $ | 40,065  
|                                                                                                                                                                                     |  |                   |          |                      |   |         

See accompanying notes to the interim condensed consolidated financial statements.



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REAL GOODS SOLAR, INC.

Condensed consolidated statements of operations



|                                                                               |  |                                       |         |      |   |       
|------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---- | - | ------
|                                                                               |  | For the Three Months Ended  March 31,
|(in thousands, except per share data)                                          |  | 2009                                  |         | 2008
|                                                                               |  | (unaudited)                          
|Net revenue                                                                    |  | $                                     | 9,531   |      | $ | 6,568 
|Cost of goods sold                                                             |  |                                       | 7,229   |      |   | 4,731 
|                                                                               |  |                                       |         |      |   |       
|Gross profit                                                                   |  |                                       | 2,302   |      |   | 1,837 
|                                                                               |  |                                       |         |      |   |       
|                                                                               |  |                                      
|Expenses:                                                                      |  |                                       |         |      |   |       
|Selling and operating                                                          |  |                                       | 4,117   |      |   | 2,056 
|General and administrative                                                     |  |                                       | 437     |      |   | 270   
|                                                                               |  |                                       |         |      |   |       
|Total expenses                                                                 |  |                                       | 4,554   |      |   | 2,326 
|                                                                               |  |                                       |         |      |   |       
|                                                                               |  |                                      
|Loss before income taxes and noncontrolling interest                           |  |                                       | (2,252) |      |   | (489) 
|                                                                               |  |                                      
|Income tax benefit                                                             |  |                                       | (881)   |      |   | (192) 
|                                                                               |  |                                       |         |      |   |       
|Net loss                                                                       |  |                                       | (1,371) |      |   | (297) 
|                                                                               |  |                                      
|Net income attributable to the noncontrolling interest                         |  |                                       |        |      |   | (9)   
|                                                                               |  |                                       |         |      |   |       
|Net loss attributable to Real Goods Solar, Inc.                                |  | $                                     | (1,371) |      | $ | (306) 
|                                                                               |  |                                       |         |      |   |       
|                                                                               |  |                                      
|Net loss per share attributable to Real Goods Solar, Inc. common shareholders: |  |                                       |         |      |   |       
|Basic and diluted                                                              |  | $                                     | (0.08)  |      | $ | (0.03)
|                                                                               |  |                                       |         |      |   |       
|Weighted-average shares outstanding:                                           |  |                                       |         |      |   |       
|Basic and diluted                                                              |  |                                       | 17,890  |      |   | 10,000
|                                                                               |  |                                       |         |      |   |       

See accompanying notes to the interim condensed consolidated financial statements.



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REAL GOODS SOLAR, INC.

Condensed consolidated statements of cash flows



|                                                                               |  |                                       |         |      |   |        
|------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---- | - | -------
|                                                                               |  | For the Three Months Ended  March 31,
|(in thousands)                                                                 |  | 2009                                  |         | 2008
|                                                                               |  | (unaudited)                          
|Operating activities                                                           |  |                                       |         |      |   |        
|Net loss                                                                       |  | $                                     | (1,371) |      | $ | (306)  
|Adjustments to reconcile net loss to net cash used in operating activities:    |  |                                       |         |      |   |        
|Depreciation                                                                   |  |                                       | 104     |      |   | 46     
|Amortization                                                                   |  |                                       |        |      |   | 11     
|Noncontrolling interest in a consolidated subsidiary                           |  |                                       |        |      |   | 9      
|Share-based compensation expense                                               |  |                                       | 82      |      |   |       
|Deferred income tax benefit                                                    |  |                                       | (1,005) |      |   | (68)   
|Changes in operating assets and liabilities, net of effects from acquisitions: |  |                                       |         |      |   |        
|Accounts receivable, net                                                       |  |                                       | 1,964   |      |   | (155)  
|Inventory                                                                      |  |                                       | 3,761   |      |   | (268)  
|Deferred costs on uncompleted contracts and advertising                        |  |                                       | (113)   |      |   | (227)  
|Other assets                                                                   |  |                                       | (224)   |      |   | (9)    
|Accounts payable                                                               |  |                                       | (4,454) |      |   | (1,059)
|Accrued liabilities and deferred revenue on uncompleted contracts              |  |                                       | 516     |      |   | (275)  
|                                                                               |  |                                       |         |      |   |        
|Net cash used in operating activities                                          |  |                                       | (740)   |      |   | (2,301)
|                                                                               |  |                                       |         |      |   |        
|                                                                               |  |                                      
|Investing activities                                                           |  |                                       |         |      |   |        
|Purchase of property and equipment                                             |  |                                       | (21)    |      |   | (14)   
|Purchase of business, net of proceeds from sale of minority interest           |  |                                       |        |      |   | (2,875)
|                                                                               |  |                                       |         |      |   |        
|Net cash used in investing activities                                          |  |                                       | (21)    |      |   | (2,889)
|                                                                               |  |                                       |         |      |   |        
|                                                                               |  |                                      
|Financing activities                                                           |  |                                       |         |      |   |        
|Prepaid initial public offering fees                                           |  |                                       |        |      |   | (474)  
|Net proceeds from borrowings from Gaiam                                        |  |                                       | 1,309   |      |   | 6,731  
|                                                                               |  |                                       |         |      |   |        
|Net cash provided by financing activities                                      |  |                                       | 1,309   |      |   | 6,257  
|                                                                               |  |                                       |         |      |   |        
|                                                                               |  |                                      
|Net change in cash and cash equivalents                                        |  |                                       | 548     |      |   | 1,067  
|Cash and cash equivalents at beginning of period                               |  |                                       | 12,339  |      |   | 542    
|                                                                               |  |                                       |         |      |   |        
|                                                                               |  |                                      
|Cash and cash equivalents at end of period                                     |  | $                                     | 12,887  |      | $ | 1,609  
|                                                                               |  |                                       |         |      |   |        

See accompanying notes to the interim condensed consolidated financial statements



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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, we, us, or our). As of
March 31, 2009 we were 55.9% owned by Gaiam, Inc. (Gaiam). Our initial public offering of common stock occurred on May 7, 2008. 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 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 months ended March 31, 2009, except for the adoption of Financial Accounting Standards Board, or FASB, Statements No. 141(R), BusinessCombinations, No. 157, Fair Value
Measurements, No. 160, Noncontrolling Interests in Consolidated Financial Statements  An Amendment of ARB No. 51, and No. 161, Disclosures about Derivatives and Hedging Activities  an Amendment of FASB
Statement 133. SFAS 141(R) requires 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.
SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 160 establishes new accounting and reporting standards for a noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary. SFAS 161enhances required disclosures regarding derivatives and hedging activities. We have applied SFAS 160 by reclassifying amounts formerly referred to as minority interests in our condensed
consolidated statements of operations. Aside from this presentation change, the implementation of these statements did not have a material impact on our unaudited interim condensed consolidated financial statements for the quarter ended
March 31, 2009.

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.



|3. | Shareholders Equity
|-- | --------------------

During 2009, we issued 15,424 shares of
our Class A common stock to our independent directors, in lieu of cash compensation, for services rendered during the first quarter of 2009. Following this transaction, Gaiam owned 55.9% of us.



|4. | Share-Based Payments
|-- | --------------------

During the first quarter of 2009, we granted
499,500 new stock options and cancelled 122,000 stock options under the Real Goods 2008 Long-Term Incentive Plan. The cancelled options resulted primarily from the nonattainment of the performance condition for 2008. The new stock options commence
vesting 2% over 50 months only upon the attainment of a certain amount of pre-tax income for the year ending December 31, 2009.



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For these performance based stock options, the attainment of the performance condition was not probable as of
March 31, 2009 and, therefore, no compensation expense for these grants has been recorded. Total share-based compensation recognized was $0.1 million and none for the three months ended March 31, 2009 and 2008, respectively, and is shown
in general and administrative expenses on our condensed consolidated statements of operations.



|5. | Net Loss Per Share Attributable to Real Goods Solar, Inc. Common Shareholders
|-- | -----------------------------------------------------------------------------

We compute net loss per share attributable to our common shareholders by dividing the net loss attributable to us by the weighted average number of common shares outstanding for the period. Diluted net 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. Common share equivalents of 624,000 and 370,000 shares have been omitted
from net loss per share attributable to our shareholders for the three months ended March 31, 2009 and 2008, respectively, as they are anti-dilutive. Net loss per share attributable to our shareholders is calculated as if the 10,000,000 shares
of Class B common stock, which we issued to Gaiam on January 29, 2008, were issued on January 1, 2008.



|6. | Mergers and Acquisitions
|-- | ------------------------

Effective October 1, 2008, we
acquired 100% ownership of Regrid Power, a northern California designer and installer of residential and commercial solar electric systems. This acquisition has contingent share consideration up to a maximum of 800,000 shares of our Class A
common stock, based on Regrid Powers revenue and earnings performance over the twelve months ending September 30, 2009, but in no event will total consideration paid exceed one times the trailing twelve months revenues as of
September 30, 2009. At the time any of this contingent consideration becomes determinable we will recognize it as additional purchase price and allocate it to goodwill and other intangibles.

We are still in the process of preparing valuations of certain intangible assets; thus, the allocation of the purchase prices for our Independent Energy Systems and
Regrid Power acquisition are subject to refinement. We have included results from operations of these 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.



|                                                                                                  |  |                                         |       
|------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------
|(in thousands, except per share data)                                                             |  | Three Months    Ended March 31,    2008
|                                                                                                  |  | (unaudited)                            
|Net revenue                                                                                       |  | $                                       | 9,672 
|                                                                                                  |  |                                         |       
|Net loss attributable to Real Goods Solar, Inc.                                                   |  | $                                       | (345) 
|                                                                                                  |  |                                         |       
|Net loss per share attributable to Real Goods Solar, Inc. common shareholders  basic and diluted |  | $                                       | (0.03)
|                                                                                                  |  |                                         |       



|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 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 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.



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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 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  March 31,
|                                                     |  | 2009                          |  | 2008  
|Net revenue                                          |  | 100.0%                        |  | 100.0%
|Cost of goods sold                                   |  | 75.8%                         |  | 72.0% 
|                                                     |  |                               |  |       
|Gross profit                                         |  | 24.2%                         |  | 28.0% 
|                                                     |  |                               |  |       
|                                                     |  |                              
|Expenses:                                            |  |                               |  |       
|Selling and operating                                |  | 43.2%                         |  | 31.3% 
|General and administrative                           |  | 4.6%                          |  | 4.1%  
|                                                     |  |                               |  |       
|Total expenses                                       |  | 47.8%                         |  | 35.4% 
|                                                     |  |                               |  |       
|                                                     |  |                              
|Loss before income taxes and noncontrolling interest |  | -23.6%                        |  | -7.4% 
|                                                     |  |                              
|Income tax benefit                                   |  | -9.2%                         |  | -2.9% 
|                                                     |  |                               |  |       
|                                                     |  |                              
|Net loss                                             |  | -14.4%                        |  | -4.5% 
|                                                     |  |                              
|Net income attributable to noncontrolling interest   |  | %                            |  | -0.2% 
|                                                     |  |                              
|                                                     |  |                               |  |       
|Net loss attributable to Real Goods Solar, Inc.      |  | -14.4%                        |  | -4.7% 
|                                                     |  |                               |  |       

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Net revenue. Net revenue increased $3.0 million, or 45.1%, to $9.5 million during the first quarter of 2009 from $6.6 million during the
first quarter of 2008. This increase in net revenue is primarily the result of 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 $0.5 million, or 25.3%, to $2.3 million during the first quarter of 2009 from $1.8 million during the first quarter of 2008.
As a percentage of net revenue, gross profit decreased to 24.2% during the first quarter of 2009 from 28.0% during the first quarter of 2008. The decrease in gross profit percentage partially reflects the consolidation of acquisitions which have
traditionally produced lower gross profit margins.

Selling and operating expenses. Selling and operating expenses increased $2.1 million, or
100.2%, to $4.1 million during the first quarter of 2009 from $2.1 million during the first quarter of 2008. As a percentage of net revenue, selling and operating expenses increased to 43.2% during the first quarter of 2009 from 31.3% during the
first quarter of 2008. The increase in selling and operating expenses primarily reflects the impact of the consolidation of Regrid Power, integration costs related to our 2008 acquisitions and severance costs from a reduction in work force.

General and administrative expenses. General and administrative expenses increased $167,000 to $437,000 during the first quarter of 2009 from
$270,000 during the first quarter of 2008. As of percentage of net revenue, general and administrative expenses increased to 4.6% during the first quarter of 2009 from 4.1% during the first quarter of 2008, reflecting 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 $1.1 million to $1.4 million during the first quarter of 2009 from $0.3 million during the
first quarter of 2008. Net loss per share attributable to our shareholders increased $0.05 per share to a net loss of $0.08 per share during the first quarter of 2009 from $0.03 per share during the first quarter of 2008.



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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 strong organic growth.

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 March 31, 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:



|                                          |  |                               |       |      |   |        
|----------------------------------------- |  | ----------------------------- | ----- | ---- | - | -------
|                                          |  | Three Months Ended  March 31,
|(in thousands)                            |  | 2009                          |       | 2008
|Net cash provided by (used in):           |  |                               |       |      |   |        
|Operating activities                      |  | $                             | (740) |      | $ | (2,301)
|Investing activities                      |  |                               | (21)  |      |   | (2,889)
|Financing activities                      |  |                               | 1,309 |      |   | 6,257  
|                                          |  |                               |       |      |   |        
|Net increase in cash and cash equivalents |  | $                             | 548   |      | $ | 1,067  
|                                          |  |                               |       |      |   |        

Operating activities. Our operating activities used net cash of $0.7 million and $2.3 million during the
first quarters of 2009 and 2008, respectively. Our net cash used in operating activities during the first quarter of 2009 was primarily attributable to decreased accounts payable of $4.5 million, net loss of $1.4 million and other noncash
adjustments of $0.8 million, partially offset by decreased inventory and accounts receivable of $3.8 million and $2.0 million, respectively. Our net cash used in operating activities during the first quarter of 2008 was primarily attributable to
decreased accounts payable and accrued liabilities of $1.3 million, the majority of which represented the settlement, in the normal course of business, of liabilities assumed as part of the Marin Solar and Carlson Solar acquisitions, increased
accounts receivable and deferred costs of $0.4 million, and the net loss and other noncash adjustments of $0.3 million.

Investing activities. Our
investing activities used net cash of $21,000 and $2.9 million during the first quarters of 2009 and 2008, respectively. Our cash used in investing activities during the first quarter of 2009 was used to acquire property and equipment. The cash used
in investing activities during the first quarter of 2008 was used primarily to acquire Carlson Solar on January 1, 2008 for a net $2.9 million.

Financing activities. Our financing activities provided net cash of $1.3 million and $6.3 million during the first quarters of 2009 and 2008, respectively. The financing provided during the first quarters of both 2009 and 2008
primarily reflects borrowings from Gaiam which were used to fund our daily operations and acquire Carlson Solar in January 2008. Each month we repay the balance owed to Gaiam as of the previous month end. The first quarter of 2008 also reflects
prepayments of initial public offering fees of $0.5 million that ultimately were offset against the proceeds from the consummation of our initial public offering in May 2008.

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.



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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.

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 |  | $     | 1,050 |          | $ | 558       |  | $         | 463 |         | $ | 29 |  | $ | 

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 $6.1 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 March 31, 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 renewable energy and organic product 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 Chief Executive Officer 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, Inc. at the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, at the end of such period, the disclosure controls and procedures of Real Goods Solar, Inc. 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.



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Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

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 Chief Executive Officer 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 Chief Executive Officer 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)May 15, 2009By:

/s/ D. Thompson McCalmontD. Thompson McCalmontChief Executive OfficerBy:

/s/ Erik ZechErik ZechChief Financial Officer(principal accounting officer)




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