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

We are a leading residential and commercial 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”). Our initial public offering of common stock occurred on May 7, 2008.

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. 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.

Debt Financing Update

At September 30, 2012, our cash balance was $3.8 million. The maturity date for our Silicon Valley Bank revolving line of credit with current capacity and outstanding borrowings of $6.5 million has been extended from October 30, 2012 to March 31, 2013. Our related party debt of $1.7 million owed to Gaiam, Inc. that matures on December 30, 2012 will be extended to April 30, 2013. We also obtained additional capital commitments from our two largest shareholders and engaged an investment banker to seek new investors. Furthermore, in response to our current financial condition, we are negotiating with other financial institutions to obtain a new credit facility to replace the Silicon Valley Bank revolving line of credit. In addition, we will continue to make operational improvements to reduce our operating cash requirements. With the completion of the debt extensions and additional commitments and achievement of some or all of the above noted remaining initiatives, while there can be no assurances, we expect to be able to continue to operate through 2013, and thereby generate adequate cash flow to meet our debt obligations.

NASDAQ Non-Compliance

On September 26, 2012, Real Goods Solar, Inc. received a letter from The Nasdaq Stock Market (“NASDAQ”), notifying us that for the last 30 consecutive business days, the bid price of our Class A common stock had closed below the minimum $1.00 per share requirement for continued inclusion on NASDAQ based on Listing Rule 5450(a)(1), and describing a timetable for bringing us into compliance with that rule.

Our Class A common stock remains listed on NASDAQ under the symbol RSOL. Under Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until March 25, 2013, to regain compliance. If at any time before then, our Class A common stock has a closing bid price of $1.00 or more for a minimum of 10 consecutive business days, NASDAQ staff will notify us that it has regained compliance.

If we have not met the requirements of Rule 5450(a)(1) by March 25, 2013, but meet the continued listing requirement for market value of publicly held shares and all other applicable standards for initial listing on The Nasdaq Capital Market (other than the minimum bid price requirement), then we may be eligible for an additional 180 day compliance period by submitting an application to transfer its securities to The Nasdaq Capital Market. In order to qualify, we will need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. If it appears to NASDAQ staff that we will not be able to cure the deficiency during this second compliance period, or if we are otherwise not eligible, the staff will provide notice that our securities will be subject to delisting.

We intend to actively monitor the bid price for its common stock between now and March 25, 2013, and will consider available options to resolve the deficiency and regain compliance with the NASDAQ minimum bid price requirement.