Tableof Contents

 

 

 

**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 EXCHANGE  ACT OF 1934**  |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                              | ** ** | ** **                                                                                               |
| **For the  quarterly period ended March 31, 2009** |
| ** **                                              | ** ** | ** **                                                                                               |
| **o**                                                   | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from          to          **

 

**Commissionfile number****0-****31313**

 

 

**BROADWIND ENERGY, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                     | ** ** | **88-0409160**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**47 EastChicago Avenue, Suite 332, Naperville, IL 60540**

(Address of principal executive offices)

 

**(630)637-0315**

(Registrant’s telephone number, including areacode)

 

###### **Not applicable**

(Former name, former address and former fiscalyear, if changed since last report)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x   No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

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

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o  No  x

 

Number of shares of registrant’s common stock, parvalue $.001, outstanding as of May 6, 2009: 96,546,782

 

 

 

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**BROADWIND ENERGY, INC. ANDSUBSIDIARIES**

 

**INDEX**

 
| ** **                             | **Page No.**                                                                           |
|----------------------------------------|---------------------------------------------------------------------------------------------|
|                                   |                                                                                        |
| **PART I. FINANCIAL INFORMATION** |                                                                                        |
|                                   |                                                                                        |   |
| Item 1.                                | Financial Statements                                                                        | 3 |
|                                   | Condensed Consolidated Balance Sheets                                                       | 3 |
|                                   | Condensed Consolidated Statements of Operations                                             | 4 |
|                                   | Condensed Consolidated Statements of Cash Flows                                             | 5 |
|                                   | Notes to Condensed Consolidated Financial Statements                                        | 6 |
|                                   |                                                                                        |   |
| Item 2.                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3.                                | Quantitative  and Qualitative Disclosures About Market Risk                                 | 28 |
| Item 4.                                | Controls and  Procedures                                                                    | 28 |
|                                   |                                                                                        |   |
| **PART II.  OTHER INFORMATION**   |                                                                                        |
|                                   |                                                                                        |   |
| Item 1.                                | Legal Proceedings                                                                           | 29 |
| Item 1A.                               | Risk Factors                                                                                | 29 |
| Item 2.                                | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 29 |
| Item 3.                                | Defaults  Upon Senior Securities                                                            | 29 |
| Item 4.                                | Submission  of Matters to a Vote of Security Holders                                        | 30 |
| Item 5.                                | Other Information                                                                           | 30 |
| Item 6.                                | Exhibits                                                                                    | 30 |
| Signatures                             | 31                                                                                          |

 

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**PART I.      FINANCIALINFORMATION**

 

**Item 1.    Financial Statements**

 

**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share data)**

 
| ** **                                                                                                                                                                                  | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                  | ** ** | **2009**          | ** ** | **2008**             | ** ** |
| ** **                                                                                                                                                                                  | ** ** | **(Unaudited)**   | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **           | ** ** |
| **CURRENT ASSETS:**                                                                                                                                                                         |       |              |       |                 |       |
| Cash and cash equivalents                                                                                                                                                                   |       | $                 | 6,333      |                 | $          | 15,253 |   |
| Restricted cash                                                                                                                                                                             |       | 500               |       | 500                  |       |
| Accounts receivable, net of allowance for  doubtful accounts of $454 and $1,504 as of March 31, 2009 and  December 31, 2008, respectively                                         |       | 25,821            |       | 36,709               |       |
| Inventories, net                                                                                                                                                                            |       | 43,333            |       | 41,895               |       |
| Prepaid expenses and other current assets                                                                                                                                                   |       | 3,170             |       | 3,862                |       |
| Total current assets                                                                                                                                                                        |       | 79,157            |       | 98,219               |       |
| Property and equipment, net                                                                                                                                                                 |       | 147,197           |       | 144,707              |       |
| Goodwill                                                                                                                                                                                    |       | 30,954            |       | 30,954               |       |
| Intangible assets, net                                                                                                                                                                      |       | 102,687           |       | 105,593              |       |
| Other assets                                                                                                                                                                                |       | 274               |       | 275                  |       |
| **TOTAL ASSETS**                                                                                                                                                                            |       | $                 | 360,269    |                 | $          | 379,748 |   |
|                                                                                                                                                                                        |       |              |       |                 |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                              | ** ** | ** **        | ** ** | ** **           | ** ** |
| **CURRENT LIABILITIES:**                                                                                                                                                                    |       |              |       |                 |       |
| Lines of credit and notes payable                                                                                                                                                           |       | $                 | 8,300      |                 | $          | 3,340 |   |
| Current maturities of long-term debt                                                                                                                                                        |       | 8,799             |       | 9,711                |       |
| Current portions of capital lease obligations                                                                                                                                               |       | 1,001             |       | 978                  |       |
| Accounts payable                                                                                                                                                                            |       | 35,379            |       | 40,225               |       |
| Accrued liabilities                                                                                                                                                                         |       | 8,388             |       | 10,386               |       |
| Customer deposits                                                                                                                                                                           |       | 17,940            |       | 21,102               |       |
| Total current liabilities                                                                                                                                                                   |       | 79,807            |       | 85,742               |       |
|                                                                                                                                                                                        |       |              |       |                 |       |
| **LONG-TERM LIABILITIES:**                                                                                                                                                                  |       |              |       |                 |       |
| Long-term debt, net of current maturities                                                                                                                                                   |       | 18,651            |       | 25,792               |       |
| Long-term capital lease obligations, net of  current portions                                                                                                                               |       | 3,838             |       | 3,521                |       |
| Interest rate swap agreements                                                                                                                                                               |       | 497               |       | 582                  |       |
| Deferred income tax liabilities                                                                                                                                                             |       | 1,141             |       | 1,497                |       |
| Other                                                                                                                                                                                       |       | 511               |       | 458                  |       |
| Total long-term liabilities                                                                                                                                                                 |       | 24,638            |       | 31,850               |       |
|                                                                                                                                                                                        |       |              |       |                 |       |
| **COMMITMENTS AND CONTINGENCIES**                                                                                                                                                           |       |              |       |                 |       |
|                                                                                                                                                                                        |       |              |       |                 |       |
| **STOCKHOLDERS’ EQUITY:**                                                                                                                                                              |       |              |       |                 |       |
| Common stock, $0.001 par value; 150,000,000  shares authorized; 96,546,782 and 96,470,415 shares issued and outstanding as  of March 31, 2009 and December 31, 2008, respectively |       | 96                |       | 96                   |       |
| Additional paid-in capital                                                                                                                                                                  |       | 298,040           |       | 297,222              |       |
| Accumulated deficit                                                                                                                                                                         |       | (42,312           | )          | (35,162              | )          |
| Total stockholders’ equity                                                                                                                                                             |       | 255,824           |       | 262,156              |       |
| **TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                                        |       | $                 | 360,269    |                 | $          | 379,748 |   |

 

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

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(Inthousands, except per share data)**

 
| ** **                                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                          | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                                                |       |                                   |       |   |   |
| Revenues                                                            |       | $                                      | 53,062     |   | $ | 35,164 |   |
| Cost of sales                                                       |       | 48,377                                 |       | 27,154 |   |
| Gross margin                                                        |       | 4,685                                  |       | 8,010 |   |
|                                                                |       |                                   |       |   |   |
| **OPERATING EXPENSES:**                                             |       |                                   |       |   |   |
| Selling, general and administrative                                 |       | 8,916                                  |       | 7,370 |   |
| Intangible amortization                                             |       | 2,906                                  |       | 2,579 |   |
| Total operating expenses                                            |       | 11,822                                 |       | 9,949 |   |
| Operating loss                                                      |       | (7,137                                 | )          | (1,939 | ) |
|                                                                |       |                                   |       |   |   |
| **OTHER INCOME (EXPENSE), net:**                                    |       |                                   |       |   |   |
| Interest income                                                     |       | 11                                     |       | 120 |   |
| Interest expense                                                    |       | (553                                   | )          | (1,337 | ) |
| Other, net                                                          |       | 93                                     |       | (99 | ) |
| Total other expense, net                                            |       | (449                                   | )          | (1,316 | ) |
|                                                                |       |                                   |       |   |   |
| Net loss before (benefit) provision for income  taxes               |       | (7,586                                 | )          | (3,255 | ) |
| **(BENEFIT) PROVISION FOR INCOME  TAXES**                           |       | (436                                   | )          | 188 |   |
| **NET LOSS**                                                        |       | $                                      | (7,150     | ) | $ | (3,443 | ) |
|                                                                |       |                                   |       |   |   |
| **NET LOSS PER COMMON SHARE -  Basic and diluted**                  |       | $                                      | (0.07      | ) | $ | (0.04 | ) |
|                                                                |       |                                   |       |   |   |
| **WEIGHTED AVERAGE COMMON SHARES  OUTSTANDING - Basic and diluted** |       | 96,492                                 |       | 79,325 |   |

 

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

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)(In thousands)**

 
| ** **                                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                     | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| ** **                                                                                     | ** ** | ** **                             | ** ** | ** ** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                     |       |                                   |       |   |   |
| Net loss                                                                                       |       | $                                      | (7,150     | ) | $ | (3,443 | ) |
| **Adjustments to reconcile net  loss to net cash (used in) provided by operating activities:** |       |                                   |       |   |   |
| Depreciation and amortization expense                                                          |       | 6,607                                  |       | 4,690 |   |
| Unrealized (gain) loss on derivatives                                                          |       | (85                                    | )          | 230 |   |
| Deferred income taxes                                                                          |       | (356                                   | )          | 188 |   |
| Stock-based compensation                                                                       |       | 536                                    |       | 282 |   |
| Allowance for doubtful accounts                                                                |       | (1,050                                 | )          | 542 |   |
| (Gain) loss on disposal of assets                                                              |       | (7                                     | )          | 417 |   |
| Changes in operating assets and liabilities:                                                   |       |                                   |       |   |   |
| Accounts receivable                                                                            |       | 11,938                                 |       | (2,624 | ) |
| Inventories                                                                                    |       | (1,438                                 | )          | (2,379 | ) |
| Prepaid expenses and other current assets                                                      |       | 693                                    |       | 637 |   |
| Accounts payable                                                                               |       | (4,846                                 | )          | 2,077 |   |
| Accrued liabilities                                                                            |       | (1,981                                 | )          | (823 | ) |
| Customer deposits                                                                              |       | (3,162                                 | )          | 482 |   |
| Net cash (used in) provided by operating  activities                                           |       | (301                                   | )          | 276 |   |
|                                                                                           |       |                                   |       |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                     |       |                                   |       |   |   |
| Cash paid for acquisitions, net of cash received                                               |       | —                                 |       | (18,534 | ) |
| Purchases of property and equipment                                                            |       | (6,743                                 | )          | (8,934 | ) |
| Proceeds from disposals of property and  equipment                                             |       | 24                                     |       | — |   |
| Net cash used in investing activities                                                          |       | (6,719                                 | )          | (27,468 | ) |
|                                                                                           |       |                                   |       |   |   |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                                     |       |                                   |       |   |   |
| Proceeds from issuance of stock                                                                |       | —                                 |       | 17,225 |   |
| Payments on lines of credit and notes payable                                                  |       | (1,404                                 | )          | (315 | ) |
| Proceeds from lines of credit and notes payable                                                |       | 4                                      |       | 5,942 |   |
| Proceeds from long-term debt                                                                   |       | 1,538                                  |       | 6,478 |   |
| Proceeds from sales-leaseback transactions                                                     |       | 1,235                                  |       | — |   |
| Payments on long-term debt                                                                     |       | (3,230                                 | )          | (70 | ) |
| Principal payments on capital leases                                                           |       | (325                                   | )          | (1,097 | ) |
| Issuance of restricted stock grants                                                            |       | 282                                    |       | 99 |   |
| Net cash (used in) provided by financing  activities                                           |       | (1,900                                 | )          | 28,262 |   |
|                                                                                           |       |                                   |       |   |   |
| **NET (DECREASE) INCREASE IN CASH  AND CASH EQUIVALENTS**                                      |       | (8,920                                 | )          | 1,070 |   |
| **CASH AND CASH EQUIVALENTS,  beginning of period**                                            |       | 15,253                                 |       | 5,782 |   |
| **CASH AND CASH EQUIVALENTS, end  of period**                                                  |       | $                                      | 6,333      |   | $ | 6,852 |   |
|                                                                                           |       |                                   |       |   |   |
| **Supplemental cash flow  information:**                                                       |       |                                   |       |   |   |
| Interest paid, net of capitalized interest                                                     |       | $                                      | 676        |   | $ | 401 |   |
| Income taxes paid                                                                              |       | $                                      | 506        |   | $ | — |   |
| **Non-cash investing and  financing activities:**                                              |       |                                   |       |   |   |
| Common stock issued for acquisition of EMS                                                     |       | $                                      | —     |   | $ | 13,821 |   |
| Non-cash purchase accounting allocation changes                                                |       | $                                      | —     |   | $ | 2,758 |   |

 

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

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**(Inthousands, except share and per share data)**

 

**NOTE 1 — DESCRIPTION OF COMPANY**

 

As used in this Quarterly Report on Form 10-Q, the terms “we,”“us,” “our,” “Broadwind,” and the “Company,” refer to Broadwind Energy, Inc.,a Delaware incorporated company headquartered in Naperville, Illinois, and itswholly-owned subsidiaries.

 

We are a supplier of value-added products and services to the NorthAmerican wind energy sector as well as other energy-related industries. Weprovide our customers, such as leading wind turbine manufacturers anddevelopers, wind farm operators and service companies, with a broad range ofcomponent and service offerings. Since 2006, we have made significantinvestments in the growth of our business through significant capitalexpenditures and a series of acquisitions. In doing so, we have developed abroad, U.S.-based supply chain for wind energy development in North America.Our businesses are currently organized in two operating segments: *Products* and *Services*.

 

We have a limited history of operations and have incurred operatinglosses since inception. We anticipate that the Company’s current cash resourcesand cash to be generated from operations will be adequate to meet the Company’sliquidity needs for at least the next twelve months. In an effort to improveliquidity, the Company has amended several of its primary debt agreementsduring the first quarter of 2009, which have resulted in reducing debtobligations coming due during the current year. However, if sales andsubsequent collections from several large customers, as well as revenuesgenerated from new customer orders, are not materially consistent withmanagement’s plans, we may encounter cash flow and liquidity issues. Additionalfunding may not be available when needed or on terms acceptable to us and wemay not be able to obtain financing under our current primary debt agreements.If we are unable to obtain additional capital or if our current sources offinancing are reduced or unavailable, we will likely be required to delay,reduce the scope of or eliminate our plans for expansion and growth and this couldaffect our overall operations. Any additional equity financing, if available,may be dilutive to stockholders, and additional debt financing, if available,will likely require covenants that restrict us and certain of such covenantsmay materially restrict us.

 

***Products***

 

The Products segment reflects the operations of Brad Foote Gear Works, Inc.(“Brad Foote”), Tower Tech Systems Inc. (“Tower Tech”) andR.B.A. Inc. (“RBA”). The Products segment specializes in the manufacture andsale of products such as high precision gears for wind turbines,custom-engineered gearing systems for the mining, energy, and industrialsectors, structural wind towers, internal tower components, and largefabricated and machined components for the construction  and mining industries. Key technologiesemployed include grinding and finishing of gears and gear sets, steel plateprocessing, semi-automated heavy welding and custom corrosion protection ofcomponents. Our primary focus is on the wind energy industry; however, ourProducts segment also services mining, oil and gas construction, and otherindustrial energy applications.

 

***Services***

 

The Services segment was established upon our acquisition of EnergyMaintenance Service, LLC (“EMS”) in January 2008 and expanded withour acquisition of Badger Transport, Inc. (“Badger”) in June 2008.This segment specializes in construction, operations, maintenance and componentrepair services for the wind energy industry as well as specialized heavy haultrucking services to installation sites. Services provided include constructionand technical support in the erection of wind turbine generators, scheduled andunscheduled maintenance, fiberglass blade repair, retrofit solutions, technicaltraining, and the transportation of oversize/overweight equipment andmachinery.

 

**NOTE 2 — BASIS OF PRESENTATION**

 

** **The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States (“GAAP”) forinterim financial information and in accordance with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, the financial statements donot include all of the information and notes required by GAAP for completefinancial statements. In the opinion of management, all adjustments, includingnormal recurring accruals, considered necessary for a fair presentation havebeen included. Operating results for the three months ended March 31, 2009are not necessarily indicative of the results that may be expected for the yearending December 31, 2009. The December 31, 2008 condensedconsolidated balance sheets were derived from audited financial statements, butdo not include all disclosures required by GAAP. This financial informationshould be read in conjunction with the consolidated financial statements andnotes included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2008.

 

The unaudited condensed consolidated financial statements presentedherein include the accounts of Broadwind Energy, Inc. and its wholly-ownedsubsidiaries. All inter-company transactions and balances have been eliminated.The results of operations of all

 

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acquiredbusinesses have been consolidated for all periods subsequent to the date ofacquisition. Additionally, certain reclassifications have been made to priorperiod financial statements to conform to the current period presentation. Duringthe three months ended March 31, 2009, the Company increased its reserve forscrap and obsolete materials by $930.

 

**NOTE 3— INVENTORIES**

 

Inventories are stated at the lower of cost or market value andprimarily consist of raw material, work-in-process, and finished goods.Work-in-process consists of labor and overhead, processing costs and materialspurchased for specific customer orders. Finished goods consist of componentsmanufactured by the Company that will be used to produce final customerproducts.

 

The components of inventories as of March 31,2009 and December 31, 2008 are summarized as follows:

 
| ** **                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2009**           | ** ** | **2008**              | ** ** |
|                                            |       |               |       |                  |       |
| Raw materials                                   |       | $                  | 19,977     |                  | $          | 16,429 |   |
| Restricted raw material (1)                     |       | 9,490              |       | 9,936                 |       |
| Work-in-process                                 |       | 14,606             |       | 16,226                |       |
| Finished goods                                  |       | 1,287              |       | 401                   |       |
|                                            |       | 45,360             |       | 42,992                |       |
| Less: Reserve for excess and obsolete inventory |       | (2,027             | )          | (1,097                | )          |
| Net inventories                                 |       | $                  | 43,333     |                  | $          | 41,895 |   |

 

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(1) In December 2008, Tower Tech entered into an agreementpursuant to which it agreed to convey to a customer ownership of certain rawmaterials (the “Bailment Materials”) that Tower Tech had acquired for use inconstructing wind turbine towers for such customer, in exchange for the releaseof a down payment of $9,936 paid by the customer pursuant to the terms of apurchase order. In connection with the transaction, the customer caused therelease/cancellation of a letter of credit securing the down-payment (the“L/C”) in order for the cash being held by the L/C issuer as security for theL/C to be released to Tower Tech. The customer also granted Tower Tech asecurity interest in a portion of the Bailment Materials in the event thepurchase order is not fully performed by the customer for any reason other thanthe breach or default of Tower Tech. Tower Tech issued a new performance letterof credit in the amount of $500 as a guarantee of complete performance by TowerTech of its obligations under the purchase order. The Bailment Materialscontinue to be held by Tower Tech as a bailment for the sole and exclusivebenefit and use of the customer, and are intended to be used by Tower Tech forconstruction of the wind turbine towers for such customer under the purchaseorder. As a result of this transaction, $9,436 was released from restrictedcash and made available for other operating purposes.

 

**NOTE4 — BUSINESS ACQUISITIONS**

 

*Energy Maintenance Service, LLC*

 

On January 16, 2008, the Company acquired all of the outstandingmembership interests in EMS, a South Dakota company engaged in constructionsupport, engineering and maintenance services for the wind energy industry. Theaggregate purchase price was $32,250, excluding $536 of transaction relatedcosts. The purchase price consisted of $18,429 of cash and 1,629,834unregistered shares of the Company’s common stock at a price per share of$8.48. The Company entered into a registration rights agreement with the formerowners of EMS that provides the former owners with demand and piggyback registrationrights. The cash portion of the purchase price was financed by a privateplacement of the Company’s common stock.

 

*Badger Transport, Inc.*

 

OnJune 4, 2008, the Company acquired all of the outstanding shares ofBadger, a Wisconsin based provider of transportation services foroversized/overweight equipment and machinery, primarily to the wind energy industry,for an aggregate purchase price of $11,811, excluding $184 of transactionrelated costs. The purchase price consisted of $5,811 of cash and 581,959unregistered shares of the Company’s common stock at a price per share of$10.31. The Company entered into a registration rights agreement with theformer owner of Badger that provides the former owner with limited piggybackregistration rights. The cash portion of the purchase price was financed withcash on hand.

 

*ProForma Financial Information*

 

The following tablerepresents the consolidated financial information for the Company on apro-forma basis, assuming the acquisitions of EMS and Badger had each occurredas of January 1, 2008. The historical financial information for EMS andBadger has been adjusted to give effect to pro-forma items that are directlyattributable to the acquisitions and expected to have a continuing impact onthe consolidated results. These items include adjustments to depreciationexpense related to the fair value of machinery and equipment acquired andamortization expense related to intangible assets assigned as a result of theseacquisitions.

 

The table sets forth unauditedfinancial information, and has been compiled from historical financialstatements and other information, but is not necessarily indicative of theresults that actually would have been achieved had the transaction occurred onthe dates indicated or that may be achieved in the future.

 

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| ** **        | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-------------------|------------|------------------------------------------------|------------|
| ** **        | ** ** | **2009**                                       | ** ** | **2008** | ** ** |
| ** **        | ** ** | **As  reported**                               | ** ** | **As  reported** | ** ** | **Pro-forma  adjustments  (Unaudited)** | ** ** | **Pro-forma  (Unaudited)** | ** ** |
| ** **        | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues          |       | $                                              | 53,062     |   | $ | 35,164 |   | $ | 3,539 | (1) | $ | 38,703 |   |
| Net loss          |       | (7,150                                         | )          | (3,443 | ) | (1,022 | )(2) | (4,465 | ) |
| Loss per share    |       |                                           |       |   |   |   |   |   |   |
| Basic and diluted |       | $                                              | (0.07      | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.05 | ) |
|                   |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)      Represents revenue of EMS for the period of January 1,2008 through January 15, 2008 and revenues of Badger for the period of January 1,2008 through March 31, 2008.

(2)      Represents net loss of EMS for the period of January 1,2008 through January 15, 2008 and net loss of Badger for the period of January 1,2008 through March 31, 2008. Adjustments to net loss include depreciationexpense adjustments related to the fair value of machinery and equipmentacquired and amortization of assigned intangible assets.

 

**NOTE5 — INTANGIBLE ASSETS**

 

Intangible assets represent the fair value assigned to definite-livedassets such as trade names, customer relationships, and non-compete agreementsas part of our acquisitions completed during 2007 and 2008. Intangible assetsare amortized on a straight-line basis over their estimated useful lives, whichrange from 3 to 20 years. In accordance with the provisions of Statementof Financial Accounting Standards (“SFAS”) No. 142, *Goodwill and Other Intangible Assets*(“SFAS 142”)*,*the Company tests intangible assets for impairment only when events orcircumstances indicate that the carrying value of these assets may not berecovered. During the three months ended March 31, 2009 and 2008, the Companydid not record an impairment charge related to its intangible assets.

 

As of March 31, 2009 and December 31, 2008, the cost basis,accumulated amortization and net book value of intangible assets were asfollows:

 
| ** **             | ** ** | **March 31, 2009** | ** ** | **December 31, 2008**    | ** ** |
|------------------------|------------|-------------------------|------------|-------------------------------|------------|
| ** **             | ** ** | **Cost**                | ** ** | **Accumulated  Amortization** | ** ** | **Net  Book  Value** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Book  Value** | ** ** |
| Intangible assets:     |       |                    |       |                          |       |   |   |   |   |   |   |   |   |
| Customer relationships |       | $                       | 106,638    |                          | $          | (14,593 | ) | $ | 92,045 |   | $ | 106,638 |   | $ | (11,939 | ) | $ | 94,699 |   |
| Trade names            |       | 10,279                  |       | (713                          | )          | 9,566 |   | 10,279 |   | (585 | ) | 9,694 |   |
| Noncompete agreements  |       | 1,490                   |       | (414                          | )          | 1,076 |   | 1,490 |   | (290 | ) | 1,200 |   |
|                   |       |                    |       |                          |       |   |   |   |   |   |   |   |   |
| Intangible assets      |       | $                       | 118,407    |                          | $          | (15,720 | ) | $ | 102,687 |   | $ | 118,407 |   | $ | (12,814 | ) | $ | 105,593 |   |

 

Amortization expense oncustomer relationships, trade names and non-compete agreements, which are beingamortized ratably over the estimated life of the related intangible assets, was$2,906 and $2,579 for the three months ended March 31, 2009 and 2008,respectively.

 

**NOTE6 — ACCRUED LIABILITIES**

 

Accrued liabilities as of March 31, 2009 and December 31,2008 consisted of the following:

 

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| ** **                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ** **                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Accrued operating expenditures |       | $                  | 733        |                  | $          | 1,110 |   |
| Accrued payroll and benefits   |       | 3,697              |       | 3,631                 |       |
| Accrued capital expenditures   |       | 861                |       | 2,204                 |       |
| Accrued warranty               |       | 1,197              |       | 890                   |       |
| Accrued professional fees      |       | 678                |       | 514                   |       |
| Accrued other                  |       | 1,222              |       | 2,037                 |       |
| Total accrued liabilities      |       | $                  | 8,388      |                  | $          | 10,386 |   |

 

**NOTE7 — DEBT AND CREDIT AGREEMENTS**

 

**               **The Company’soutstanding debt balances as of March 31, 2009 and December 31, 2008consisted of the following:

 
| ** **                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ** **                                | ** ** | ** **         | ** ** | ** **            | ** ** |
| Lines of credit                           |       | $                  | 6,212      |                  | $          | 10,831 |   |
| Term loans and notes payable              |       | 29,538             |       | 28,012                |       |
|                                      |       | 35,750             |       | 38,843                |       |
| Less - Current portion                    |       | (17,099            | )          | (13,051               | )          |
| Long-term debt, net of current maturities |       | $                  | 18,651     |                  | $          | 25,792 |   |

 

**Credit Facilities**

 

***Brad Foote***

 

Prior to our acquisition of Brad Foote in October 2007, Brad Footehad obtained from Bank of America, formerly known as LaSalle Bank NationalAssociation (“BOA”), pursuant to a Loan and Security Agreement dated as of January 17,1997 (as previously amended and/or restated, the “Loan Agreement”): (i) a$10,000 revolving line of credit loan (the “Revolving Loan”); (ii) aconsolidated term loan in the original principal sum of approximately $7,900(the “Term Loan”); (iii) an $11,000 non-revolving equipment line of creditloan (the “Equipment Loan”); and (iv) a $9,000 non-revolving equipmentline of credit loan with a term conversion feature (the “Equipment Loan No. 2”).The promissory notes evidencing the Revolving Loan, the Term Loan, theEquipment Loan and the Equipment Loan No. 2 are referred to collectivelybelow as the “BOA Notes.” As described more fully below, 1309 South CiceroAvenue, LLC, a Delaware limited liability company (“1309”) and 5100Neville Road, LLC, a Delaware limited liability company (“5100”), each awholly-owned subsidiary of Brad Foote, subsequently executed a Term Note withBOA in the amount of $2,075 dated January 31, 2008 (as previously amendedand/or restated, the “Subsidiary Note”).

 

On January 16, 2009, Brad Foote, 1309 and 5100 entered intoan Omnibus Amendment Agreement dated January 15, 2009 (the “OmnibusAmendment”) with BOA, amending the Loan Agreement.  Among other things, the Omnibus Amendmentprovided that (i) BOA waive Brad Foote’s violation of certain LoanAgreement covenants for the period from December 31, 2008 up to but notincluding January 20, 2009, (ii) the maximum amount thatBrad Foote was able to borrow under the note evidencing the Revolving Loanwas reduced to $4,000, (iii) the termination date of the Loan Agreement beextended to March 15, 2009 (or such earlier time upon which the noteevidencing the Revolving Loan becomes due and payable), (iv) for interestperiods beginning after January 20, 2009, the interest rate payable underthe BOA Notes and for the Subsidiary Note be equal to the greater of (A) therate per annum equal to the British Bankers Association LIBOR Rate plus fivepercent (5%) and (B) six percent (6%) (the “Current Interest Rate”), (v) Brad Foote’sfinancial covenants and events of default be amended and restated and (vi) Brad Footepay BOA an amendment and waiver fee in the amount of $25, as well as allreasonable fees and expenses of BOA incurred in connection with the drafting,negotiation, execution, delivery and effectiveness of the Omnibus Amendment.

 

In connection with the Omnibus Amendment, Brad Foote, 1309, 5100,the Company and BOA entered into additional agreements on January 16,2009, including (i) a Pledge Agreement pursuant to which the Companygranted BOA a first priority security interest in all shares of stock of BradFoote and all indebtedness to the Company and any promissory notes and/orinstruments representing such indebtedness, (ii) an Unconditional Guarantyexecuted by the Company in favor of BOA, whereby the Company guaranteed thepayment of Brad Foote’s indebtedness under the Loan Agreement and certain otherloan documents, certain agreements designed to protect 1309 and 5100 againstfluctuations in interest rates, currency exchange rates or commodity prices and

 

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anytreasury management services provided to 1309 and/or 5100 by BOA or anyaffiliate of BOA, (iii) an Unconditional Guaranty executed by each of 1309and 5100 in favor of BOA, whereby each of 1309 and 5100 guaranteed the paymentof Brad Foote’s indebtedness under the Loan Agreement and (iv) mortgagesfrom 1309, 5100 and Brad Foote to BOA, each of (i) through (iv) abovedated as of January 15, 2009.

 

On March 13, 2009, Brad Foote, 1309 and 5100 entered into a SecondOmnibus Amendment Agreement (the “Second Omnibus Amendment”) with BOA, furtheramending the Loan Agreement, and, in connection therewith, the Company, 1309and 5100 entered into a Reaffirmation. Among other things, the Second OmnibusAmendment further amended and restated certain financial covenants under theLoan Agreement and set forth certain additional covenants, including a minimummonthly cumulative EBITDA covenant for Brad Foote. The Second Omnibus Amendmentalso provided that (i) BOA waive Brad Foote’s violation of the minimumEBITDA covenant for the period ending December 31, 2008, (ii) BradFoote pay $1,500 of the amount outstanding on the Revolving Loan ($500 of whichwas paid by the Company on behalf of Brad Foote) and that the maturity date ofthe Revolving Loan be extended to January 15, 2011, (iii) theRevolving Loan be amortized pursuant to monthly payments, (iv) BOA’srevolving credit commitment under the Loan Agreement be terminated, resultingin BOA having no obligation to make revolving loans to Brad Foote under theLoan Agreement, (v) the maturity dates of the promissory notes evidencingthe Equipment Loan and Equipment Loan No. 2, and the Subsidiary Note, beshortened to December 31, 2011 and (vi) Brad Foote pay BOA anextension fee on a monthly basis through the end of 2009.

 

The Loan Agreement states that the Revolving Loan, Term Loan, EquipmentLoan and Equipment Loan No. 2 are secured by all of the assets of BradFoote and that Brad Foote must maintain insurance on the collateral. The LoanAgreement requires Brad Foote to comply with standard covenants, includingfinancial covenants relating to ratios of cash flow coverage and senior debt toEBITDA, to provide monthly financial reporting and to submit our annual auditedfinancial statements to BOA at the close of each fiscal year. Each of theRevolving Loan, Term Loan, Equipment Loan and Equipment Loan No. 2 becomeimmediately due and payable upon breach of any covenants or representationsmade by Brad Foote in the Loan Agreement and upon other customary events ofdefault. In addition to the covenants described in the preceding paragraph,covenants contained in the Loan Agreement include restrictions onBrad Foote’s ability to make distributions or dividends, incurindebtedness or make subordinated debt payments, as well as limitations on BradFoote’s ability to make capital expenditures, any of which could ultimatelyaffect our ability to undertake additional debt or equity financing.

 

On May 8, 2009, Brad Foote entered into a Thirty-Fifth Amendmentand Waiver to Loan and Security Agreement dated as of May 8, 2009 (the“Thirty-Fifth Amendment”) with BOA, further amending the Loan Agreement.  Among other things, the Thirty-FifthAmendment provided that BOA waive Brad Foote’s violation of (i) thefinancial covenants set forth in Sections 14.1(d) and (e) of the LoanAgreement (the senior debt to EBITDA ratio and cash flow coverage ratiocovenants) solely for the fiscal quarter ended March 31, 2009, but only tothe extent that such violations would not cause any Default or Event of Defaultunder the Loan Agreement as amended by the Thirty-Fifth Amendment; (ii) thefinancial covenant set forth in Section 14.1(f) of the Loan Agreement(the minimum EBITDA ratio covenant) solely for each of the calendar months of January 2009and February 2009; (iii) the financial covenant set forth in Section 14.1(f) ofthe Loan Agreement (the minimum EBITDA ratio covenant) solely for each of thecalendar months of March 2009 and April 2009, but only to the extentthat such violations would not cause any Default or Event of Default under theLoan Agreement as amended by the Thirty-Fifth Amendment; and (iv) certaincovenants relating to the delivery of Brad Foote’s financial information toBOA.

 

                In addition, the Thirty-Fifth Amendment provided thatcertain of Brad Foote’s financial covenants be amended and restated, includingrequirements with respect to maintenance of ratios of (i) senior debt toEBITDA, (ii) cash flow coverage and (iii) minimum EBITDA.  In connection with the Thirty-Fifth Amendment, BradFoote agreed to pay BOA a $25 amendment and waiver fee, as well as allreasonable fees and expenses of BOA incurred in connection with the drafting,negotiation, execution, delivery and effectiveness of the Thirty-Fifth Amendment.  Also, 1309, 5100 and the Company entered intoa Reaffirmation dated as of May 8, 2009, reaffirming that each of the LoanDocuments (as defined in the Loan Agreement) to which they are a party remainsin full force and effect and is ratified and confirmed.

 

***Tower Tech***

 

On March 13, 2009, Tower Tech and Investors Community Bank (“ICB”)extended the maturity date of the ICB secured line of credit to March 13,2010 (the “ICB Line Extension Agreement”). Pursuant to the ICB Line ExtensionAgreement, Tower Tech established new financial covenants with respect tominimum debt service coverage ratio and minimum tangible net worth. Tower Techalso agreed to maintain its primary deposit accounts with ICB and that noadditional loans or leases shall be entered into by Tower Tech without theprior approval of ICB. As of March 31, 2009, Tower Tech had $988 availablefor additional borrowing under the line of credit and was in compliance withall of its financial covenants with ICB.

 

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***Badger***

 

                On March 13,2009, Badger obtained a term loan (the ‘‘FNB Term Loan’’) from First NationalBank (“FNB”) in the amount of approximately $1,538.  A portion of the proceeds from the FNB TermLoan was used to pay off Badger’s existing term loan and revolving line ofcredit with FNB, with the remainder available for working capital. The FNB TermLoan is secured by the inventory, accounts receivable and certain equipment ofBadger. The FNB Term Loan bears interest at a rate of 6.75% per annum, matureson March 13, 2013, and is guaranteed by Broadwind.

 

***RBA***

 

On March 13, 2009, RBA and ICB extended the maturity date of the April 7,2008 line of credit note in the maximum principal amount of $1,732 to March 13,2010 (the “ICB Note Extension Agreement”). Pursuant to the ICB Note ExtensionAgreement, RBA established new financial covenants with respect to minimum debtservice coverage ratio and minimum tangible net worth (these covenants weresubsequently modified by the parties on April 22, 2009, effective as of March 31,2009).  RBA also agreed to maintain itsprimary deposit accounts with ICB and that no additional loans or leases shallbe entered into by RBA without the prior approval of ICB. As of March 31,2009, RBA had $32 available for additional borrowing under the line of creditnote and was in compliance with all of its financial covenants with ICB.

 

**NOTE8 — INTEREST RATE SWAP AGREEMENTS**

 

     In March 2008, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities* (“SFAS 161”).SFAS 161 amends and expands the previous disclosure requirements of SFAS No. 133,*Accounting for Derivative Instruments andHedging Activities*(“SFAS 133”), to provide more qualitative andquantitative information on how and why an entity uses derivative instruments,how derivative instruments and related hedged items are accounted for underSFAS 133 and its related interpretations, and how derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance and cash flows. The Company adopted the provisions of SFAS 161 on January 1,2009 on a prospective basis. The adoption had no impact on our condensedconsolidated financial statements or results of operations for the three monthsended March 31, 2009 except for the additional disclosure requirements asrequired by the pronouncement.

 

As part of our acquisition of Brad Foote in October 2007, theCompany assumed two interest rate swap agreements. These swap agreements areintended to minimize the impact of interest rate fluctuations on certain debtinstruments. Interest rate swap agreements involve exchanges of fixed orfloating rate interest payments periodically over the life of the agreementwithout the exchange of the underlying principal amounts. In accordance withthe provisions of SFAS 133, all derivatives are measured at fair value andrecognized as either assets or liabilities on the Company’s balance sheet. Theaccounting for changes in the fair value of a derivative is dependent upon theuse of the derivative and its resulting designation. Unless specific hedgeaccounting criteria are met, changes in the fair value of the derivative mustbe recognized currently in earnings. The Company’s interest rate swaps do notqualify for hedge accounting under SFAS 133, and therefore, the Company isrequired to recognize the swap agreements at their fair market value and recordthe fluctuations in the fair value of the swap agreements in current earnings. Duringthe three months ended March 31, 2009, the Company reported an unrealizedgain of approximately $85 related to these fluctuations compared to anunrealized loss of approximately $230 for the three months ended March 31,2008. The fair market value of the interest rate swaps of $497 and $582 isrecorded as a long-term liability in our condensed consolidated balance sheetsas of March 31, 2009 and December 31, 2008, respectively.

 

The following table presents the fair values of derivative instrumentsincluded on our condensed consolidated balance sheets as of March 31,2009:

 
| ** **                                                              | ** ** | **Liability Derivatives**  | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                              | ** ** | **Balance Sheet Location** | ** ** | **Fair Value** | ** ** |
| **Derivatives not designated as  hedging instruments under SFAS 133**   |       |                       |       |   |   |
| Interest rate contracts                                                 |       | Long-term liabilities      | (1)        | $ | 497 |   |
| Total derivatives not designated as hedging  instruments under SFAS 133 |       |                       |       | $ | 497 |   |

 

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(1)   The Company’s interest ratecontracts are classified on a separate line item titled “Interest rate swapagreements” in the long-term liabilities section on our condensed consolidatedbalance sheets.

 

The following table presents the pretax amounts affecting our condensedconsolidated statements of operations for the three months ended March 31,2009:

 

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| **Derivatives Not**       | ** ** | ** **                     | ** ** | ** **                   | ** ** |
|---------------------------|------------|--------------------------------|------------|------------------------------|------------|
| **Designated as Hedging** | ** ** | **Location of Gain or (Loss)** | ** ** | **Amount of Gain or (Loss)** | ** ** |
| **Instruments under**     | ** ** | **Recognized in Income on**    | ** ** | **Recognized in Income on**  | ** ** |
| **SFAS 133**              | ** ** | **Derivative**                 | ** ** | **Derivative**               | ** ** |
| Interest rate contracts   |       | Other  income (expense)        |       | $                            | 85         |   |
|                      |       |                           |       |                         |       |
| Total                     |       |                           |       | $                            | 85         |   |

 

**NOTE9 — FAIR VALUE MEASUREMENTS**

 

The Company implemented SFAS No. 157, *Fair Value Measurements* (“SFAS 157”), related to itsfinancial assets and liabilities, which defines fair value, establishes aframework for its measurement and expands disclosures about fair valuemeasurements. The adoption of SFAS 157 did not have an impact on themeasurement of the Company’s financial assets and liabilities, but did resultin additional disclosures as required by the pronouncement.

 

SFAS 157 defines fair value as the price that would be received tosell an asset or paid to transfer a liability (i.e., exit price) in an orderlytransaction between market participants at the measurement date. SFAS 157requires disclosures that categorize assets and liabilities measured at fairvalue into one of three different levels depending on the assumptions (i.e.,inputs) used in the valuation. Level 1 provides the most reliable measureof fair value while Level 3 generally requires significant management judgment.Financial assets and liabilities are classified in their entirety based on thelowest level of input significant to the fair value measurement. TheSFAS 157 fair value hierarchy is defined as follows:

 

Level 1—Valuations are based on unadjusted quoted prices in activemarkets for identical assets or liabilities.

 

Level 2—Valuations are based on quoted prices for similar assetsor liabilities in active markets, or quoted prices in markets that are notactive for which significant inputs are observable, either directly orindirectly.

 

Level 3—Valuations are based on prices or valuation techniquesthat require inputs that are both unobservable and significant to the overallfair value measurement. Inputs reflect management’s best estimate of whatmarket participants would use in valuing the asset or liability at themeasurement date.

 

     In February 2008, the FASB issued FASB StaffPosition No. 157-2 (“FSP 157-2”), which delayed the effective date bywhich companies must adopt certain provisions of SFAS 157. FSP 157-2 defers theeffective date of SFAS 157 for all nonfinancial assets and nonfinancialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis, to fiscal years beginning after November 15,2008, and interim periods within those fiscal years. On January 1, 2009,the Company adopted the provisions of SFAS 157 as it relates to the disclosurerequirements for all nonfinancial assets and nonfinancial liabilities. Theadoption had no impact on our condensed consolidated financial statements orresults of operations for the three months ended March 31, 2009.

 

The following table represents the fair values of the Company’sfinancial liabilities as of March 31, 2009:

 
| ** **                           | ** ** | **Level I** | ** ** | **Level II** | ** ** | **Level III** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-------------|------------|--------------|------------|---------------|------------|-----------|------------|
| Liabilities:                         |       |        |       |         |       |          |       |      |       |
| Interest rate swaps                  |       | $           | —     |         | $          | 497           |       | $         | —     |   | $ | 497 |   |
| Fixed interest rate debt obligations |       | —      |       | 7,702        |       | —        |       | 7,702     |       |
| Total liabilities at fair value      |       | $           | —     |         | $          | 8,199         |       | $         | —     |   | $ | 8,199 |   |

 

**NOTE 10 — INCOME TAXES**

 

                The Company accounts for income taxes pursuant to SFASNo. 109, *Accounting for Income Taxes*,which provides for an asset and liability approach to accounting for incometaxes. Deferred tax assets and liabilities represent the future taxconsequences of the differences between the financial statement carryingamounts of assets and liabilities versus the tax basis of assets andliabilities. Under this method, deferred tax assets are recognized fordeductible temporary differences, and operating loss and tax creditcarryforwards. Deferred liabilities are recognized for taxable temporarydifferences. Deferred tax assets are reduced by a valuation allowance when, inthe opinion of management, it is more likely than not that some portion or allof the deferred tax assets will not be realized. The impact of the tax ratechanges on deferred tax assets and liabilities is recognized in the year thatthe change is enacted.

 

                The Company recognizes interest and penalties relatedto uncertain tax positions in income tax expense. As of March 31,

 

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2009, the Company hadaccrued interest or penalties related to uncertain tax positions totaling $53.

 

                The Company files income tax returns in U.S. federaland state jurisdictions. As of March 31, 2009, open tax years in federaland some state jurisdictions date back to 1996 due to the taxing authorities’ability to adjust operating loss carry forwards. No changes in settled taxyears have occurred through March 31, 2009. The Company does notanticipate there will be a material change in the total amount of unrecognizedtax benefits within the next 12 months.

 
| ** **                                            | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                            | ** ** | **2009**                                       | ** ** | **2008** | ** ** |
|                                                  |       |                                           |       |   |   |
| Net loss before (benefit) provision for income  taxes |       | $                                              | (7,586     | ) | $ | (3,255 | ) |
| (Benefit) provision for income taxes                  |       | (436                                           | )          | 188 |   |
| Net loss                                              |       | $                                              | (7,150     | ) | $ | (3,443 | ) |

 

                Effective tax rates differ from federalstatutory income tax rates primarily due to changes in valuation allowance,permanent differences and provisions for state and local income taxes. As of March 31,2009, the Company had a net deferred tax liability of $1,141 primarily relatedto temporary differences in indefinite-lived assets. These indefinite-livedassets consist of tax deductible goodwill from recent business acquisitions.During the three months ended March 31, 2009, the Company recorded abenefit for income taxes of $436 compared to a provision for income taxes of$188 for the three months ended March 31, 2008. The decrease in incometaxes was primarily attributable to a decrease in state income taxes and deferred statetax liabilities resulting from a favorable change in the state of Wisconsin’smethod of calculating state income taxes on a prospective basis.

 

**NOTE11 — SHARE-BASED COMPENSATION**

 

The Company grants incentive stock options and other equity awardspursuant to the Broadwind Energy, Inc. 2007 Equity Incentive Plan (the“EIP”), which was approved by the Company’s Board of Directors in October 2007and by the Company’s stockholders in June 2008. The EIP was subsequentlyamended in August 2008 by the Company’s Board of Directors to includecertain non-material amendments to clarify the terms and conditions ofrestricted stock awards and to provide that the administrator of the EIP hasthe authority to effect future amendments to the EIP. The EIP reserves3,500,000 shares of common stock for grants to officers, directors and otherkey employees. As of March 31, 2009, the Company had reserved 1,900,333shares for the exercise of stock options outstanding, 132,042 shares forrestricted stock awards outstanding and 1,383,758 additional shares for futurestock awards under the EIP. As of March 31, 2009, 83,867 shares of commonstock reserved for restricted share awards under the EIP have vested and beenissued in the form of common stock.

 

*Stock Options.*  The exercise price of stock options grantedunder the EIP is equal to the closing price of our common stock on the date ofgrant. Stock options generally become exercisable on the anniversary of thegrant date, with vesting terms that may range from one to five years from thedate of grant. Additionally, stock options expire ten years after the date ofgrant. If a plan participant’s employment is terminated for any reason duringthe vesting period, he or she forfeits the right to unvested stock optionawards.

 

Stock option activity during the three months ended March 31, 2009was as follows:

 
| ** **                               | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|------------------------------------------|------------|-------------|------------|--------------------------------------|------------|
| Outstanding as of December 31, 2008 |       | 2,030,000   |       | $                                    | 11.60      |   |
| Granted                                  |       | 20,000      |       | 3.10                                 |       |
| Exercised                                |       | —      |       | —                               |       |
| Forfeited                                |       | (149,667    | )          | 15.37                                |       |
| Cancelled.                               |       | —      |       | —                               |       |
| Outstanding as of March 31, 2009    |       | 1,900,333   |       | $                                    | 11.21      |   |
|                                     |       |        |       |                                 |       |
| Exercisable as of March 31, 2009    |       | 243,266     |       | $                                    | 8.39       |   |

 

*Restricted Stock.*  The granting of restricted stock units isprovided for under the EIP.  Restrictedstock units vest on the anniversary date of the grant date, with vesting termsthat may range from immediate vesting to five years from the date of grant. Thefair value of each unit granted is equal to the closing price of our commonstock on the date of grant and is expensed ratably over the vesting term of therestricted stock award. If a plan participant’s employment is terminated forany reason during the vesting period, he or she forfeits the right to anyunvested portion of the restricted stock units.

 

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In March 2009, the Company granted to certain employees 68,867 ofrestricted stock units with a grant date fair value of $3.10 per share. Therestricted stock units awarded under these agreements fully vested on the dateof grant and entitled the participant to receive one share of the Company’scommon stock for each restricted stock unit awarded.

 

Restricted stock activity during the three months ended March 31,2009 was as follows:

 
| ** **                               | ** ** | **Number of Units** | ** ** | **Weighted Average  Grant-Date Fair Value  Per Unit** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------------------------------|------------|
| Outstanding as of December 31, 2008 |       | 127,500                       |       | $                                                                         | 10.71      |   |
| Granted                                  |       | 80,909                        |       | $                                                                         | 3.18       |   |
| Vested                                   |       | (76,367                       | )          | $                                                                         | 3.31       |   |
| Forfeited                                |       | —                        |       | $                                                                         | 0.00       |   |
| Outstanding as of March 31, 2009    |       | 132,042                       |       | $                                                                         | 10.06      |   |

 

In accordance with the pronouncement provisions of SFAS No. 123R(revised), *Share-Based Payment* (“SFAS 123R”), thefair value of each stock option award is estimated on the date of grant usingthe Black-Scholes option pricing model. Our determination of the fair value ofeach stock option is affected by our stock price on the date of grant, as wellas assumptions regarding a number of highly complex and subjective variables.These variables include, but are not limited to, our expected stock pricevolatility over the expected life of the awards and projected stock optionexercise behavior. The weighted average fair value per share of stock optionawards granted during the three months ended March 31, 2009 and 2008, andassumptions used to value stock options, are as follows:

 
| ** **                                                           | ** ** | **For the Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                                               | ** ** | **2008** | ** ** |
| Dividend yield                                                       |       | —                                                                 |       | — |   |
| Risk-free interest rate                                              |       | 2.0                                                                    | %          | 3.1 | % |
| Weighted average volatility                                          |       | 85.0                                                                   | %          | 60.0 | % |
| Expected life (in years)                                             |       | 6.5                                                                    |       | 6.5 |   |
| Weighted average grant date fair value per share  of options granted |       | $                                                                      | 2.29       |   | $ | 6.26 |   |
|                                                                      |            |                                                                        |            |  |  |  |  |

 

Dividend yield is zero as the Company currently does not pay adividend.

 

Risk-free interest rate is based on the implied yield currentlyavailable on U.S. Treasury zero coupon issues with a remaining term equal tothe expected life of the award.

 

Volatility is estimated based on comparable volatility averages for theenergy related sector at the time of grant.

 

The expected life of each stock option award granted during the threemonths ended March 31, 2009 was derived using the “simplified method” forestimating the expected term of a “vanilla-option” in accordance with StaffAccounting Bulletin (“SAB”) No. 107, *Share-BasedPayment,* as amended by SAB No. 110, *Share-Based Payment.* The expected life of each stock optionaward granted during the three months ended March 31, 2008 was estimatedbased on the service period of the stock option award.

 

The fair value of each unit of restricted stock is equal to the fairmarket value of our common stock as of the date of grant.

 

Thefollowing table summarizes share-based compensation expense included in ourcondensed consolidated statements of operations for the three months ended March 31,2009 and 2008:

 

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| ** **                                                  | ** ** | **For the Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                                               | ** ** | **2008** | ** ** |
| **Share-based compensation  expense:**                      | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Selling, general and administrative                         |       | $                                                                      | 818        |   | $ | 381 |   |
| Income tax benefit (1)                                      |       | —                                                                 |       | — |   |
| Net effect of share-based compensation expense  on net loss |       | $                                                                      | 818        |   | $ | 381 |   |
|                                                        |       |                                                                   |       |   |   |
| **Reduction in earnings per  share:**                       | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Basic and diluted earnings per share (2)                    |       | $                                                                      | 0.01       |   | $ | 0.00 |   |

 

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| (1)    | Income  tax benefit is not illustrated because the Company is currently operating at  a loss and an actual income tax benefit may not be realized for the three  months ended March 31, 2009 and 2008, respectively. The result of the  loss situation creates a timing difference, resulting in a deferred tax  asset, which is reserved for in the valuation allowance. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                           |
| (2)    | Diluted  earnings per share for the three months ended March 31, 2009 and 2008  does not include common stock equivalents due to its anti-dilutive nature as  a result of the Company’s net losses for these respective periods.  Accordingly, basic earnings per share and diluted earnings per share are  identical for all periods presented.                     |

 

As of March 31, 2009, we estimate that pre-tax compensationexpense for all unvested share-based awards, including both stock options andrestricted stock units, in the amount of approximately $10,663, will berecognized through the year 2014. We expect to satisfy the exercise of stockoptions and future distribution of shares of restricted stock by issuing newshares of common stock.

 

**NOTE12 — RECENT ACCOUNTING PRONOUNCEMENTS**

 

In April 2009, FASB issued FSP No. FAS107-1 and APB 28-1, *Interim Disclosuresabout Fair Value of Financial Instruments (“*FSP 107-1 and APB 28-1”)*.*FSP 107-1 and APB 28-1 requiredisclosures about fair value of financial instruments for interim reportingperiods as well as in annual financial statements.   FSP 107-1 and APB 28-1 amend AccountingPrinciples Board Opinion No. 28, *Interim FinancialReporting*, to require those disclosures in summarized financialinformation at interim reporting periods. FSP 107-1 and APB 28-1 is effective for interim and annual reportingperiods ending after June 15, 2009, with early adoption permitted forperiods ending after March 15, 2009 only if an entity elects to earlyadopt Financial Accounting Standards (“FAS”) FSP FAS 157-4, *Determining Fair Value When the Volume and Level of Activity for theAsset or Liability Have Significantly Decreased and Identifying TransactionsThat Are Not Orderly* and FSP FAS 115-2 and FAS 124-2, *Recognition and Presentation of Other-Than-Temporary Impairments*.The adoption of this pronouncement is not anticipated to have a material impacton the Company’s financial position or results of operations.

 

**NOTE13 — SEGMENT REPORTING**

 

During the secondquarter of 2008, management changed the Company’s reportable segments toreflect changes in the management reporting structure of the organization andthe manner in which our chief operating decision maker assesses information fordecision-making purposes, including the allocation of resources. The revisedreporting structure includes two reportable segments: “Products” (formerly “Productsand Components”) and “Services” (formerly “Service, Transportation andMaintenance”). Accordingly, all prior period segment information has beenreclassified to properly reflect our new reportable segments.

 

The Company’s segmentsand their product and service offerings are summarized below:

 

***Products***

 

The Products segment reflects the operations of Brad Foote, Tower Techand RBA. The Products segment specializes in the manufacture and sale ofproducts such as high precision gears for wind turbines, custom-engineeredgearing systems for the mining, energy, and industrial sectors, structural windtowers, internal tower components, and large fabricated and machined componentsfor the construction and mining industries. Key technologies employed includegrinding and finishing of gears and gear sets, steel plate processing, semi-automatedheavy welding and custom corrosion protection of components. Our primary focusis on the wind energy industry; however, our Products segment also servicesmining, oil and gas construction, and other industrial energy applications.

 

***Services***

 

The Services segment was established upon our acquisition of EMS in January 2008and expanded with our acquisition of Badger in June 2008. This segmentspecializes in construction, operations, maintenance and component repairservices for the wind energy industry as well as specialized heavy haultrucking services to installation sites. Services provided include constructionand

 

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technicalsupport in the erection of wind turbine generators, scheduled and unscheduledmaintenance, fiberglass blade repair, retrofit solutions, technical training,and the transportation of oversize/overweight equipment and machinery.

 

***Corporate and Other***

 

The Companyapplies the provisions of Emerging Issues Task Force Issue No. 04-10 (“EITF04-10”) for segment reporting. Under the provisions of EITF 04-10, anyoperating segments that do not individually meet the aggregation criteria orquantitative thresholds described in SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information*(“SFAS 131”) may be combined with otheroperating segments that do not individually meet the aggregation criteria orquantitative thresholds to form a separate reportable segment. The Company hascombined all operating segments that do not individually meet the aggregationcriteria established in SFAS 131 to form the “Corporate and Other” segment forsegment reporting. The “Corporate and Other” segment is comprised of adjustments toreconcile segment results to consolidated results, which primarily includescorporate administrative expenses and intercompany eliminations.

 

Below is a summaryof segment operations as of March 31, 2009 and December 31, 2008 andfor the three months ended March 31, 2009 and 2008. Segment informationrelated to the three months ended March 31, 2008 has been reclassified toconform to our current segment presentation.

 
| ** **              | ** ** | **Revenues**                            | ** ** | **Operating Profit (Loss)**   | ** ** |
|-------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **              | ** ** | **For the Three Months** | ** ** | **For the Three Months** | ** ** |
| ** **              | ** ** | **Ended March 31,**           | ** ** | **Ended March 31,**           | ** ** |
| ** **              | ** ** | **2009**                                | ** ** | **2008**                                | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Segments:**           | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Products segment        |       | $                                       | 43,134     |                                    | $          | 30,248 |   | $ | (3,830 | ) | $ | 737 |   |
| Services segment        |       | 10,229                                  |       | 4,916                                   |       | (927 | ) | (371 | ) |
| Corporate and Other (1) |       | (301                                    | )          | —                                  |       | (2,380 | ) | (2,305 | ) |
|                    |       | $                                       | 53,062     |                                    | $          | 35,164 |   | $ | (7,137 | ) | $ | (1,939 | ) |

 
| ** **              | ** ** | **Total Assets as of** | ** ** | ** **            | ** ** | ** ** | ** ** |
|-------------------------|------------|---------------------------------------|------------|-----------------------|------------|------------|------------|
| ** **              | ** ** | **March 31,**                    | ** ** | **December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **2009**                              | ** ** | **2008**              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Segments:**           | ** ** | ** **                            | ** ** | ** **            |       |       |       |   |   |
| Products segment        |       | $                                     | 294,932    |                  | $          | 308,044    |       |   |   |   |   |
| Services segment        |       | 63,672                                |       | 65,795                |       |       |       |   |   |
| Corporate and Other (2) |       | 1,665                                 |       | 5,909                 |       |       |       |   |   |
|                    |       | $                                     | 360,269    |                  | $          | 379,748    |       |   |   |   |   |

 

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| (1) | “Corporate  and Other” includes corporate selling, general and administrative expenses  and intercompany eliminations. Corporate selling, general and administrative  expenses includes corporate salaries and benefits, share-based compensation,  and professional fees. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | “Corporate  and Other” includes assets of the corporate headquarters and intercompany  eliminations.                                                                                                                                                                       |

 

**NOTE14 — COMMITMENTS AND CONTINGENCIES**

 

*Customer disputes*

 

During 2008, the Company was involved in a pricing dispute with acustomer, which included accumulated unpaid accounts receivable balancestotaling approximately $2,249. The Company and the customer have reached atentative resolution on this matter, which resulted in a write-off of theseaccounts receivable balances in the amount of $2,249 during the fourth quarterof 2008.

 

*Purchase commitments*

 

Tower Tech has issued building and equipment purchase commitmentsassociated with the construction of a new wind tower manufacturing facilitylocated in Brandon, South Dakota totaling approximately $3,600 as of March 31,2009. These purchase commitments are scheduled to be completed in 2009.

 

During 2007, Brad Foote entered into a purchase contract for equipmentwith a foreign vendor. During the year ended December 31, 2007, Brad Footerecorded a net foreign currency loss of $15 due to the decline in the value ofthe U.S. dollar relative to the Euro. The commitment was converted from Eurosto U.S. dollars during the quarter ended September 30, 2008, and nofurther foreign currency exposure exists with regard to this commitment. On December 31,2008, the purchase agreement was amended to

 

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cancelcertain previously agreed upon purchase commitments. As part of this amendedpurchase agreement, the Company agreed to equipment purchases totaling $3,674,of which $978 was paid as a down payment and the remaining $2,784 in principalplus accrued interest at 6% per annum is to be paid in twelve equal monthlyinstallments through December 2009. The Company has accounted for thispurchase agreement as a promissory note and the outstanding balance of $2,088and $2,784 is included in lines of credit and notes payable in the currentliabilities section of our condensed consolidated balance sheets as of March 31,2009 and December 31, 2008.

 

*Legal proceedings*

 

The Company is subject to legal proceedings in the normal course ofbusiness. We periodically evaluate the need to record liabilities in connectionwith loss contingencies, including, but not limited to, settlement of legalproceedings and regulatory compliance matters. In accordance with SFAS No. 5,*Accounting for Contingencies*, weaccrue for costs related to loss contingencies when such costs are probable andreasonably estimable.

 

*Environmental compliance and remediation liabilities*

 

Our operations and products are subject to a variety of environmentallaws and regulations in the jurisdictions in which we operate and sell productsgoverning, among other things, air emissions, wastewater discharges, the use,handling and disposal of hazardous materials, soil and groundwater contamination,employee health and safety, and product content, performance and packaging.Also, certain environmental laws can impose the entire or a portion of the costof investigating and cleaning up a contaminated site, regardless of fault, uponany one or more of a number of parties, including the current or previous owneror operator of the site. These environmental laws also impose liability on anyperson who arranges for the disposal or treatment of hazardous substances at acontaminated site. Third parties may also make claims against owners oroperators of sites and users of disposal sites for personal injuries andproperty damage associated with releases of hazardous substances from thosesites.

 

As previously disclosed, in September 2007, Tower Tech received anotice of violation from the Wisconsin Department of Natural Resources (“WDNR”)stating that Tower Tech was in violation of several provisions of the state’sair pollution laws and regulations in connection with the construction andoperation of two new paint booths at its Manitowoc, Wisconsin facility. TowerTech continues to negotiate with the WDNR, and currently the WDNR is seekingonly monetary penalties and no other relief.

 

*Other*

 

Approximately 30% of our employees are covered by two collectivebargaining agreements with local unions. These agreements are scheduled toexpire in October 2009 and February 2010.

 

**NOTE15 — EARNINGS PER SHARE**

 

The Companycomputes earnings per share in accordance with SFAS No. 128, *Earnings per Share*(“SFAS 128”). SFAS 128requires companies to compute earnings per share under two different methods,basic and diluted, and present per share data for all periods in whichstatements of operations are presented. Basic earnings per share is computed bydividing net income by the weighted average number of shares of common stockoutstanding. Diluted earnings per share is computed by dividing net income bythe weighted average number of shares of common stock and common stockequivalents outstanding.

 

The following table providesa reconciliation of the numerators and denominators used in calculating basicand diluted earnings per share for the three months ended March 31, 2009and 2008:

 

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| ** **                                            | ** ** | **Three months ended March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                            | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| **Basic earnings per share  calculation:**            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net loss to common stockholders                       |       | $                                                    | (7,150     | ) | $ | (3,443 | ) |
| ** **                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Weighted average number of common shares  outstanding |       | 96,491,885                                           |       | 79,324,781 |   |
| Basic net loss per share                              |       | $                                                    | (0.07      | ) | $ | (0.04 | ) |
| ** **                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Diluted earnings per share  calculation:**          | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net loss to common stockholders                       |       | $                                                    | (7,150     | ) | $ | (3,443 | ) |
| ** **                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Weighted average number of common shares  outstanding |       | 96,491,885                                           |       | 79,324,781 |   |
| Common stock equivalents:                             |       |                                                 |       |   |   |
| Stock options and restricted stock units (1)          |       | —                                               |       | — |   |
| Convertible promissory note (2)                       |       | —                                               |       | — |   |
| Weighted average number of common shares  outstanding |       | 96,491,885                                           |       | 79,324,781 |   |
| Diluted net loss per share                            |       | $                                                    | (0.07      | ) | $ | (0.04 | ) |

 

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(1) Stock options andrestricted stock units granted and outstanding of 2,032,375 and 1,248,000 as ofMarch 31, 2009 and 2008, respectively, are excluded from the computationof diluted earnings due to the anti-dilutive effect as a result of the Company’snet loss for these respective periods.

(2) Common stockequivalents of 3,333,332 with respect to the conversion feature of the seniorsubordinated convertible promissory note outstanding as of March 31, 2008,were excluded from the computation of diluted earnings per share due to theanti-dilutive effect resulting from the Company’s net loss for the three monthsended March 31, 2008.

 

**NOTE16 — SUBSEQUENT EVENTS**

 

*Sales leasebackagreements*

 

Tower Tech enteredinto a sale-leaseback agreement with Varilease Finance, Inc. (“Varilease”)effective April 9, 2009, pursuant to which Varilease agreed to provideequipment financing in the amount of up to $3,000 (the “Varilease Financing”).  Proceeds from the Varilease Financing will beused for working capital and other general corporate operating requirements.The initial term of the Varilease Financing is 36 months and the effectiveinterest rate is 9.2% per annum.  TowerTech’s obligations with respect to the Varilease Financing are guaranteed byBroadwind.  As of May 8, 2009, TowerTech had received proceeds of $1,700 pursuant to the Varilease Financing.

 

*TowerTech construction financing*

 

OnApril 28, 2009, Tower Tech obtained construction financing from GreatWestern Bank (“GWB”) in the amount of up to $10,000 (the “GWB Loan”). Proceeds from the GWB Loan will be used to complete construction of Tower Tech’swind tower manufacturing facility in Brandon, South Dakota.  On April 29,2009, Tower Tech had received proceeds of approximately $3,700 under the GWBLoan.  The GWB Loan is guaranteed by Broadwind and is secured by a firstmortgage on the subject real estate, collateral assignment of a $2,000 depositaccount, and certain other collateral.  Draws on the GWB Loan bearinterest at a per annum rate 7.5%. The GWB Loan matures on January 5,2010.  Tower Tech may elect to convert up to $6,500 of the outstandingbalance of the GWB Loan to a term loan, having a term of not less than 78months and bearing interest at a rate not to exceed 8.5% per annum, byproviding written notice to GWB of such election prior to January 5, 2010.Tower Tech would be required to pay a 1.0% conversion fee upon the conversion,and GWB’s security interest in the $2,000 deposit account would be released insuch event.

 

*BradFoote loan agreement amendment and waiver*

 

OnMay 8, 2009, Brad Foote entered into the Thirty-Fifth Amendment with BOA,amending the Loan Agreement.  Among otherthings, the Thirty-Fifth Amendment provided that BOA waive Brad Foote’sviolation of (i) the financial covenants set forth in Sections 14.1(d) and(e) of the Loan Agreement (the senior debt to EBITDA ratio and cash flowcoverage ratio covenants) solely for the fiscal quarter ended March 31,2009, but only to the extent that such violations would not cause any Defaultor Event of Default under the Loan Agreement as amended by the Thirty-Fifth Amendment;(ii) the financial covenant set forth in Section 14.1(f) of theLoan Agreement (the minimum EBITDA ratio covenant) solely for each of thecalendar months of January 2009 and February 2009; (iii) thefinancial covenant set forth in Section 14.1(f) of the Loan Agreement(the minimum EBITDA ratio covenant) solely for each of the calendar months of March 2009and April 2009, but only to the extent that such violations would notcause any Default or Event of Default under the Loan Agreement as amended bythe Thirty-Fifth Amendment; and (iv) certain covenants relating to thedelivery of Brad Foote’s financial information to BOA.

 

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Inaddition, the Thirty-Fifth Amendment provided that certain of Brad Foote’sfinancial covenants be amended and restated, including requirements withrespect to maintenance of ratios of (i) senior debt to EBITDA, (ii) cashflow coverage and (iii) minimum EBITDA.

 

**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with our condensed consolidatedfinancial statements and related notes thereto in Item 1, “Financial Statements”of this Quarterly Report and the audited consolidated financial statements andrelated notes and Management’s Discussion and Analysis of Financial Conditionand Results of Operations contained in our Annual Report on Form 10-K forthe year ended December 31, 2008. The discussion below containsforward-looking statements that are based upon our current expectations and aresubject to uncertainty and changes in circumstances including, but not limitedto, those identified in “Cautionary Note Regarding Forward-Looking Statements”at the end of Item 2 for further discussion. Actual results may differ materially from these expectations due toinaccurate assumptions and known or unknown risks and uncertainties.*

 

***(Dollars are presented in thousands unless otherwise stated)***

 

**INTRODUCTION**

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations (“MD&A”) is intended to assist the reader in betterunderstanding our business, results of operations, financial condition, changesin financial condition, critical accounting policies and estimates, andsignificant developments. MD&A is provided as a supplement to, and shouldbe read in conjunction with our condensed consolidated financial statements andthe accompanying notes thereto appearing elsewhere herein. This section isorganized as follows:

 

·                  ***Our Business***— an overview of ourbusiness, a discussion of current business and industry opportunities,challenges, and risks, and a discussion of significant developments affectingour business.

 

·                  ***Results of Operations***— an analysisand comparison of our condensed consolidated results of operations for thethree months ended March 31, 2009 and 2008, as reflected in our condensedconsolidated statements of operations.

 

·                  ***Summary of Critical Accounting Policies and Estimates***— a discussionof accounting policies and estimates that we believe require management’s mostsubjective or complex judgments.

 

·                  ***Liquidity, Financial Position and Capital Resources***— a discussionof our primary sources and uses of cash for the three months ended March 31,2009 and 2008, a discussion of selected changes in our financial position, andany changes to our future contractual obligations.

 

**OUR BUSINESS**

 

**Overview**

 

We are a supplier of value-added products and services to the NorthAmerican wind energy sector as well as other energy-related industries. Weprovide our customers, such as leading wind turbine manufacturers anddevelopers, wind farm operators and service companies, with a broad range ofcomponent and service offerings. Since 2006, we have made significant investmentsin the growth of our business through significant capital expenditures and aseries of acquisitions. In doing so, we have developed a broad, U.S.-basedsupply chain for wind energy development in North America. Our businesses arecurrently organized in two operating segments: *Products*and *Services*.

 

***Products***

 

The Products segment reflects the operations of Brad Foote Gear Works, Inc.(“Brad Foote”), Tower Tech Systems Inc. (“Tower Tech”) andR.B.A. Inc. (“RBA”). The Products segment specializes in the manufactureand sale of products such as high precision gears for wind turbines,custom-engineered gearing systems for the mining, energy, and industrialsectors, structural wind towers, internal tower components, and largefabricated and machined components for the construction and mining industries.Key technologies employed include grinding and finishing of gears and gearsets, steel plate processing, semi-automated heavy welding and custom corrosionprotection of components. Our primary focus is on the wind energy industry;however, our Products segment also services mining, oil and gas construction,and other industrial energy applications.

 

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***Services***

 

The Services segment was established upon our acquisition of EnergyMaintenance Service, LLC (“EMS”) in January 2008 and expanded withour acquisition of Badger Transport, Inc. (“Badger”) in June 2008.This segment specializes in construction, operations, maintenance and componentrepair services for the wind energy industry as well as specialized heavy haultrucking services to installation sites. Services provided include constructionand technical support in the erection of wind turbine generators, scheduled andunscheduled maintenance, fiberglass blade repair, retrofit solutions, technicaltraining, and the transportation of oversize/overweight equipment andmachinery.

 

***First Quarter Overview***

 

During the firstquarter of 2009, the Company continued to focus its efforts on maintainingadequate liquidity, which included amending certain credit agreements to extendthe maturity dates of these agreements and entering into additional financingarrangements to increase cash balances for operating activities. The Companyalso continued its efforts to improve upon its internal control environment,specifically to correct deficiencies and weaknesses that were previouslyidentified and to improve operational effectiveness throughout theorganization.

 

In addition, theCompany continued to be affected by the current economic downturn and theassociated effects of the disruptions in the credit markets. As a result, theCompany expects to see a continuing economic slowdown in the wind and energyrelated industries for the foreseeable future as wind turbine manufacturers,wind farm operators and service providers have scaled back existingmanufacturing orders and have delayed new projects and service arrangements.

 

The following is asummary of recent key events for the Company:

 

·      In January, Tower Tech completed the constructionof its new wind tower manufacturing facility located in Abilene, Texas.

 

·      In February, federal economic recovery legislationwas passed by Congress and signed into law by President Obama. Within thislegislation, significant provisions to benefit the renewable energy industrywere included, such as: grant programs provided through the Treasury Departmentto renewable energy developers; the extension of the wind energy production taxcredits; loan guarantee programs provided through the Energy Department forrenewable energy developers and manufacturers; and tax credits for advancedenergy manufacturers.

 

·      In March, Brad Foote, Tower Tech and RBA amendedcertain credit and loan agreements. The amendments to these credit and loanagreements established new financial covenants and extended the maturity datesof these agreements. See Note 7 “Debt and Credit Agreements” in the notes toour condensed consolidated financial statements in Part I, Item 1 of thisQuarterly Report on Form 10-Q for further discussion of these matters.

 

·      In March, the Company announced the appointment ofWilliam T. Fejes, Jr. to our Board of Directors (the “Board”), replacingWilliam M. Barrett, who resigned from his position on the Board in February 2009.Mr. Fejes was also appointed to the Board’s Audit Committee and will serveas Chairman of the Board’s Governance/Nominating Committee.

 

·      In April, the Company announced that shares of itscommon stock have been approved for listing on the NASDAQ Global Select Market(“NASDAQ”). Shares of the Company’s common stock, which were previously listedand traded on the OTC Bulletin Board, began trading on NASDAQ on April 9,2009 under the same “BWEN” ticker symbol.

 

·      In April, the Company announced that Tower Techobtained construction financing from Great Western Bank in the amount of up to$10,000 (the “GWB Loan”). Proceeds from the GWB Loan will be used to completeconstruction of Tower Tech’s wind tower manufacturing facility in Brandon,South Dakota.

 

·      On May 1, the Company announced that StephenE. Graham was appointed Interim Chief Financial Officer (and principalfinancial and accounting officer) of the Company.  Mr. Graham replaced Matthew J. Gadow,who resigned from his positions as the Company’s Executive Vice President andChief Financial Officer on April 30.

 

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**RESULTS OF OPERATIONS**

 

**Three Months Ended March 31, 2009, Compared toThree Months Ended March 31, 2008**

 

The summary of selected financial data table below should be referencedin connection with a review of the following discussion of our results ofoperations for the three months ended March 31, 2009 compared to the threemonths ended March 31, 2008.

 
| ** **                                            | ** ** | **Three Months Ended March 31,** | ** ** | **2009 vs. 2008**       | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                            | ** ** | **2009**                                             | ** ** | **% of Total  Revenue** | ** ** | **2008** | ** ** | **% of Total  Revenue** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|                                                  |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Revenues                                              |       | $                                                    | 53,062     |                              | 100.0      | % | $ | 35,164 |   | 100.0 | % | $ | 17,898 |   | 50.9 | % |
| Cost of sales                                         |       | 48,377                                               |       | 91.2                              | %          | 27,154 |   | 77.2 | % | 21,223 |   | 78.2 | % |
| Gross margin                                          |       | 4,685                                                |       | 8.8                               | %          | 8,010 |   | 22.8 | % | (3,325 | ) | -41.5 | % |
|                                                  |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Operating expenses                                    |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses          |       | 8,916                                                |       | 16.8                              | %          | 7,370 |   | 21.0 | % | 1,546 |   | 21.0 | % |
| Intangible amortization                               |       | 2,906                                                |       | 5.5                               | %          | 2,579 |   | 7.3 | % | 327 |   | 12.7 | % |
| Total operating expenses                              |       | 11,822                                               |       | 22.3                              | %          | 9,949 |   | 28.3 | % | 1,873 |   | 18.8 | % |
|                                                  |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Operating loss                                        |       | (7,137                                               | )          | -13.5                             | %          | (1,939 | ) | -5.5 | % | (5,198 | ) | 268.1 | % |
|                                                  |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Other income (expense)                                |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Interest income                                       |       | 11                                                   |       | 0.0                               | %          | 120 |   | 0.3 | % | (109 | ) | -90.8 | % |
| Interest expense                                      |       | (553                                                 | )          | -1.0                              | %          | (1,337 | ) | -3.8 | % | 784 |   | -58.6 | % |
| Other, net                                            |       | 93                                                   |       | 0.2                               | %          | (99 | ) | -0.3 | % | 192 |   | -193.9 | % |
| Other expense, net                                    |       | (449                                                 | )          | -0.8                              | %          | (1,316 | ) | -3.8 | % | 867 |   | -65.9 | % |
|                                                  |       |                                                 |       |                              |       |   |   |   |   |   |   |   |   |
| Net loss before (benefit) provision for income  taxes |       | (7,586                                               | )          | -14.3                             | %          | (3,255 | ) | -9.3 | % | (4,331 | ) | 133.1 | % |
| (Benefit) provision for income taxes                  |       | (436                                                 | )          | -0.8                              | %          | 188 |   | 0.5 | % | (624 | ) | 331.9 | % |
| Net loss                                              |       | $                                                    | (7,150     | )                                 | -13.5      | % | $ | (3,443 | ) | -9.8 | % | $ | (3,707 | ) | 107.7 | % |

 

The following tables present our results of operations by reportablesegments for the three months ended March 31, 2009:

 
| ** **                                            | ** ** | **Three Months Ended March 31, 2009** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                            | ** ** | **Products ****(1)**                                      | ** ** | **Services ****(2)** | ** ** | **Corporate  and Other ****(3)** | ** ** | **Total** | ** ** |
|                                                  |       |                                                           |       |   |   |   |   |   |   |
| Revenues                                              |       | $                                                              | 43,134     |   | $ | 10,229 |   | $ | (301 | ) | $ | 53,062 |   |
| Cost of sales                                         |       | 40,690                                                         |       | 7,843 |   | (156 | ) | 48,377 |   |
| Gross margin                                          |       | 2,444                                                          |       | 2,386 |   | (145 | ) | 4,685 |   |
|                                                  |       |                                                           |       |   |   |   |   |   |   |
| Operating expenses                                    |       |                                                           |       |   |   |   |   |   |   |
| Selling, general and administrative expenses          |       | 4,228                                                          |       | 2,453 |   | 2,235 |   | 8,916 |   |
| Intangible amortization                               |       | 2,046                                                          |       | 860 |   | — |   | 2,906 |   |
| Total operating expenses                              |       | 6,274                                                          |       | 3,313 |   | 2,235 |   | 11,822 |   |
|                                                  |       |                                                           |       |   |   |   |   |   |   |
| Operating loss                                        |       | (3,830                                                         | )          | (927 | ) | (2,380 | ) | (7,137 | ) |
|                                                  |       |                                                           |       |   |   |   |   |   |   |
| Other income (expense), net                           |       | (1,205                                                         | )          | (191 | ) | 947 |   | (449 | ) |
|                                                  |       |                                                           |       |   |   |   |   |   |   |
| Net loss before provision (benefit) for income  taxes |       | (5,035                                                         | )          | (1,118 | ) | (1,433 | ) | (7,586 | ) |
| Provision (benefit) for income taxes                  |       | 149                                                            |       | (200 | ) | (385 | ) | (436 | ) |
| Net loss                                              |       | $                                                              | (5,184     | ) | $ | (918 | ) | $ | (1,048 | ) | $ | (7,150 | ) |

 

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(1) For the three monthsended March 31, 2009, the “Products” segment includes the results ofoperations of our Tower Tech, RBA and Brad Foote subsidiaries.

(2) For the three monthsended March 31, 2009, the “Services” segment includes the results ofoperations of our EMS and Badger subsidiaries.

(3) “Corporate and Other”includes corporate selling, general and administrative expenses andintercompany eliminations. Corporate selling, general and administrativeexpenses includes corporate salaries and benefits, share-based compensation andprofessional fees.

 

Thefollowing tables present our results of operations by reportable segments forthe three months ended March 31, 2008:

 
| ** **                                   | ** ** | **Three Months Ended March 31, 2008** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Products ****(1)**                                      | ** ** | **Services ****(2)** | ** ** | **Corporate   and Other ****(3)** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                     |       | $                                                              | 30,248     |   | $ | 4,916 |   | $ | — |   | $ | 35,164 |   |
| Cost of sales                                |       | 24,520                                                         |       | 2,634 |   | — |   | 27,154 |   |
| Gross margin                                 |       | 5,728                                                          |       | 2,282 |   | — |   | 8,010 |   |
|                                         |       |                                                           |       |   |   |   |   |   |   |
| Operating expenses                           |       |                                                           |       |   |   |   |   |   |   |
| Selling, general and administrative expenses |       | 2,945                                                          |       | 2,120 |   | 2,305 |   | 7,370 |   |
| Intangible amortization                      |       | 2,046                                                          |       | 533 |   | — |   | 2,579 |   |
| Total operating expenses                     |       | 4,991                                                          |       | 2,653 |   | 2,305 |   | 9,949 |   |
|                                         |       |                                                           |       |   |   |   |   |   |   |
| Operating income (loss)                      |       | 737                                                            |       | (371 | ) | (2,305 | ) | (1,939 | ) |
|                                         |       |                                                           |       |   |   |   |   |   |   |
| Other (expense) income, net                  |       | (874                                                           | )          | 54 |   | (496 | ) | (1,316 | ) |
|                                         |       |                                                           |       |   |   |   |   |   |   |
| Net loss before provision for income taxes   |       | (137                                                           | )          | (317 | ) | (2,801 | ) | (3,255 | ) |
| Provision for income taxes                   |       | —                                                         |       | — |   | 188 |   | 188 |   |
| Net loss                                     |       | $                                                              | (137       | ) | $ | (317 | ) | $ | (2,989 | ) | $ | (3,443 | ) |

 

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(1) For the three monthsended March 31, 2008, the “Products” segment includes the results ofoperations of our Tower Tech, RBA and Brad Foote subsidiaries.

(2) For the three monthsended March 31, 2008, the “Services” segment includes the results of operationsof our EMS subsidiary for the period of January 16, 2008 through March 31,2008. EMS was acquired by the Company on January 16, 2008.

(3) “Corporate and Other” includes corporate selling, general and administrativeexpenses and intercompany eliminations. Corporate selling, general andadministrative expenses includes corporate salaries and benefits, share-basedcompensation and professional fees.

 

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***Revenues***

 

                Total revenues increased$17,898, or 51% from $35,164 during the three months ended March 31, 2008,to $53,062 during the three months ended March 31, 2009.

 

                Products segment revenuesincreased $12,886 from $30,248 during the three months ended March 31,2008, to $43,134 during the three months ended March 31, 2009. Theincrease in revenues within our Products segment is primarily attributable tothe inclusion of materials in the selling price of certain of our products.Production volumes were comparable to the prior period as an increase inproduction volume at our new wind tower manufacturing facility in Abilene,Texas was partially offset by a decline in production volume at our Manitowoc,Wisconsin facility resulting from start-up delays related to a new wind towermanufacturing contract.

 

                Services segment revenuesincreased $5,313 from $4,916 during the three months ended March 31, 2008,to $10,229 during the three months ended March 31, 2009. The increase inrevenues within our Services segment is primarily attributable to an increasein volume capacity related to entering into and completing short-term servicecontracts during the first quarter, as well as the inclusion of revenues fromBadger, which we acquired in June 2008.

 

***Cost of Sales***

 

                Total cost of sales increased$21,223 from $27,154 during the three months ended March 31, 2008, to$48,377 during the three months ended March 31, 2009.

 

                Products segment cost of salesincreased from $24,520 during the three months ended March 31, 2008, to$40,690 during the three months ended March 31, 2009. The increase in costof sales within our Products segment is primarily attributable to the cost ofmaterials purchased as part of the selling price of certain products, start upcosts related to a new manufacturing contract and higher manufacturing overheadcosts resulting from the start-up of operations at our wind tower manufacturingfacility in Abilene, Texas. In addition, during the three months ended March 31,2009, we recorded a $930 inventory reserve provision for scrap and obsoletematerials.

 

                Services segment cost of salesincreased from $2,634 during the three months ended March 31, 2008, to $7,843during the three months ended March 31, 2009. The increase in cost ofsales within our Services segment is primarily attributable to the inclusion ofcost of sales related to Badger and cost of sales associated with volumeincreases at EMS.

 

***Selling, General and AdministrativeExpenses***

 

                Selling, general andadministrative expenses increased from $7,370 during the three months ended March 31,2008, to $8,916 during the three months ended March 31, 2009. The increasewas primarily attributable to the inclusion of Badger, higher professional feesincurred in connection with amending our credit facility agreements and highershare-based compensation expense. In addition, the Company incurred certainselling, general and administrative expense associated with the start-upoperations at the Abilene, Texas facility. As a percentage of revenue, selling,general and administrative expenses decreased from 21.0% during the threemonths ended March 31, 2008, to 16.8% during the three months ended March 31,2009, as the Company continued to reduce one-time expenses associated with theintegration of our acquisitions completed during 2007 and 2008 and professionaland audit related fees associated with compliance initiatives related to theSarbanes-Oxley Act and other public reporting obligations.

 

***Intangible Amortization***

 

                Intangible amortization expenseincreased from $2,579 during the three months ended March 31, 2008, to$2,906 during the three months ended March 31, 2009. The increase wasprimarily attributable to an increase in intangible amortization expenserelated to customer relationships and trade name intangibles resulting from theacquisitions of EMS and Badger, which the Company acquired during January 2008and June 2008, respectively.

 

***Other Expense, net***

 

***               ***Other expense, net decreased from $1,316during the three months ended March 31, 2008, to $449 during the threemonths ended March 31, 2009. The decrease was primarily attributable tohigher interest expense in the prior year as a result of a $25,000 seniorsubordinated convertible promissory note issued during the fourth quarter of2007. This note was subsequently converted into shares of our common stock in April 2008.Additionally, during the three months ended March 31, 2008, the Companyrecorded an unrealized loss on its interest rate swap agreement of $230compared to an unrealized gain of $85 during the three months ended March 31,2009. See Note 8 “Interest Rate Swap Agreements” of the notes to our condensedconsolidated financial statements for further discussion of the Company’s swapagreements.

 

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***Provision for Income Taxes***

 

                During the three months ended March 31,2009, the Company reported a benefit for income taxes of $436 compared to aprovision for income taxes of $188 during the three months ended March 31,2008. The decrease in income tax was attributable to a decrease in state incometaxes and deferred state tax liabilities resulting from a favorable change inthe state of Wisconsin’s method of calculating state income on a prospectivebasis.

 

***Net Loss***

 

                Net loss increased from $3,443during the three months ended March 31, 2008, to $7,150 during the threemonths ended March 31, 2009, primarily as a result of the factors asdescribed above.

 

**SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

The methods, estimates and judgments that we use in applying ourcritical accounting policies have a significant impact on the results that wereport in our financial statements. Some of our accounting policies require usto make difficult and subjective judgments, often as a result of the need tomake estimates regarding matters that are inherently uncertain. We also haveother policies that we consider key accounting policies, such as those forrevenue recognition, however, these policies typically do not require us tomake estimates or judgments that are difficult or subjective.

 

We have identified the accounting policies and estimates listed belowas those that we believe require management’s most subjective and complexjudgments in estimating the effect of inherent uncertainties. This sectionshould also be read in conjunction with Note 2 “Summary of SignificantAccounting Policies” in Part II, Item 8 of the notes to our consolidatedfinancial statements in our Annual Report on Form 10-K for the year ended December 31,2008, which includes a discussion of these and other significant accountingpolicies.

 

**Revenue Recognition**

 

We recognize revenue when the earnings process is complete and whenpersuasive evidence of an arrangement exists, transfer of title has occurred orservices have been rendered, the selling price is fixed or determinable,collectability is reasonably assured, and delivery has occurred per the termsof the contract. Customer deposits and other receipts are deferred andrecognized when the revenue is realized and earned.

 

In some instances, products are sold under terms included in bill andhold sales arrangements that result in different timing for revenuerecognition. Assuming all other revenue criteria are met, revenue is recognizedupon completion of product manufacture and customer acceptance. The Company hasreviewed SEC Staff Accounting Bulletin No. 104 (“SAB 104”) andconcludes that its revenue recognition policy is in compliance withSAB 104.

 

**Warranty Liability**

 

Within our Products segment, we provide warranty terms that generallyrange from two to seven years for various products relating to workmanship andmaterials supplied by the Company. From time to time, customers may submitwarranty claims against the Company. In certain contracts, we have recourseprovisions for items that would enable recovery from third parties for amountspaid to customers under warranty provisions. As of March 31, 2009 and December 31,2008, our estimated product warranty liability was $1,197 and $890,respectively, and is recorded within accrued liabilities in our condensedconsolidated balance sheets.

 

**Inventories**

 

Inventories are stated at the lower of cost or market. Any excess ofcost over market value is included in the Company’s inventory allowance. Marketvalue of inventory, and management’s judgment of the need for reserves,encompasses consideration of other business factors including physicalcondition, inventory holding period, contract terms, and usefulness.Inventories are valued based on an average cost method that approximates thefirst-in, first-out (FIFO) basis.

 

Inventories consist of raw materials, work-in-process, and finishedgoods. Raw materials consist of components and parts for general productionuse. Work-in-process consists of labor and overhead, processing costs andmaterials purchased for specific customer orders. Finished goods consist ofcomponents manufactured by the Company that will be used to produce finalcustomer products.

 

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**Goodwill and Intangible Assets**

 

Goodwill represents the excess of cost over fair market value ofidentifiable net assets acquired through business purchases. In accordance withSFAS No. 142, *Goodwill and OtherIntangible Assets* (“SFAS 142”), we perform an annual goodwillimpairment test during October of each year, or more frequently whenevents or circumstances indicate that the carrying value of the Company’sassets may not be recovered. The Company tests intangible assets for impairmentonly when events or circumstances indicate that the carrying value of theCompany’s assets may not be recovered. In evaluating the recoverability of thecarrying value of goodwill and other intangible assets, we must makeassumptions regarding the fair value of our reporting units, as defined underSFAS 142. Our method of determining the fair value was based upon ourestimate of the projected future discounted cash flows of our reporting units.If our fair value estimates or related assumptions change in the future, we maybe required to record additional impairment charges related to goodwill andintangible assets.

 

**Long-Lived Assets**

 

In accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*(“SFAS 144”), we review property and equipment and other long-lived assetsfor impairment whenever events or circumstances indicate that carrying amountsmay not be recoverable. If such events or changes in circumstances occur, wewill recognize an impairment loss if the undiscounted future cash flows expectedto be generated by the asset are less than the carrying value of the relatedasset. The impairment loss would adjust the asset to its fair value.

 

In evaluating the recoverability of long-lived assets, we must makeassumptions regarding estimated future cash flows and other factors todetermine the fair value of such assets. If our fair value estimates or relatedassumptions change in the future, we may be required to record impairmentcharges related to property and equipment and long-lived assets.

 

**Income Taxes**

 

We account for income taxes in accordance with SFAS No. 109, *Accounting for Income Taxes*(“SFAS 109”). SFAS 109 requires the recognition of deferred incometax assets and liabilities based upon the income tax consequences of temporarydifferences between financial reporting and income tax reporting by applyingenacted statutory income tax rates applicable to future years to differencesbetween the financial statement carrying amounts and the tax basis of existingassets and liabilities. SFAS 109 also requires that deferred income taxassets be reduced by a valuation allowance if it is more likely than not thatsome portion of the deferred income tax asset will not be realized.

 

In connection with the preparation of our consolidated financial statements,we are required to estimate our income tax liability for each of the taxjurisdictions in which we operate. This process involves estimating our actualcurrent income tax expense and assessing temporary differences resulting fromdiffering treatment of certain income or expense items for income tax reportingand financial reporting purposes. We also recognize as deferred income taxassets the expected future income tax benefits of net operating loss carryforwards. In evaluating the realizability of deferred income tax assetsassociated with net operating loss carry forwards, we consider, among otherthings, expected future taxable income, the expected timing of the reversals ofexisting temporary reporting differences, and the expected impact of taxplanning strategies that may be implemented to prevent the potential loss offuture income tax benefits. Changes in, among other things, income taxlegislation, statutory income tax rates, or future taxable income levels couldmaterially impact our valuation of income tax assets and liabilities and couldcause our income tax provision to vary significantly among financial reportingperiods.

 

We adopted the provisions of the Financial Accounting Standards Board(“FASB”) Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (“FIN 48”), which is aninterpretation of SFAS 109. FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an entity’s financial statements inaccordance with SFAS 109 and prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in an income tax return.FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure, and transition.

 

**Recent Accounting Pronouncements**

 

The following is a summary of recent accounting pronouncements,including the expected dates of adoption and estimated effects, if any, on ourconsolidated financial statements:

 

                In April 2009, FASB issued FSP No. FAS107-1 and APB 28-1, *Interim Disclosuresabout Fair Value of Financial Instruments (“*FSP 107-1 and APB 28-1”)*.*FSP 107-1 and APB 28-1 requiredisclosures about fair value of financial instruments for interim reportingperiods as well as in annual financial statements.   FSP 107-1 and APB 28-1 amend AccountingPrinciples Board

 

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OpinionNo. 28, *Interim Financial Reporting*, torequire those disclosures in summarized financial information at interimreporting periods.  FSP 107-1 and APB28-1 is effective for interim and annual reporting periods ending after June 15,2009, with early adoption permitted for periods ending after March 15,2009 only if an entity elects to early adopt Financial Accounting Standards(“FAS”) FSP FAS 157-4, *Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly*and FSP FAS 115-2 and FAS 124-2, *Recognition andPresentation of Other-Than-Temporary Impairments*. The adoption ofthis pronouncement is not anticipated to have a material impact on theCompany’s financial position or results of operations.

 

**LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES**

 

As of March 31, 2009, cash and cash equivalents totaled $6,333.Our cash on hand and cash flows from operations and financing activities have beenadequate to fulfill our liquidity and operating requirements. We anticipatethat we will be able to satisfy the cash requirements associated with, amongother things, our working capital needs, capital expenditures, debt and leasecommitments through at least the next 12 months primarily with availablecash balances, cash generated by operations and through additional financingarrangements. The Company has also entered into additional financingarrangements to improve its liquidity and cash balances. In April, Tower Techentered into a sale-leaseback agreement with Varilease Finance, Inc.(Varilease”) pursuantto which Varilease agreed to provide equipment financing in the amount of up to$3,000 (the “Varilease Financing”). Proceeds from the Varilease Financing willbe used for working capital and other general corporate operating needs. Inaddition, Tower Tech obtained construction financing from Great WesternBank (“GWB”) in the amount of up to $10,000 (the “GWB Loan”).  Proceedsfrom the GWB Loan will be used to complete construction of Tower Tech’s windtower manufacturing facility in Brandon, South Dakota. The Company believesthat by entering into these additional financing arrangements, it hasstrengthened its financial position and has provided additional liquidity tomeet current and future operating requirements.

 

Additionally, we intend to enhance our ability to fulfill ourshort-term liquidity requirements through financing initiatives that mayinclude entering into additional sales-leaseback arrangements and securingadditional debt. While we anticipate being able to maintain adequateliquidity,  there can be no assurancethat our cash balances and cash flows will be adequate, and unfavorable changesto our revenues, customer collections or other events that may arise may havean adverse impact on our cash flows and liquidity.

 

**Sources and Uses of Cash**

 

***Operating Cash Flows***

 

During the three months ended March 31, 2009, net cash used inoperating activities totaled $301, compared to net cash provided by operatingactivities for the three months ended March 31, 2008, which totaled $276.The increase in net cash used in operating activities was primarilyattributable to a decline in our gross margins and higher operating expenses ascompared to the prior period. During the three months ended March 31,2009, cash used in operating activities increased due to the inclusion ofBadger, which was acquired in June 2008, primarily due to an increase inaccounts receivable due to timing of orders and collection, and as a result ofhigher production costs related to the start up of our wind tower manufacturingfacility in Abilene, Texas and start-up costs related to a new manufacturingcontract.  The increase in theseproduction costs, in particular with respect to the inclusion of steel in ourselling price for wind tower, reduced gross margins and contributed to theincrease in net cash used in operating activities for the three months ended March 31,2009.

 

***Investing Cash Flows***

 

Duringthe three months ended March 31, 2009 and 2008, net cash flows used ininvesting activities totaled $6,719 and $27,468, respectively. The decrease innet cash used in investing activities as compared to the prior period wasprimarily attributable to the fact that no acquisitions were completed by theCompany during the three months ended March 31, 2009, as compared to theprior period. In January 2008, the Company completed the acquisition ofEMS for an aggregate purchase price of $32,772, which consisted of cashconsideration of $18,534, net of cash received. In addition, capitalexpenditures decreased from $8,934 during the three months ended March 31,2008, to $6,743 during the three months ended March 31, 2009. During thethree months ended March 31, 2009, capital expenditures primarilyconsisted of expenditures related to the completion of Tower Tech’s new windtower manufacturing facility in Abilene, Texas while the capital expendituresduring the three months ended March 31, 2008 primarily related to thefacility expansion at our Brad Foote subsidiary. Additionally, capitalexpenditures are anticipated to be significantly lower during 2009 as comparedto 2008 as a result of the completion of a significant number of capitalprojects during 2008. During 2008, the Company made $83,720 in capitalinvestments, which included, among other things, significant investments incapacity and infrastructure in addition to equipment, machinery and transportvehicle expenditures. As a result, the Company believes that it has adequate capacityto meet current and foreseeable customer demand and anticipates that capitalexpenditures during 2009 will be significantly less as compared to comparableperiods during 2008.

 

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***Financing Cash Flows***

 

During the three months ended March 31, 2009, net cash used infinancing activities totaled $1,900, compared to net cash provided by financingactivities for the three months ended year ended March 31, 2008, whichtotaled $28,262. The decrease in net cash provided by financing activities ascompared to the prior period was primarily the result of the fact that theCompany received no proceeds from the issuance of common stock, together with adecrease in borrowings on lines of credit and notes payable, which waspartially offset by higher debt payments made during the current quarter. In January 2008,the Company received $17,225 of consideration for common stock in a privateplacement sale to Tontine Partners, L.P. and Tontine 25 Overseas Master Fund,L.P. pursuant to a previously disclosed Amended and Restated SecuritiesPurchase Agreement. In addition, during the three months ended March 31,2008, the Company received proceeds from borrowing of $12,420 compared toproceeds from borrowings of $1,542 in the first quarter of 2009. During thethree months ended March 31, 2009, payments made on borrowings totaled$4,634 compared to $385 during the three months ended March 31, 2008. Theincrease in debt payments is partially attributable to a $1,500 debt paymentmade by Brad Foote in March 2009 pursuant to the Second Omnibus Amendment.Additionally, Tower Tech and Badger entered into three separate sale-leasebacktransactions for proceeds totaling $1,235 during the three months ended March 31,2009. As part of these transactions, Tower Tech and Badger received cash proceeds from the sale of certainassets and agreed to lease the assets back from the purchasers. Two of theselease arrangements have been accounted for as operating leases and one as acapital lease.

 

**Contractual Obligations**

 

                As of March 31, 2009, therehave been no significant changes to our contractual obligations as previouslydisclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31,2008.

 

**Off-Balance Sheet Arrangements**

 

During March 2009, Badger entered into two sale-leasebackagreements, whereby Badger sold certain equipment to a third party financingcompany in exchange for $570 in cash and agreed to lease the equipment backfrom the purchaser for a certain period of time. As part of these agreements,Badger has the ability to enter into additional sale-leaseback transactionswith the financing company involving other equipment for a maximum aggregateamount of $1,700. The primary purpose of these arrangements was to provideadditional liquidity for meeting working capital requirements. Each leaseagreement is for a four-year period with rental payments due monthly. Theselease agreements have been accounted for in our results of operations asoperating leases. In addition, the sale of the assets resulted in a gain ondisposition of $38, which will be amortized to other income in our statement ofoperations over the life of the operating lease.

 

**CautionaryNote Regarding Forward-Looking Statements**

 

The preceding discussionand analysis should be read in conjunction with our condensed consolidatedfinancial statements and related notes included in Item 1 of Part 1 ofthis Quarterly Report on Form 10-Q and the audited consolidated financialstatements and related notes and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contained in our Annual Report onForm 10-K for the year ended December 31, 2008.  Portionsof this Quarterly Report on Form 10-Q, including the discussion andanalysis in this Item 2, contain forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended (the “ExchangeAct”).  Any statements contained herein that are not historical factmay be deemed forward-looking statements.  In some cases,forward-looking statements can be identified by words such as “believe,”“expect,” “anticipate,” “plan,” “potential,” “continue,” “intend” or similarexpressions.  Forward-looking statements also include the assumptionsunderlying or relating to any of the foregoing statements.  Suchforward-looking statements are based upon current expectations and beliefs andare subject to a number of factors and uncertainties that could cause actualresults to differ materially from those described in the forward-lookingstatements.  Any forward-looking statements made herein are made pursuantto the safe harbor provisions of the Private Securities Litigation Reform Actof 1995.  Our forward-looking statements include or relate to thefollowing: (i) our plans to continue to grow our business throughorganic growth and integration of previous and future acquisitions; (ii) ourbeliefs with respect to the sufficiency of our working capital and our plans toevaluate alternate sources of funding if necessary; (iii) our ability tocomply with loan covenants; (iv) our expectations relating to constructionof new facilities and expansion of existing facilities; (v) our plans withrespect to the use of proceeds from financing activities; (vi) our beliefsand expectations relating to the recent economic downturn and the potentialimpact it may have on our business, including our customers; (vii) theanticipated benefits of our remediation efforts on the strength of our internalcontrol processes and our plans with respect to future remediation efforts;(viii) ourbeliefs regarding the state of the wind energy market generally; and (ix) thoserisks described from time to time in our reports to the Securities and ExchangeCommission (including in our Annual Report on Form 10-K).  Forward-looking statements cannot beguaranteed and actual results may vary materially due to the uncertainties andrisks, known and unknown, associated with such statements. We caution investorsthat many important factors have affected, and in the future could affect ouractual results of operations and cause such results to differ materially fromthose anticipated in forward-looking statements made in this report andelsewhere by us or on our behalf. It is not possible to foresee or identify allfactors that could cause actual results to differ from expected or historicresults. As such, investors should not consider any list of such factors to bean exhaustive statement of all of the risks, uncertainties or potentiallyinaccurate assumptions that investors should take into account when makinginvestment decisions. Stockholders and other readers are cautioned not to placeundue reliance on forward-looking statements, which speak only as of the dateon which they are made. We do not intend to update publicly or revise anyforward-looking statements.

 

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**Item 3.        Quantitative and Qualitative Disclosures About Market Risk**

 

There has been nosignificant change in our exposure to market risk during the first three monthsof 2009. For discussion of our exposure to market risk, refer to Part II,Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,”contained in our Annual Report on Form 10-K for the year ended December 31,2008.

 

**Item 4.        Controls and Procedures**

 

**MaterialWeaknesses**

 

        OnJune 4, 2008, the Company completed the acquisition of Badger. Thisacquired business has been excluded from management’s assessment of internalcontrol as of and for the period ended December 31, 2008. Badger’s assetsand liabilities acquired were $18,122 and $6,127, respectively. Badger was amid-year acquisition that was not significant to the overall operations of theCompany and was not included in our evaluation of the effectiveness ofdisclosure controls and procedures for 2008. Though management did not performa complete assessment, from date of acquisition through our fiscal year end, wehave identified several items that represent material weaknesses or significantdeficiencies in the internal control over financial reporting at Badger. Thesematerial weaknesses related to internal financial expertise, accountingpolicies and procedures, information technology environment and segregation ofduties. The Company has begun remediation efforts to mitigate the effects ofthese deficiencies.

 

Asdiscussed in Item 9A of our Annual Report on Form 10-K for the yearended December 31, 2008, as of December 31, 2008, we identifiedcertain material weaknesses relating to:

 

***Inventory and Cost Accounting***

 

        Amaterial weakness exists at our Brad Foote subsidiary relating to routinephysical inventory counts, the reconciliations of book to physical adjustments,the process for maintenance of perpetual inventory records and relatedaccounting for scrap and cost of goods sold.  Management is continuing toenhance the control structure to address these previously identified materialweaknesses.

 

***IT Controls***

 

        TheCompany did not maintain effective internal control over information systems atits Brad Foote subsidiary. General computing controls were firstimplemented in the fourth quarter of 2008. Such timing did not allow theCompany to obtain a sufficient sample size to test controls and as a resultcould not be assessed for operating effectiveness.  The lack of generalcomputing controls combined with the errors previously noted in inventory riseto an aggregated material weakness.

 

***Income Taxes***

 

        Inconjunction with the filing of Amendment No. 2 on Form 10-Q/A for thequarterly ended September 30, 2008, we identified a material weakness inincome taxes. The Company did not maintain effective controls over thecompleteness and accuracy of the income tax provision and related balance sheetaccounts. Specifically, the Company’s controls over the processes andprocedures related to the determination and review of the quarterly taxprovisions were not adequate to ensure that the income tax provision wasprepared in accordance with generally accepted accounting principles.

 

***Non-routine Transactions***

 

        Inconjunction with the filing of Amendment No. 2 on Form 10-Q/A for thequarterly period ended September 30, 2008, we identified a materialweakness associated with the controls over non-routine transactions, and therelated accounting treatment of those transactions was appropriately reviewedto ensure compliance with generally accepted accounting principles.

 

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***Remediation Activities***

 

        Managementhas begun remediation efforts to reduce the risks presented by the existingmaterial weaknesses. Since year-end, we have added a cost accountant at ourBrad Foote subsidiary responsible for the tracking of inventory and furtherenhanced management’s review of the inventory process. Standard costs forinventory parts are reviewed by the new cost accountant and by management on aquarterly basis. In the third quarter of 2008, management began performingquarterly physical inventories at Brad Foote, a practice that managementanticipates will be performed throughout 2009.

 

        Managementwill continue to work with the Company’s tax advisors to have more active andtimely review of the tax provision.   Management implementedadditional controls over non-routine transactions.

 

        Theimpact of the remediation efforts initiated by management will not be fullyknown until our assessment of internal control over financial reporting as of December 31,2009.

 

**Evaluation of Disclosure Controls andProcedures**

 

Our Chief ExecutiveOfficer and Chief Financial Officer evaluated the effectiveness of theCompany’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) as of the end of the period covered in this report. In light of thematerial weaknesses previously disclosed, which have not been completelyremediated as of the end of the period covered by this Quarterly Report, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were not effective to provide reasonableassurance that information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act was recorded,processed, summarized and reported within the time periods specified by theSecurities and Exchange Commission’s rules and forms and did not ensurethat information required to be disclosed in the reports that we file or submitunder the Exchange Act was accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure. As aresult of this conclusion, the financial statements for the period covered bythis report were prepared with particular attention to the material weaknessespreviously disclosed.

 

We anticipate the actionsto be taken to remediate the material weaknesses and the resulting improvementin controls will generally strengthen our disclosure controls and procedures,as well as our internal control over financial reporting, and will, over time,address the material weaknesses that we identified in our internal control overfinancial reporting as of December 31, 2008. However, because many of theremediation actions we have undertaken are recent and because some of ourremediation actions will be designed to improve our internal control overannual measures, management will not be able to conclude that the materialweaknesses have been eliminated until such time as it is able to complete itsassessment of the effectiveness of internal control over financialreporting.  While management is exercising its best efforts to remediatematerial weaknesses and significant deficiencies identified and described above,it cannot provide any assurance as to when such material weaknesses andsignificant deficiencies will be remediated, and other material weaknesses orsignificant deficiencies may arise.

 

**PART II.    OTHER INFORMATION**

 

**Item 1.        Legal Proceedings**

 

Occasionally, we are adefendant in litigation arising in the ordinary course of our business,including claims arising from personal injuries, contract claims, customerdisputes and employment-related claims. To date, none of these types oflitigation, most of which are typically covered by insurance, has had amaterial effect on the Company. We have insured and continue to insure againstmost of these types of claims. A judgment significantly in excess of ourinsurance coverage or involving punitive damages, which may not be covered byinsurance, could materially adversely affect our financial condition or resultsof operations.

 

**Item 1A. Risk Factors**

 

Therewere no material changes to our risk factors as previously disclosed in Item 1Aof our Annual Report on Form 10-K for the year ended December 31,2008.

 

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

 

None

 

**Item 3.        Defaults Upon Senior Securities**

 

None

 

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

 

None

 

**Item 5.        Other Information**

 

None

 

**Item 6.        Exhibits**

 

See the Exhibit Indexfollowing the signature page to this report.

 

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###### **SIGNATURES**

######  

In accordance with therequirements of the Securities Exchange Act of 1934, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|              | BROADWIND ENERGY, INC. |
|-------------------|------------------------|
|              |                   |
|              |                   |
| May 11, 2009 | By:                    | /s/ J. Cameron Drecoll |
|              |                   | J. Cameron Drecoll |
|              |                   | Chief Executive Officer |
|              |                   | (principal executive  officer) |
|              |                   |   |
| May 11, 2009 | By:                    | /s/ Stephen E. Graham |
|              |                   | Stephen E. Graham |
|              |                   | Interim Chief Financial  Officer |
|              |                   | (principal financial  officer) |

 

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EXHIBIT INDEX

BROADWIND ENERGY,INC.

FORM 10-Q FORTHE QUARTER ENDED MARCH 31, 2009

 
| **Exhibit  Number** | ** ** | **Exhibit**                                                                                                                                                                                    |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Agreement Governing  Extensions of Credit dated April 22, 2009 between Investors Community  Bank and R.B.A., Inc. *                                                                  |
| 10.2                |       | Thirty  Fifth Amendment and Waiver to Loan and Security Agreement, dated as of May 8,  2009, by and between Brad Foote Gear Works, Inc. and Bank of America,  N.A.*                  |
| 10.3                |       | Reaffirmation  dated as of May 8, 2009, made by each of Broadwind Energy, Inc.,  1309 South Cicero Avenue, LLC and 5100 Neville Road, LLC for the benefit of  Bank of America, N.A.* |
| 31.1                |       | Rule 13a-14(a) Certification  of Chief Executive Officer*                                                                                                                            |
| 31.2                |       | Rule 13a-14(a) Certification  of Chief Financial Officer*                                                                                                                            |
| 32.1                |       | Certification Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 of Chief Executive Officer*                                 |
| 32.2                |       | Certification Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 of Chief Financial Officer*                                 |

 

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*                                         Filed herewith.

 

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