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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

**(AmendmentNo.1)**

** **

**x****                   ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2008**

 

**o****                      ****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**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)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.                Yes x   No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.:

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes  o   No  x

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: As of October 31, 2008,96,470,415 shares of common stock were outstanding.

 

 

 

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**EXPLANATORY NOTE**

 

BroadwindEnergy, Inc., referred to as the “Company,” “Broadwind” or “we”, “us” or “our,”is filing this Amendment No. 1, referred to as the “Amendment,” to theQuarterly Report on Form 10-Q for the quarter ended September 30,2008, referred to as the “Original Form 10-Q,” filed on November 14,2008 with the Securities and Exchange Commission, referred to as the “SEC,” tocorrect certain information in “—Item 1. Financial Statements” of Part Iof the Original Form 10-Q.

 

Weare making corrections to information in “—Item 1. Financial Statements —Notesto Condensed Consolidated Financial Statements (unaudited) — Note 12 — Incometaxes, and Note 18 — Segment information” of Part I of the Original Form 10-Q.These corrections relate to amounts included in such notes concerning (i) the“Provision for income taxes” for the three- and nine-month periods ended September 30,2008, (ii) the net deferred tax liability as of September 30, 2008related to temporary differences in indefinite-lived assets, and (iii) totalcost of sales and gross profit for the nine-month period ended September 30,2008.

 

Webelieve that the foregoing corrections made in the Amendment are not,individually or in the aggregate, material to our business, financial conditionor results of operations.

 

Inaddition, pursuant to the rules of the SEC, “—Item 6. Exhibits” of Part IIof the Original Form 10-Q has been amended to contain currently datedcertifications from our Chief Executive Officer and Chief Financial Officer, asrequired by Rules 13a-14(a) and 13a-14(b) under the SecuritiesExchange Act of 1934, as amended, which certifications are filed herewith asExhibits 31.1, 31.2, 32.1 and 32.2.

 

Exceptas required to reflect the items described above, no attempt has been made inthis Amendment to modify or update disclosures in the Original Form 10-Q.This Amendment does not reflect events occurring after the filing of the OriginalForm 10-Q or modify or update any related disclosures. Information notaffected by this Amendment is unchanged and reflects the disclosure made at thetime of the filing of the Original Form 10-Q with the SEC on November 14,2008. Among other things, forward-looking statements made in the Original Form 10-Qhave not been revised to reflect events that occurred or facts that becameknown to us after the filing of the Original Form 10-Q, and such forwardlooking statements should be read in their historical context. Accordingly,this Amendment should be read in conjunction with the Original Form 10-Qand the Company’s filings made with the SEC subsequent to the filing of theOriginal Form 10-Q, including any amendments to those filings, asapplicable.

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

 

**INDEX**

 
| ** **         | ** **                                                                                  | **Page No.** |
|--------------------|---------------------------------------------------------------------------------------------|-------------------|
|               |                                                                                        |              |
|               | **PART I.  FINANCIAL INFORMATION**                                                     |              |
|               |                                                                                        |              |
| Item 1.            | Condensed  Consolidated Financial Statements                                                | 4                 |
|               | Condensed Consolidated  Balance Sheets (Unaudited)                                          | 4                 |
|               | Condensed Consolidated  Statements of Operations (Unaudited)                                | 5                 |
|               | Condensed Consolidated  Statements of Cash Flows (Unaudited)                                | 6                 |
|               | Notes to  Condensed Consolidated Financial Statements (Unaudited)                           | 7                 |
|               |                                                                                        |              |
| Item 2.            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 21                |
| Item 4T.           | Controls  and Procedures                                                                    | 30                |
|               |                                                                                        |              |
|               | **PART II.  OTHER INFORMATION**                                                        |              |
|               |                                                                                        |              |
| Item 1.            | Legal  Proceedings                                                                          | 31                |
| Item 1A.           | Risk Factors                                                                                | 31                |
| Item 2.            | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 32                |
| Item 3.            | Defaults  Upon Senior Securities                                                            | 32                |
| Item 4.            | Submission  of Matters to a Vote of Security Holders                                        | 32                |
| Item 5.            | Other  Information                                                                          | 32                |
| Item 6.            | Exhibits                                                                                    | 32                |
| Signatures         | 33                                                                                          |
| Exhibit Index | 34                                                                                          |

 

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**PART I.**       **FINANCIAL INFORMATION**

 

**Item 1.    Condensed Consolidated Financial Statements**

 

**BROADWIND ENERGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

**(in thousands, except share and per share data)**

** **
| ** **                                                                                                                                                           | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                           | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                           |       |                             |       |                            |       |
| Current assets:                                                                                                                                                      |       |                             |       |                            |       |
| Cash                                                                                                                                                                 |       | $                                | 34,392     |                            | $          | 5,782 |   |
| Restricted cash                                                                                                                                                      |       | 10,936                           |       | 500                             |       |
| Accounts receivable, net of allowance of  $1,135 and $2,983, respectively                                                                                            |       | 31,955                           |       | 13,541                          |       |
| Inventories, net of allowance of $868 and  $1,096, respectively                                                                                                      |       | 35,429                           |       | 12,983                          |       |
| Prepaid expenses and other current assets                                                                                                                            |       | 18,082                           |       | 1,946                           |       |
| Total current assets                                                                                                                                                 |       | 130,794                          |       | 34,752                          |       |
| Property and equipment, net of accumulated  depreciation of $9,902 and $2,476, respectively                                                                          |       | 108,736                          |       | 58,890                          |       |
| Goodwill                                                                                                                                                             |       | 35,146                           |       | 27,611                          |       |
| Intangibles, net of accumulated  amortization of $9,904 and $1,655, respectively                                                                                     |       | 108,503                          |       | 84,022                          |       |
| Other noncurrent assets                                                                                                                                              |       | 884                              |       | 543                             |       |
| TOTAL ASSETS                                                                                                                                                         |       | $                                | 384,063    |                            | $          | 205,818 |   |
|                                                                                                                                                                 |       |                             |       |                            |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                        |       |                             |       |                            |       |
| Current liabilities:                                                                                                                                                 |       |                             |       |                            |       |
| Lines of credit and notes payable                                                                                                                                    |       | $                                | 2,950      |                            | $          | 440 |   |
| Notes payable to related parties                                                                                                                                     |       | —                           |       | 25,000                          |       |
| Current maturities of long-term debt                                                                                                                                 |       | 16,939                           |       | 12,693                          |       |
| Current portions of long-term capital lease  obligations                                                                                                             |       | 645                              |       | 300                             |       |
| Accounts payable                                                                                                                                                     |       | 31,149                           |       | 10,136                          |       |
| Accrued liabilities                                                                                                                                                  |       | 18,365                           |       | 12,457                          |       |
| Unearned revenue                                                                                                                                                     |       | 1,548                            |       | 97                              |       |
| Customer deposits                                                                                                                                                    |       | 12,011                           |       | 1,326                           |       |
| Total current liabilities                                                                                                                                            |       | 83,607                           |       | 62,449                          |       |
| Long-term debt, net of current maturities                                                                                                                            |       | 19,326                           |       | 17,620                          |       |
| Capital lease obligations, net of current  portions                                                                                                                  |       | 946                              |       | 686                             |       |
| Interest rate swaps                                                                                                                                                  |       | 404                              |       | 388                             |       |
| Deferred income taxes                                                                                                                                                |       | 1,294                            |       | 139                             |       |
| Other noncurrent liabilities                                                                                                                                         |       | 769                              |       | —                          |       |
| Total liabilities                                                                                                                                                    |       | 106,346                          |       | 81,282                          |       |
|                                                                                                                                                                 |       |                             |       |                            |       |
| Commitments and contingencies                                                                                                                                        |       |                             |       |                            |       |
|                                                                                                                                                                 |       |                             |       |                            |       |
| Stockholders’ equity:                                                                                                                                           |       |                             |       |                            |       |
| Common stock, $.001 par value: 150,000, 000  and 100,000,000 shares authorized, respectively: 96,470,415 and 76,260,912  shares issued and outstanding, respectively |       | 96                               |       | 76                              |       |
| Additional paid-in capital                                                                                                                                           |       | 296,352                          |       | 133,033                         |       |
| Accumulated deficit                                                                                                                                                  |       | (18,731                          | )          | (9,877                          | )          |
| Interest in variable interest entity                                                                                                                                 |       | —                           |       | 1,304                           |       |
| Total stockholders’ equity                                                                                                                                      |       | 277,717                          |       | 124,536                         |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                      |       | $                                | 384,063    |                            | $          | 205,818 |   |

 

The accompanying notes arean integral part of these condensed consolidated financial statements.

 

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**BROADWIND ENERGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

**(UNAUDITED)**

**(in thousands, except share and per share data)**

 
| ** **                                                      | ** ** | **Three Months ended September 30,** | ** ** | **Nine Months ended September 30,** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net sales                                                       |       | $                                                        | 64,488     |                                                    | $          | 3,123 |   | $ | 140,482 |   | $ | 7,985 |   |
| Cost of sales                                                   |       | 52,189                                                   |       | 1,839                                                   |       | 110,082 |   | 4,888 |   |
| Gross profit                                                    |       | 12,299                                                   |       | 1,284                                                   |       | 30,400 |   | 3,097 |   |
|                                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Operating costs and expenses:                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Selling, general and administrative  expenses                   |       | 12,110                                                   |       | 694                                                     |       | 28,475 |   | 1,906 |   |
| Amortization of intangible assets                               |       | 2,932                                                    |       | —                                                  |       | 8,249 |   | — |   |
| Total operating costs and expenses                              |       | 15,042                                                   |       | 694                                                     |       | 36,724 |   | 1,906 |   |
| Operating (loss) income                                         |       | (2,743                                                   | )          | 590                                                     |       | (6,324 | ) | 1,191 |   |
|                                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Other income (expense):                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest income (expense), net                                  |       | 90                                                       |       | 93                                                      |       | (1,921 | ) | 153 |   |
| Other, net                                                      |       | (319                                                     | )          | —                                                  |       | 57 |   | — |   |
| Total other income (expense), net                               |       | (229                                                     | )          | 93                                                      |       | (1,864 | ) | 153 |   |
| Income (loss) before provision for income  taxes                |       | (2,972                                                   | )          | 683                                                     |       | (8,188 | ) | 1,344 |   |
| Income tax provision                                            |       | 467                                                      |       | —                                                  |       | 667 |   | — |   |
| Net (loss) income                                               |       | $                                                        | (3,439     | )                                                       | $          | 683 |   | $ | (8,855 | ) | $ | 1,344 |   |
|                                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss) income per common share - basic  and diluted         |       | $                                                        | (0.04      | )                                                       | $          | 0.01 |   | $ | (0.10 | ) | $ | 0.03 |   |
| Weighted average common shares outstanding  - basic and diluted |       | 96,470,415                                               |       | 47,724,464                                              |       | 87,692,295 |   | 44,969,545 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

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**BROADWIND ENERGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(UNAUDITED)(in thousands)**

 
| ** **                                                                                         | ** ** | **Nine Months ended September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                                              |       |                                                    |       |   |   |
| Net (loss) income                                                                                  |       | $                                                       | (8,855     | ) | $ | 1,344 |   |
|                                                                                               |       |                                                    |       |   |   |
| Adjustments to reconcile net (loss) income  to net cash (used in) provided by operating activities |       |                                                    |       |   |   |
| Depreciation                                                                                       |       | 7,457                                                   |       | 321 |   |
| Amortization of intangible assets                                                                  |       | 8,249                                                   |       | — |   |
| Change in valuation of interest rate swap                                                          |       | 16                                                      |       | — |   |
| Deferred income taxes                                                                              |       | 391                                                     |       | — |   |
| Stock issued for marketing costs                                                                   |       | —                                                  |       | 240 |   |
| Stock-based compensation expense                                                                   |       | 988                                                     |       | 2 |   |
| Loss on disposal of assets                                                                         |       | 4                                                       |       | 2 |   |
| Allowance for doubtful accounts                                                                    |       | (1,850                                                  | )          | — |   |
| Changes in operating assets and  liabilities:                                                      |       |                                                    |       |   |   |
| Accounts receivable                                                                                |       | (11,454                                                 | )          | (1,695 | ) |
| Accounts receivable - retainage                                                                    |       | —                                                  |       | 493 |   |
| Inventories, net                                                                                   |       | (21,487                                                 | )          | (313 | ) |
| Prepaid expenses and other current assets                                                          |       | (15,711                                                 | )          | (178 | ) |
| Other noncurrent assets                                                                            |       | (672                                                    | )          | — |   |
| Accounts payable                                                                                   |       | 19,709                                                  |       | 65 |   |
| Accounts payable - related party                                                                   |       | —                                                  |       | (722 | ) |
| Accrued liabilities                                                                                |       | 5,271                                                   |       | (955 | ) |
| Unearned revenue                                                                                   |       | 1,446                                                   |       | — |   |
| Customer deposits                                                                                  |       | 10,686                                                  |       | 1,526 |   |
| Net cash (used in) provided by operating  activities                                               |       | (5,812                                                  | )          | 130 |   |
|                                                                                               |       |                                                    |       |   |   |
| Cash flows from investing activities:                                                              |       |                                                    |       |   |   |
| Cash paid for acquisitions, net of cash  received                                                  |       | (24,597                                                 | )          | (611 | ) |
| Purchases of property and equipment                                                                |       | (49,613                                                 | )          | (2,993 | ) |
| Increase in restricted cash                                                                        |       | (10,436                                                 | )          | (500 | ) |
| Net cash used in investing activities                                                              |       | (84,646                                                 | )          | (4,104 | ) |
|                                                                                               |       |                                                    |       |   |   |
| Cash flows from financing activities:                                                              |       |                                                    |       |   |   |
| Proceeds from the issuance of common stock                                                         |       | 117,390                                                 |       | 15,400 |   |
| Payments of lines of credit                                                                        |       | (727                                                    | )          | — |   |
| Payments on related party notes                                                                    |       | (1,365                                                  | )          | (3,511 | ) |
| Proceeds from notes payable and lines of  credit                                                   |       | 1,398                                                   |       | — |   |
| Proceeds from long-term debt                                                                       |       | 5,442                                                   |       | — |   |
| Payments on long-term debt                                                                         |       | (2,757                                                  | )          | (536 | ) |
| Principal payments on capital leases                                                               |       | (453                                                    | )          | (123 | ) |
| Issuance of restricted stock                                                                       |       | 140                                                     |       | — |   |
| Refund of bond issuance costs                                                                      |       | —                                                  |       | 11 |   |
| Net cash provided by financing activities                                                          |       | 119,068                                                 |       | 11,241 |   |
| Net increase in cash                                                                               |       | 28,610                                                  |       | 7,267 |   |
| Cash at beginning of period                                                                        |       | 5,782                                                   |       | 125 |   |
| Cash at end of period                                                                              |       | $                                                       | 34,392     |   | $ | 7,392 |   |
|                                                                                               |       |                                                    |       |   |   |
| Non-cash disclosure information:                                                                   |       |                                                    |       |   |   |
| Common stock issued to partially repay  related notes payable                                      |       | —                                                  |       | 1,453 |   |
| Common stock issued for finders fee related  to private placement offering                         |       | —                                                  |       | 1,491 |   |
| Equipment purchased utilizing capital lease  obligations                                           |       | —                                                  |       | 859 |   |
| Accounts payable incurred for the purchase  of equipment                                           |       | 4,518                                                   |       | — |   |
| Common stock issued for acquisitions                                                               |       | 19,821                                                  |       | — |   |
| Non-cash purchase accounting allocation  changes                                                   |       | 2,758                                                   |       | — |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

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BROADWIND ENERGY, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and in thousands, except share and per share data)

 

**Note 1 – Nature of business andsummary of significant accounting policies**

 

Theaccompanying unaudited condensed consolidated financial information has beenprepared by Broadwind Energy, Inc., a Delaware corporation (“Broadwind”),  and its subsidiaries (also referred to as “we,”“us,” “our,” or the “Company”) in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”) for interimfinancial information and the instructions to Form 10-Q and Article 8-03of Regulation S-X of the Securities and Exchange Commission (the “SEC”).Accordingly, it does not include all of the information and notes required byGAAP for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair statement of this financial information have been included.Financial results for the interim three and nine-month periods ended September 30,2008 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2008. The December 31, 2007 condensedconsolidated balance sheet was derived from audited financial statements, butdoes not include all disclosures required by GAAP.  This financial information should be read inconjunction with the consolidated financial statements and notes included inthe Company’s Annual Report on Form 10-KSB for the year ended December 31,2007.

 

Broadwindbecame a public company in February 2006, after a reverse shelltransaction with Blackfoot Enterprises, Inc. which was incorporated inNevada in 1996.  From the time followingthe reverse shell transaction through February 2008, the Company was knownas Tower Tech Holdings, Inc.  On February 28,2008 the Company changed its name to Broadwind Energy, Inc., and on June 20,2008, Broadwind changed its state of incorporation from Nevada toDelaware.  The Company’s principalexecutive office is located at 47 East Chicago Avenue, Suite 332,Naperville, IL 60540, its phone number is (630) 637-0315 and its website addressis www.broadwindenergy.com.

 

TheCompany’s business is dedicated to the production and servicing of componentsfor energy and infrastructure-related industries. The Company is primarilyfocused on manufacturing components for the wind industry and energy-relatedindustries, including: tower support structures through its Tower Tech Systems, Inc.(“Tower Tech”) subsidiary; mining and other heavy equipment through its R.B.A.Inc. (“RBA”) subsidiary; gearing systems through its Brad Foote Gear Works, Inc.(“Brad Foote”) subsidiary; construction, operations, support, maintenance, andcomponent repairs for wind turbines through its Energy Maintenance Service, LLC(“EMS”) subsidiary; and specialized heavy haul trucking services through itsBadger Transport, Inc. (“Badger”) subsidiary.

 

Manitowoc,Wisconsin serves as the main location of the manufacturing facility for TowerTech, which is currently constructing additional wind tower manufacturingfacilities in Brandon, South Dakota and Abilene, Texas.  RBA’s main facility is located in Manitowoc,Wisconsin and RBA also operates in a second facility located in Clintonville,Wisconsin.  Brad Foote has manufacturingand administrative facilities in Cicero, Illinois and Neville Island,Pennsylvania.  EMS is headquartered inGary, South Dakota and operates service hub facilities in Abilene, Texas andHoward, South Dakota.  Badger isheadquartered in Clintonville, Wisconsin with equipment dispatched throughoutthe United States.

 

Significantaccounting policies disclosed in the Company’s Annual Report on Form 10-KSBfor the year ended December 31, 2007 remain applicable at September 30,2008, including the following:

 

*Basis of consolidation*

 

Theconsolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries, Tower Tech, RBA, Brad Foote, EMS, and Badger. RBAand Brad Foote were acquired by the Company on October 1, 2007 and October 19,2007, respectively. EMS and Badger were acquired by the Company on January 16,2008 and June 4, 2008, respectively. The financial position and results of operations of these subsidiariesare included in the Company’s consolidated financial statements from the dateof acquisition. All significant intercompany accounts and transactions havebeen eliminated in consolidation.

 

*Restricted Cash*

 

TheCompany received cash down payments on certain contracts, the use of such cashis restricted as per the terms of the contract and relate to product shipmentswhich will take place over the next several quarters, during which timerestrictions on the use of such cash will be relieved.

 

*Revenue Recognition*

 

TheCompany recognizes revenue when the earnings process is complete and whenpersuasive evidence of an arrangement exists, 

 

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transferof title has occurred or services have been rendered, the selling price isfixed or determinable, collectability is reasonably assured, and delivery hasoccurred per the contract terms. Customer deposits and other receipts aredeferred and recognized when earned.

 

*Segment reporting*

 

Asof September 30, 2008, the Company operates and manages two reportingsegments:  Products (formerly Productsand Components); and Services (formerly Service, Transportation andMaintenance).  Initially, the Companycreated a Service and Maintenance segment in January 2008 when it acquiredEMS.  In connection with the June 2008acquisition of Badger, a specialized heavy haul trucking services company, theCompany added a transportation component to this segment and created theService, Transportation and Maintenance segment.  For the three and nine months ended September 30,2007, the Company operated as a single segment, Towers and Fabrication, as theCompany’s only subsidiary in existence as of September 30, 2007 was itsTower Tech subsidiary.  TheTowers and Fabrication segment is now part of the Products segment, whichalso includes the Company’s previously reported Gearing Systems segment.  Refer to Note 18 “Segment information” forsummarized financial information of the Company’s segments.

 

*Reclassification*

 

Certainreclassifications have been made in the prior periods financial statements toconform to current period presentation.

 

*Effect of recently issued accounting standards*

 

InFebruary 2007, the FASB issued Statement of Financial Accounting StandardsStatement No. 159, *The Fair ValueOption for Financial Assets and Financial Liabilities—Including an Amendment ofFASB Statement No. 115* (“SFAS 159”). This standard permitsan entity to choose to measure many financial instruments and certain otheritems at fair value. This standard is effective for financial statements issuedfor fiscal years beginning after November 15, 2007. The Company adoptedthe provisions of SFAS 159 on January 1, 2008. The Company did not electto measure any of its financial assets or liabilities using the fair valueoption of SFAS 159. The Company will assess at each measurement date whether touse the fair value option on any future financial assets or liabilities aspermitted pursuant to the provisions of SFAS 159.

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157, *Fair ValueMeasurements* (“SFAS 157”). This standard clarifies theprinciple that fair value should be based on the assumptions that marketparticipants would use when pricing an asset or liability. Additionally, itestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  This standardwas adopted and did not have a material impact on the financial statements.

 

InFebruary 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP157-2”), which delayed the effective date by which companies must adopt theprovisions of SFAS 157. FSP 157-2 defers the effective date ofSFAS 157 for nonfinancial assets and nonfinancial liabilities, except foritems that are recognized or disclosed at fair value in the financialstatements on a recurring basis, to fiscal years beginning after November 15,2008, and interim periods within those fiscal years. The adoption of thisstandard is not anticipated to have a material impact on the Company’sfinancial position, results of operations, or cash flows.

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 141R, *Business Combinations*(“SFAS 141R”), which establishes principles and requirements for how theacquirer of a business recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree. SFAS 141R also provides guidance for recognizingand measuring the goodwill acquired in the business combination and determineswhat information to disclose to enable users of the financial statements toevaluate the nature and financial effects of the business combination.SFAS 141R is effective for fiscal years beginning after December 15,2008. Early adoption is not permitted. SFAS 141R is to be applied prospectively to business combinations forwhich the acquisition date is on or after the first reporting period beginningon or after December 15, 2008.

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 160, *Noncontrolling Interests inConsolidated Financial Statements—an amendment of ARB No. 51* (“SFAS 160”),which establishes accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary. Itclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity that should be reported as equity in theconsolidated financial statements. SFAS 160 is effective for fiscal yearsbeginning after December 15, 2008. The Company has evaluated the effect ofthe adoption of SFAS 160, but does not presently anticipate it will have amaterial effect on its consolidated financial position or results ofoperations, as all subsidiaries are 100% owned.

 

InMarch 2008, the FASB issued Statement of Financial Accounting Standards No. 161,*Disclosures about Derivative Instruments and*

 

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*Hedging Activities* (“SFAS 161”). This statement isintended to enhance required disclosures regarding derivatives and hedgingactivities, including enhanced disclosures regarding how: (a) an entityuses derivative instruments; (b) derivative instruments and related hedgeditems are accounted for under FASB Statement No. 133, *Accounting for Derivative Instruments and HedgingActivities*; and (c) derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows. SFAS 161 is effective for fiscal years and interim periodsbeginning after November 15, 2008. The Company is currently evaluating theeffect of adoption of SFAS 161, but does not presently believe that itwill have a material effect on its consolidated financial position or resultsof operations.

 

InApril 2008,  the FASB issued FASBStaff Position (“FSP”) FAS 142-3, *Determinationof Useful Life of Intangible Assets* (“FSP FAS 142-3”), which amendsthe factors that should be considered in developing the renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS 142, “Goodwill and Other Intangible Assets.”  FSP FAS 142-3 also requires expandeddisclosure related to the determination of intangible asset useful lives.  FSP FAS 142-3 is effective for fiscal yearsbeginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of theadoption of FSP FAS 142-3 on its financial position and results of operations.

 

InApril 2008, the FASB issued FASB Staff Position SFAS 133-1 and FIN 45-4. *Disclosures about Credit Derivatives and CertainGuarantees:  An amendment of FASBStatement No. 133 and FASB Interpretation No. 45; and Clarificationof the Effective Date of FASB Statement No. 161,*(“FSP SFAS133-1 and FIN 45-4”), effective for reporting periods (annual or interim)ending after November 15, 2008.  FSPSFAS 133-1 and FIN 45-4 amends SFAS 133 to require the seller of creditderivatives to disclose the nature of the credit derivative, the maximumpotential amount of future payments, fair value of the derivative, and thenature of any recourse provisions. Disclosures must be made for entire hybrid instruments that haveembedded credit derivatives.

 

FIN45-4 also amends FIN 45 to require disclosure of the current status of thepayment/performance risk of the credit derivative guarantee.  If an entity utilized internal groupings as abasis for the risk, how the groupings are determined must be disclosed as wellas how the risk is managed.

 

FSPSFAS 133-1encourages that the amendments be applied in periods earlier than theeffective date to facilitate comparisons at initial adoption.  After initial adoption, comparativedisclosures are required only for subsequent periods.

 

FSPSFAS 133-1 and FIN 45-4 clarifies the effective date of SFAS 161 such thatrequired disclosures should be provided for any reporting period (annual orquarterly interim) beginning after November 15, 2008.  The adoption of this Staff Position will haveno material effect on the Company’s financial position, results of operationsor cash flows.

 

**Note 2 – Inventories**

 

Thecomponents of inventories as of September 30, 2008 and December 31,2007 are summarized as follows:

 
| ** **                                           | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Raw materials                                        |       | $                                | 17,819     |                            | $          | 4,230 |   |
| Work-in-process                                      |       | 17,867                           |       | 8,976                           |       |
| Finished goods                                       |       | 611                              |       | 873                             |       |
|                                                 |       | 36,297                           |       | 14,079                          |       |
| Less: allowance for excess and obsolete  inventories |       | (868                             | )          | (1,096                          | )          |
| Net inventories                                      |       | $                                | 35,429     |                            | $          | 12,983 |   |

 

**Note 3 – Acquisitions**

 

*Badger Transport, Inc.*

 

OnJune 4, 2008, the Company acquired all of the outstanding shares of Badgerfor an aggregate purchase price of $11,811, exclusive of $184 oftransaction-related acquisition costs. The purchase price consisted of $5,811 of cash and 581,959 unregisteredshares of Broadwind common stock at a price per share of $10.31.  The Company entered into a registrationrights agreement with the former owner of Badger that provides the former ownerwith limited piggyback registration rights. The Company financed the cash portion of the acquisition with cash onhand.

 

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Thefollowing table summarizes the estimated fair values of the Badger assetsacquired and liabilities assumed on the date of the acquisition:

 
| Current assets                      |   | $      | 1,496  |   |
|-------------------------------------|--------|--------|--------|--------|
| Property and equipment              |   | 5,232  |   |
| Intangible - Trade Name             |   | 370    |   |
| Intangible - Customer Relationships |   | 4,380  |   |
| Intangible - Noncompete Agreement   |   | 1,490  |   |
| Goodwill                            |   | 5,565  |   |
| Total assets acquired               |   | 18,533 |   |
| Current liabilities                 |   | (2,178 | )      |
| Capital lease obligations           |   | (1,052 | )      |
| Long term debt                      |   | (2,544 | )      |
| Deferred tax liability              |   | (764   | )      |
| Total purchase consideration        |   | $      | 11,995 |   |

 

TheCompany may adjust goodwill as necessary as it finalizes purchase priceallocations for acquisitions.  Typicaladjustments include outstanding working capital, professional fees and fixedasset valuations.  Goodwill andintangible assets associated with the purchase of Badger are not expected to bedeductible for income tax purposes.

 

Inconnection with the Badger acquisition, the Company was required to fundapproximately $4,500 of equipment purchases that Badger had on order forexpansion.  The Company has funded $4,384of this commitment as of November 3, 2008.

 

*Energy Maintenance Service, LLC*

 

Asdisclosed in the Company’s Quarterly Report on Form 10-Q for the quarterended March 31, 2008, on January 16, 2008, the Company acquired allof the outstanding membership interests in EMS, a South Dakota-based companyengaged in the sale, installation, and repair of wind-powered electricgenerators. The aggregate purchase price was $32,250, exclusive of $536 oftransaction-related costs.  The purchaseprice consisted of $18,429 of cash and 1,629,834 shares of the Company’s commonstock at a price per share of $8.48.  Thecash portion of the purchase price was financed by a private placement ofCompany common stock, as described in Note 10 “Stockholders’ equity” below.

 

Thefollowing table summarizes the estimated fair values of the EMS assets acquiredand liabilities assumed on the date of the acquisition:

 
| Current assets                      |   | $      | 4,712  |   |
|-------------------------------------|--------|--------|--------|--------|
| Property and equipment              |   | 1,549  |   |
| Intangible - Trade Name             |   | 1,790  |   |
| Intangible - Customer Relationships |   | 24,700 |   |
| Goodwill                            |   | 4,561  |   |
| Total assets acquired               |   | 37,312 |   |
| Current liabilities                 |   | (3,556 | )      |
| Long term liabilities               |   | (970   | )      |
| Total purchase consideration        |   | $      | 32,786 |   |

 

TheCompany may adjust goodwill as necessary as it finalizes purchase priceallocations for acquisitions. Typical adjustments include outstandingprofessional fees and fixed asset valuations.****Goodwill of $4,561 and other intangibles of $26,490 are expected tobe deductible for income tax purposes over 15 years.

 

TheCompany does not have any contingent payments or commitments in relation to theacquisition of EMS, with the exception of certain stock options that wereawarded as a result of the acquisition. Stock options are a share-basedcompensation expense and are subject to accounting treatment under SFAS No. 123(R) asdiscussed in Note 11 “Stock-based compensation”.

 

*Brad Foote Gear Works, Inc.*

 

Asdisclosed in the Company’s Annual Report filed on Form 10-KSB for the yearended December 31, 2007, on October 19, 2007, the Company acquiredall of the outstanding capital stock of Brad Foote, an Illinois-basedmanufacturer of gearing systems for the wind turbine, oil and gas andenergy-related industries. The aggregate consideration paid in connection withthe Brad Foote acquisition, which included cash and unregistered shares of theCompany’s common stock, was $133,326.

 

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*Pro Forma Financial Information*

 

Thefollowing table presents the consolidated financial information for the Companyon a pro forma basis, assuming the acquisitions of Brad Foote, EMS and Badgerhad each occurred as of January 1, 2007. The Company is not including thepro-forma effect of RBA because the impact is not material to its results ofoperations for the nine-month period ended September 30, 2008 or 2007. Thehistorical financial information has been adjusted to give effect to pro formaitems that are directly attributable to the acquisitions and expected to have acontinuing impact on the consolidated results. These items include adjustmentsto increase depreciation related to the stepped-up basis in machinery andequipment, adjust inventory to fair market value, record amortization ofintangible assets, increase interest expense for certain long-term notespayable, and reclassify certain items to conform to the Company’s financialreporting presentation.

 

Thetable sets forth unaudited financial information and has been compiled fromhistorical financial statements and other information, but is not necessarilyindicative of the results that actually would have been achieved had thetransaction occurred on the dates indicated or that may be achieved in the future.

 
| ** **                                            | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                                            | ** ** | **As reported**                                    | ** ** | **Pro-forma  adjustments** | ** ** | **Pro-forma** | ** ** | **As reported** | ** ** | **Pro-forma  adjustments** | ** ** | **Pro-forma** | ** ** |
| Revenues                                              |       | $                                                       | 140,482    |   | $ | 5,716 | (1) | $ | 146,198 |   | $ | 7,985 |   | 85,746 | (3) | $ | 93,731 |   |
| Net income (loss)                                     |       | (8,855                                                  | )          | (1,826 | )(2) | (10,681 | ) | 1,344 |   | (5,374 | )(4) | (4,030 | ) |
| Earnings (loss) per share basic and diluted  earnings |       | $                                                       | (0.10      | ) | $ | (0.02 | ) | $ | (0.12 | ) | $ | 0.03 |   | $ | (0.09 | ) | $ | (0.06 | ) |
|                                                       |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| (1) |   | Represents revenue of EMS and Badger for the period from  January 1, 2008 through the respective acquisition dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Represents net loss of EMS and Badger for the period from  January 1, 2008 through the respective acquisition dates. Adjustments to  net loss include increases to depreciation related to the increase in fair  market value of machinery and equipment to fair value, amortization of  acquired intangible assets, and adjustments to interest income and interest  expense relating to the Company’s assumption of certain short and long-term  borrowings of EMS and Badger.                                                                                                   |
| (3) |   | Represents revenue of Brad Foote, EMS and Badger for the period from  January 1, 2007 through September 30, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (4) |   | Represents net income (loss) of Brad Foote, EMS and Badger for the  period from January 1, 2007 through September 30, 2007. Adjustments  to net income include increases to depreciation related to the stepped up  basis in machinery and equipment to fair value, increases in cost of goods  sold due to increasing inventory to fair market value, amortization of  acquired intangible assets, and adjustments to interest income and interest  expense relating to the Company’s assumption of certain short- and long-term  borrowings of Brad Foote, EMS, and Badger. |

 

Pro-forma tables illustrate results which areunaudited and are based on an acquired company’s history.  As a result, pro-forma results shown aboveare subject to adjustment upon audits and other financially qualitative studiesdone by the Company.

 

**Note 4 – Goodwill and intangible assets**

 

Thechanges in the gross carrying amount of intangible assets for the nine monthsended September 30, 2008 were as follows:

 
| ** **                            | ** ** | **Trade names** | ** ** | **Customer  relationships** | ** ** | **Non-compete** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|----------------------|------------|-----------------------------|------------|-----------------|------------|-----------|------------|
|                                  |       |                 |       |                        |       |            |       |      |       |
| Balance as of December 31, 2007  |       | $                    | 8,119      |                        | $          | 77,558          |       | $         | —     |   | $ | 85,677 |   |
| EMS acquisition                       |       | 1,790                |       | 24,700                      |       | —          |       | 26,490    |       |
| Badger acquisition                    |       | 370                  |       | 4,380                       |       | 1,490           |       | 6,240     |       |
| Balance as of September 30, 2008 |       | $                    | 10,279     |                        | $          | 106,638         |       | $         | 1,490      |   | $ | 118,407 |   |

 

Intangibleassets subject to amortization were as follows as of September 30, 2008:

 
| ** **             | ** ** | **Weighted  Average  Remaining  Amortization  Period (Years)** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
|------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| Trade names            |       | 19.11                                                               |       | $                           | 10,279     |                          | $          | (457                          | )          | $ | 9,822 |   |
| Customer relationships |       | 9.33                                                                |       | 106,638                     |       | (9,281                        | )          | 97,357                        |       |
| Noncompete Agreements  |       | 2.67                                                                |       | 1,490                       |       | (166                          | )          | 1,324                         |       |
| Total                  |       |                                                                |       | $                           | 118,407    |                          | $          | (9,904                        | )          | $ | 108,503 |   |

 

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Amortizationexpense on trademarks, customer relationships and non-compete agreements, whichis being recorded ratably over the estimated life of the related intangibleassets, was respectively $2,932 and $8,249 for the three and nine months ended September 30,2008. There was no such amortization expense for the three and nine monthsended September 30, 2007 as the underlying intangible assets were acquiredsubsequent to September 30, 2007.

 

Thechanges in the carrying amount of goodwill for the nine months ended September 30,2008 were as follows:

 
| Balance as of December 31, 2007  |   | $      | 27,611 |   |
|---------------------------------------|--------|--------|--------|--------|
| EMS acquisition                       |   | 4,561  |   |
| Badger acquisition                    |   | 5,565  |   |
| Adjustments (1)                       |   | (2,591 | )      |
| Balance as of September 30, 2008 |   | $      | 35,146 |   |

 

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(1) Comprisedprimarily of purchase price allocation adjustments recorded in connection withthe Company’s acquisition of Brad Foote in the fourth quarter of 2007. Theadjustments were to adjust certain machinery and equipment to fair value andrecord additional acquisition-related costs. The adjustments also includeadditional acquisition costs that have been capitalized.  The Company may adjust goodwill as necessaryas it finalizes purchase price allocations for acquisitions.  Typical adjustments include outstandingprofessional fees and fixed asset valuations.

 

TheCompany will review goodwill and other intangible assets for impairmentannually, or more frequently, if circumstances indicate that the assets’carrying amount may not be recovered. As of September 30, 2008, no suchcircumstances existed, and, accordingly, no impairment expense was recorded.

 

**Note 5 – Accrued liabilities**

 

Accrued liabilities at September 30, 2008 and December 31,2007 consisted of the following:

 
| ** **                                              | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                                                    |       |                             |       |                            |       |
| Accrued operating expenditures                          |       | $                                | 12,380     |                            | $          | 4,217 |   |
| Reimbursements due under Brad Foote  purchase agreement |       | 1,519                            |       | 5,171                           |       |
| Accrued payroll, employee benefits, and  related taxes  |       | 3,784                            |       | 1,894                           |       |
| Accrued interest                                        |       | 21                               |       | 560                             |       |
| Other                                                   |       | 661                              |       | 615                             |       |
| Total accrued liabilities                               |       | $                                | 18,365     |                            | $          | 12,457 |   |

 

**Note 6 – Lines of credit and notes payable**

 

Linesof credit and notes payable at September 30, 2008 and December 31,2007 consisted of the following:

 
| ** **                                           | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **Third party**                                      |       |                             |       |                            |       |
| Line of credit (Libor + 1.75%)                       |       | $                                | 2,518      |                            | $          | — |   |
| Line of credit (Prime + 1.00%)                       |       | 393                              |       | —                          |       |
| Note payable (7.25%)                                 |       | 39                               |       | —                          |       |
| Bank note (6.85%)                                    |       | —                           |       | 440                             |       |
| Total third party lines of credit and notes  payable |       | 2,950                            |       | 440                             |       |
|                                                 |       |                             |       |                            |       |
| **Related party**                                    |       |                             |       |                            |       |
| 9.5% related party note, subject to  conversion      |       | —                           |       | 25,000                          |       |
| Total related party notes payable                    |       | —                           |       | 25,000                          |       |
| Total lines of credit and notes payable              |       | $                                | 2,950      |                            | $          | 25,440 |   |
|                                                 |       |                             |       |                            |       |
| Weighted average interest rate                       |       | 4.49                             | %          | 9.45                            | %          |

 

OnApril 24, 2008, Tontine Capital Overseas Master Fund, L.P. (“TMF”),Tontine Partners, L.P. (“TP”), and Tontine Overseas Fund (“TOF”) each convertedthe full original principal amount of their respective 9.5% related party notesinto shares of Company common stock. Upon conversion, an aggregate of 3,333,332shares of the Company’s common stock were issued to TMF, TP and 

 

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TOF.Interest that had accumulated in the aggregate amount of $1,223 on the notes asof the conversation date was paid by the Company to TMF, TP, and TOF in cash.

 

Inconnection with its acquisition of EMS, on January 16, 2008 the Companyissued a note to the then President of EMS, who subsequently resigned from hisposition with EMS in October 2008. The note was in the amount of $1,365and related to a limited liability company tax payment. In May 2008, theCompany paid the note in full.

 

**Note 7 – Long-term debt**

 

Long-termdebt at September 30, 2008 and December 31, 2007 consisted of thefollowing:

 
| ** **                                          | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| 2007 equipment line note, due 2013                  |       | $                                | 6,776      |                            | $          | 5,947 |   |
| Revolving note, due 2009                            |       | 10,000                           |       | 7,887                           |       |
| 2006 equipment line note, due 2012                  |       | 5,683                            |       | 9,533                           |       |
| 2006 term note, due 2011                            |       | 2,106                            |       | 4,871                           |       |
| 2008 term note, due 2013                            |       | 1,798                            |       | 2,075                           |       |
| 5.65% fixed rate loan, due 2013                     |       | 1,534                            |       | —                          |       |
| Fixed rate notes 4.75% to 17.00%, due 2008  to 2012 |       | 7,982                            |       | —                          |       |
| 6.85% fixed rate loan, due 2012                     |       | 386                              |       | —                          |       |
| Total long-term debt                                |       | 36,265                           |       | 30,313                          |       |
| Less current maturities                             |       | (16,939                          | )          | (12,693                         | )          |
| Total long-term debt, less current  maturities      |       | $                                | 19,326     |                            | $          | 17,620 |   |

 

OnSeptember 30, 2008, EMS paid-off all outstanding long-term debt and shortterm notes payable due to DNB National Bank.  The total amounts satisfiedwith the pay-off were $2,420 in principal and $5 in outstanding interest.

 

Pursuantto a note extension agreement dated September 29, 2008, the terms of BradFoote’s Amended and Restated Renewal Revolving Note (the “Revolving Note”) withBank of America dated January 15, 2008 were changed, extending thematurity date from October 31, 2008 to January 15, 2009. Pursuant tothe thirty-first amendment of the Loan and Security Agreement dated as of January 17,1997, as amended (the “Loan Agreement”) between Brad Foote and Bank of America,the Principal due under the Revolving Note was required to be paid down by$3,000 in 2008.

 

Pursuant to the thirty-first amendment to the Loan Agreement, BradFoote had an obligation to pay down the outstanding principal amount under theRevolving Loan by September 30, 2008, and made the required payment on October 1,2008.  Brad Foote received a waiver fromBank of America with respect to this payment, and otherwise was in compliancewith the financial and other covenants contained in the Loan Agreement on September 30,2008.  The Company was in compliance withall other debt covenants as of September 30, 2008.

 

Future payments of long-termdebt as of September 30, 2008 are summarized below:

 
| **Period**                | ** ** | **Principal amount of  long-term debt** | ** ** |
|---------------------------|------------|--------------------------------------------------------|------------|
| 2008 (remaining 3 months) |       | $                                                      | 11,735     |   |
| 2009                      |       | 6,956                                                  |       |
| 2010                      |       | 7,004                                                  |       |
| 2011                      |       | 5,437                                                  |       |
| 2012                      |       | 3,341                                                  |       |
| 2013                      |       | 1,792                                                  |       |
| Thereafter                |       | —                                                 |       |
| Total                     |       | $                                                      | 36,265     |   |

 

**Note 8 – Interest rate swaps**

 

In2007, the Company entered into two interest rate swap agreements to minimizethe impact of interest rate fluctuations on its debt. Interest rate swapagreements involve exchanges of fixed or floating rate interest paymentsperiodically over the life of the agreement without the exchange of theunderlying principal amounts. Under the provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 133, all derivatives are measured atfair value and recognized as either assets or liabilities in the Company’sbalance sheet. The accounting for changes in the fair value of a derivative isdependent upon the use of the derivative and its resulting designation. Unlessspecific hedge accounting criteria are met, changes in fair value must berecognized currently in earnings. The Company’s interest rate swaps do notqualify for hedge accounting under SFAS No. 133. Therefore, the Company isrequired to 

 

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recognizethe swap at its fair market value and record the fluctuations in the fair valueof the swap in current earnings. The unrealized gain/(loss) related to thesefluctuations was approximately ($27) and ($16) for the three and nine-monthperiods ended September 30, 2008, respectively, and is recognized withinother income (expense). The fair market value of the interest rate swaps of$404 and $388 is recorded as a long-term liability as of September 30,2008 and December 31, 2007, respectively.

 

**Note 9 – Capital leases**

 

TheCompany leases equipment from various financing companies under capital leaseswith terms that extend to 2013. The economic substance of the leases is thatthe Company is financing the acquisition of the assets through the leases, andaccordingly, they are recorded in the Company’s assets and liabilities.Amortization of the capital leases has been included in depreciation expense.The following is an analysis of the leased assets included in property andequipment as of September 30, 2008 and December 31, 2007.

 
| ** **                    | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Machinery and equipment       |       | $                                | 2,896      |                            | $          | 1,589 |   |
| Less accumulated depreciation |       | (307                             | )          | (25                             | )          |
| Net machinery and equipment   |       | $                                | 2,589      |                            | $          | 1,564 |   |

 

Gross capital lease assets obtained through theacquisition of Badger was $1,416.

 

Future minimum rental payments due under capitalleases were the following:

 
| **Period Ending**                          | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------|------------|
| 2008 (remaining 3 months)                       |       | $          | 267        |   |
| 2009                                            |       | 572        |       |
| 2010                                            |       | 423        |       |
| 2011                                            |       | 315        |       |
| 2012                                            |       | 170        |       |
| 2013                                            |       | 47         |       |
| Thereafter                                      |       | 23         |       |
| Total minimum lease payments                    |       | 1,817      |       |
| Less: amounts representing interest             |       | (226       | )          |
| Present value of future minimum lease  payments |       | 1,591      |       |
| Less: current portion                           |       | (645       | )          |
| Capital lease obligations, noncurrent           |       | $          | 946        |   |

 

**Note 10 – Stockholders’ equity**

 

OnJanuary 16, 2008, to finance the cash portion of the EMS acquisition, theCompany sold an aggregate of 2,031,250 shares of unregistered common stock in aprivate placement to TP and T25 at $8.48 per share for a total purchase priceof $17,225, pursuant to a previously disclosed Amended and Restated SecuritiesPurchase Agreement with Tontine Capital Partners, L.P., (“TCP”), TP and Tontine25 Overseas Master Fund, L.P. (“T25”).

 

Inconnection with the acquisition of EMS, on January 16, 2008, the Companyissued 1,629,834 shares of unregistered common stock to the members of EMS,calculated at $8.48 per share, for total stock consideration of $13,821. Uponconsummation of the Company’s acquisition of EMS, 7,500 shares of restrictedstock units previously granted to certain Company executives vested; another7,500 restricted shares remain unvested, and have a vesting date of January 16,2009.

 

Inthe second quarter of 2008, the Company completed transactions resulting in thesale of an aggregate of $100,500 worth of its unregistered common stock, ofwhich $500, or 62,814 shares, was purchased by a member of the Company’s Boardof Directors at a price of $7.96 per share and an aggregate of $100,000 worth,or 12,562,814 shares, was purchased by TCP, TP, TOF, and T25 at a price of$7.96 per share. Thomas Weisel Partners issued a fairness opinion in connectionwith both transactions.

 

OnApril 24, 2008, TMF, TP, and TOF each converted the full originalprincipal amount of their respective 9.5% related party notes into shares ofCompany common stock. Upon conversion, an aggregate of 3,333,332 shares of theCompany’s common stock were issued to TMF, TP and TOF.

 

OnJune 4, 2008, the Company acquired all of the outstanding capital stock ofBadger for total purchase price of $11,811, exclusive of transaction-relatedacquisition costs. A portion of the purchase price consisted of 581,959unregistered shares of Broadwind’s common stock at a price per share of $10.31.

 

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**Note 11 – Stock-based compensation**

 

TheCompany grants incentive stock options and other equity awards pursuant to theEmployee Incentive Plan (“EIP”) which was approved by the Company’s Board ofDirectors in October 2007 and by the Company’s stockholders in June of2008. On August 8, 2008, the Company’s Board of Directorsapproved certain non-material amendments to theEIP that clarify the terms and conditions of restricted stock grantsunder the EIP and provide that the administrator of the EIP has theauthority to affect future amendments to the plan. The EIP reserves3,500,000 shares of common stock for grants to officers, directors, and other keyemployees. Total stock-based compensation expense included in the Company’sconsolidated statements of operations for the three and nine months ended September 30,2008 is $224 and $1,128, respectively. Stock-based compensation expense for thethree and nine months ended September 30, 2007 was $2 and $2,respectively. There were 1,589,500 shares available for grant under the EIP asof September 30, 2008.

 

*Stock Options*

 

Compensationexpense for incentive stock option grants is recognized over the requisiteservice period for vesting of the award, or to an employee’s eligibleretirement date, if earlier and applicable. As of September 30, 2008, theCompany had $9,291 of unrecognized compensation expense related to theoutstanding stock options, which will be recognized over a weighted-averageperiod of 4.33 years.

 

Thefair value of each stock option grant was estimated as of the date of the grantusing the Black-Scholes pricing model. The resulting compensation expense isamortized on a straight line basis over the vesting period of the grant. Theexpected term of stock options granted is determined utilizing a public companyproxy with similar grants because the Company does not have sufficient stockoption exercise history from its employees. Likewise, as the Company has onlylimited public trading history, the expected volatility rate used is alsodetermined from a public company proxy in the same industry and businessoperations as the Company. The risk-free interest rate is based on US Treasuryyield curve in effect at the time of the grant. A summary of these assumptionsis included in the table below.

 
| ** **                                      | ** ** | **Nine months ended**  | ** ** | **Nine months ended**  | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                      | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| Dividend yield                                  |       | 0.00                             | %          | 0.00                             | %          |
| Expected volatility                             |       | 60% - 70                         | %          | 60.00                            | %          |
| Risk-free interest rate                         |       | 2.20% - 4.24                     | %          | 4.24                             | %          |
| Vesting term (in years)                         |       | 3 - 5 years                      |       | 5 years                          |       |
| Weighted-average fair value of options  granted |       | $                                | 9.88       |                             | $          | 2.83 |   |
|                                                 |            |                                  |            |                                  |            |  |  |

 

A summary of option activity as of September 30,2008, and changes during the periods then ended is presented below:

 
| ** **                                      | ** ** | **Shares** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Weighted-Average  Remaining  Contractual Term  (Years)** | ** ** |
|-------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|-----------------------------------------------------------------|------------|
| Options Outstanding at January 1, 2008     |       | 950,000    |       | $                                         | 7.92       |                                                            | 8.81       |   |
| Options Granted                                 |       | 985,500    |       | $                                         | 15.41      |                                                            | 9.65       |   |
| Options Exercised                               |       | —     |       | $                                         | —     |                                                            | —     |   |
| Options Forfeited                               |       | (40,000    | )          | $                                         | 10.90      |                                                            | 10.00      |   |
| Options Outstanding at September 30,  2008 |       | 1,895,500  |       | $                                         | 11.75      |                                                            | 9.35       |   |
|                                            |       |       |       |                                      |       |                                                            |       |
| Options Exercisable at September 30,  2008 |       | 10,000     |       | $                                         | 4.60       |                                                            | 8.92       |   |

 

The following table summarizes share-based compensation expense related to share-based awards subject to SFAS No. 123(R)recognized during the periods indicated:

 
| ** **                                                                          | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| Share-based compensation expense included  in consolidated statement of operations: |       |                                                    |       |   |   |
| Selling, general, and administrative                                                |       | $                                                       | 1,128      |   | $ | 2 |   |
| Income tax benefit (1)                                                              |       | —                                                  |       | — |   |
| Net effect of share-based compensation  expense on net income (loss)                |       | $                                                       | (1,128     | ) | $ | (2 | ) |
| Decrease in basic income (loss) per share                                           |       | $                                                       | 0.01       |   | $ | — |   |

 

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Aggregate intrinsic value of optionsoutstanding as of September 30, 2008 was $6,006.

 

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(1)           Income tax benefit is not illustrated because the Company is currentlyoperating at a loss and actual income tax benefit will not be realized in thenine month period ended September 30, 2008. The result of the losssituation creates a timing difference, resulting in a deferred tax asset.

 

*Restricted Stock*

 

TheEIP permits the Company to award restricted stock and restricted stock unitssubject to risks of forfeiture or vesting. In the fourth quarter of 2007, theCompany granted restricted stock units to three executives, with vesting of halfof the units based on completion of the Company’s EMS acquisition andservice-based vesting for the remaining half of the units. The Companyrecognizes share-based compensation expense on restricted stock ratably overthe requisite service or performance period of the award and the grant datefair value is derived by calculating the number of restricted stock optionawards granted by the closing price of the Company’s common stock on the dateof grant. For the nine months ended September 30, 2008, the Companyrecognized $140 in share-based compensation related to restricted stock.

 

Thefollowing table summarized restricted stock activity for the nine months ended September 30,2008:

 
| ** **                                                             | ** ** | **Number of Shares  Underlying  Restricted Stock  Units** | ** ** | **Weighted-Average  Grant Date Fair  Value** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Unvested Restricted Stock Units Outstanding  at December 31, 2007 |       | 15,000                                                                   |       | $                                                      | 10.90      |   |
| Restricted Stock Units Granted                                         |       | —                                                                   |       | —                                                 |       |
| Restricted Stock Units Vested                                          |       | (7,500                                                                   | )          | 10.90                                                  |       |
| Restricted Stock Units Cancelled                                       |       | —                                                                   |       | —                                                 |       |
| Unvested Restricted Stock Units  Outstanding, September 30, 2008  |       | 7,500                                                                    |       | 10.90                                                  |       |
|                                                                        |            |                                                                          |            |                                                        |            |  |

 

Total fair value of unvested units was $68 asof September 30, 2008.

 

**Note 12 – Income taxes**

 

TheCompany accounts for income taxes pursuant to SFAS No. 109, *Accounting for Income Taxes*, whichprovides for an asset and liability approach to accounting for income taxes.Deferred tax assets and liabilities represent the future tax consequences ofthe differences between the financial statement carrying amounts of assets andliabilities versus the tax basis of assets and liabilities. Under this method,deferred tax assets are recognized for deductible temporary differences, andoperating loss and tax credit carryforwards. Deferred liabilities arerecognized for taxable temporary differences. Deferred tax assets are reducedby a valuation allowance when, in the opinion of management, it is more likelythan not that some portion or all of the deferred tax assets will not berealized. The impact of the tax rate changes on deferred tax assets and liabilitiesis recognized in the year that the change is enacted.

 

TheCompany adopted the provision of Financial Standards Accounting BoardInterpretation No. 48 “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109 (“FIN 48”) on January 1,2007. As a result of the implementation of FIN 48, the Company recognized nomaterial adjustments in the liability for unrecognized income tax benefits.There have been no significant changes in unrecognized income tax benefitsduring the first three quarters of 2008.

 

TheCompany recognizes interest and penalties related to uncertain tax positions inincome tax expense. As of September 30, 2008, the Company had no accruedinterest or penalties related to uncertain tax positions.

 

TheCompany files income tax returns in the U.S. federal and state jurisdictions.As of September 30, 2008, open tax years in the federal and some statejurisdictions date back to 1996 due to the taxing authorities’ ability toadjust operating loss carry forwards. No changes in settled tax years haveoccurred through September, 2008. The Company does not anticipate there will bea material change in the total amount of unrecognized tax benefits within thenext 12 months.

 
| ** **                                       | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| (Loss) income before provision for income  taxes |       | $                                                        | (2,972     | )                                                       | $          | 683 |   | $ | (8,188 | ) | $ | 1,344 |   |
| Provision for income taxes                       |       | 467                                                      |       | —                                                  |       | 667 |   | — |   |
| Net (loss) income                                |       | $                                                        | (3,439     | )                                                       | $          | 683 |   | $ | (8,855 | ) | $ | 1,344 |   |

 

Effectivetax rates differ from federal statutory income tax rates primarily due tochanges in valuation allowance and provisions for 

 

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stateand local income taxes. Consistent with 2006 and 2007, the Company continues tomaintain a full valuation allowance against net deferred tax assets exclusiveof deferred tax liabilities associated with indefinite-lived assets. As of September 30,2008, after valuation allowance, the Company has a net deferred tax liabilityof $1,294 related to temporary differences in indefinite-lived assets. Theseindefinite-lived assets consist of tax deductible goodwill from recent businessacquisitions. The income tax expense for the three and nine months ended September 30,2008 of $467 and $667, respectively relates to the current quarter temporarydifferences in these indefinite-lived assets.

 

**Note 13 – Employee benefit plans**

 

OnOctober 19, 2007, the Company began sponsoring a defined contributionsavings plan for Brad Foote, Tower Tech and corporate employees that allowssubstantially all employees to contribute a portion of their pre-tax and/orafter-tax income up to statutory limits. The plan requires the Company to match50% of the participants’ contributions up to 4% of the participants’compensation. The Company recognized $153 of matching expense during the ninemonths ended September 30, 2008 related to the plan.

 

Effectiveas of the date of the acquisition of RBA, the Company sponsors a definedcontribution savings plan that allows RBA employees to contribute a portion oftheir pre-tax and/or after-tax income up to statutory limits. The plan requiresthe Company to match 100% of the participants’ contributions up to 3% of theparticipants’ compensation. RBA recognized $26 of matching expense during thenine months ended September 30, 2008 related to this plan.

 

Effectiveas of the date of the acquisition of EMS, the Company sponsors a definedcontribution savings plan covering substantially all EMS employees. The Companycan provide a discretionary match and/or profit sharing contribution each year.EMS recognized $0 of matching expense during the period ended September 30,2008 related to this plan.

 

Effectiveas of the date of the acquisition of Badger, the Company sponsors a definedcontribution savings plan covering substantially all Badger employees. The planrequires the Company to match 100% of the participants’ contributions up to 3%and an additional 50% up to 5% of the participants’ compensation. Badgerrecognized $13 of matching expense during the period ended September 30,2008 related to this plan.

 

OnOctober 24, 2007, the Company adopted its 2007 Deferred Compensation Plan,which provides incentives and rewards to certain key employees and non-employeedirectors of the Company who are selected by the Board of Directors toparticipate. As of September 30, 2008 and December 31, 2007, theCompany had accrued $197 and $0, respectively, for amounts due under this plan.

 

Aspart of the collective bargaining agreement at Brad Foote, the Companymaintains a life insurance policy for each member of the collective bargaininggroup who has retired. For 2008, the collective premiums on the policy wereless than $1.

 

Inaddition to the plans described, the Company participates in certain customaryemployee benefit plans, including those which provide health and life insurancebenefits to employees.

 

**Note 14 – Operating leases – related party**

 

During2007, the Company amended one of the operating leases under which the Companyleases manufacturing and office space for its Products segment from CityCentre, LLC. In addition, the Company assumed a lease between RBA and CityCentre, LLC upon its acquisition of RBA. City Centre, LLC is a limitedliability company owned in part by two former directors of the Company, one ofwhom was also the Company’s former President, and each of whom were affiliatesduring 2007 and a portion of 2008. Neither of these individuals currently holdsany position within the Company. The leases call for monthly rents of $42 and$8, and expire on December 31, 2014 and July 31, 2017, respectively.The lease ending December 31, 2014 grants the Company five options to renew,each for a five-year renewal term that begins at the end of the lease periodjust ended. The lease ending July 31, 2017 grants the Company two optionsto renew, each for a five-year renewal term that begins at the end of the leaseperiod just ended.

 

In2007, the Company entered into a 15-year lease with City Centre, LLC for athird building utilized for its Tower Tech and RBA operating facilities. Thelease period commenced in June 2008 with a monthly payment due of $19.

 

TheCompany’s Services segment leases its primary administrative offices, a machineshop, a residential property, and storage facilities from the former Presidentof EMS, who resigned from his position at EMS in October 2008. The leaseagreement currently expires on December 31, 2009 and requires monthlypayments of $10.

 

Theformer President of EMS, through a separate entity, owns residential realestate for investment purposes, which is typically rented to third parties.Occasionally, the Company has entered into short-term lease agreements to rentapartments from this entity for use by Company personnel.

 

Allrelated party operating lease rents approximate market rates and are recordedas rent expense in the Company’s statements of operations.

 

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Followingis a schedule of future minimum rental payments required under therelated-party leases as of September 30, 2008:

 
| **Period**                            | ** ** | **Minimum payments on  operating lease obligations** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------------|------------|
| 2008 (remaining three months)         |       | $                                                                        | 261        |   |
| 2009                                  |       | 989                                                                      |       |
| 2010                                  |       | 831                                                                      |       |
| 2011                                  |       | 831                                                                      |       |
| 2012                                  |       | 831                                                                      |       |
| 2013                                  |       | 831                                                                      |       |
| Thereafter                            |       | 2,964                                                                    |       |
| Total minimum required lease payments |       | $                                                                        | 7,538      |   |

 

Relatedparty rent expense for the three and nine months ended September 30, 2008was $263 and $684, respectively, in comparison to $122 and $368, respectively,for the corresponding periods in 2007.

 

**Note 15 – Operating leases – third party**

 

TheCompany leases various property, equipment and buildings under lease agreementsof varying terms extending to 2017. Rental expense attributed to third partyoperating leases for the three and nine months ended September 30, 2008was $641 and $1,600, respectively, as compared to $12 and $79, respectively,for the corresponding periods in 2007.

 

Followingis a schedule of future minimum rental payments required under the leases as ofSeptember 30, 2008:

 
| **Period**                            | ** ** | **Minimum payments on  operating lease obligations** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------------|------------|
| 2008 (remaining three months)         |       | $                                                                        | 600        |   |
| 2009                                  |       | 2,154                                                                    |       |
| 2010                                  |       | 2,036                                                                    |       |
| 2011                                  |       | 2,005                                                                    |       |
| 2012                                  |       | 2,013                                                                    |       |
| 2013                                  |       | 1,553                                                                    |       |
| Thereafter                            |       | 4,500                                                                    |       |
| Total minimum required lease payments |       | $                                                                        | 14,861     |   |

 

**Note 16 – Other related party transactions**

 

Interestexpense of $0 and $735 was incurred and paid on stockholder and related partynotes during the three and nine months ended September 30, 2008,respectively.  No comparable interestexpense was recorded during the three and nine months ended September 30,2007.

 

AtSeptember 30, 2008 and December 31, 2007, $282 and $282, respectively,relating to amounts due from stockholders is included within other currentassets on the consolidated balance sheets. These amounts were paid by theCompany on behalf of four stockholders in connection with the March 2007sale of stock by each of the stockholders.

 

Duringthe second quarter of 2008, the Company completed transactions resulting in thesale of an aggregate of $100,500 worth of its unregistered common stock, ofwhich $500, or 62,814 shares, was purchased by a member of the Company’s Boardof Directors at a price of $7.96 per share and an aggregate of $100,000 worth,or 12,562,814 shares, were purchased by TP, TCP, TOF, and T25 at a price of$7.96 per share.  Thomas Weisel Partnersissued a fairness opinion in connection with both transactions.

 

On April 24, 2008, TMF,TP, and TOF each converted the full original principal amount of theirrespective 9.5% related party notes into shares of Company common stock. Uponconversion, an aggregate of 3,333,332 shares of the Company’s common stock wereissued to TMF, TP and TOF.  Interest thathad accumulated in the aggregate amount of $1,223 on the notes as of theconversion date was paid in cash by the Company to TMF, TP, and TOF with cash.

 

OnJanuary 16, 2008, to finance the cash portion of the EMS acquisition, theCompany sold an aggregate of 2,031,250 shares of unregistered common stock in aprivate placement to TP and T25 at $8.48 per share for a total purchase priceof $17,225, pursuant to a previously disclosed Amended and Restated SecuritiesPurchase Agreement with TCP, TP and T25.

 

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**Note 17 – Commitments and contingencies**

 

*Customer disputes*

 

TheCompany is involved in a pricing dispute with one of its customers with totaldisputed amounts approximating $2,249 as of September 30, 2008.  The Company has provided in its allowance foruncollectible accounts the portion of the disputed amounts due that managementestimates may be uncollectible.

 

*Purchase commitments*

 

TheCompany has a purchase contract with a foreign vendor with total commitmentsoutstanding of $18,014 with expected shipment through 2009.  During the three and nine months ended September 30,2008, the Company recorded net foreign currency gain (loss) in the statement ofoperations of $6 and ($57), respectively, due to the decline in the value ofthe U.S. Dollar relative to the Euro. This commitment price was converted from Euros to U.S. dollars duringthe quarter ended September 30, 2008, and no further foreign currencyexposure exists with regard to this commitment. Additionally, the Company issued commitments for land, buildings, rawsteel, and equipment associated with the expansion of operations.

 

Belowis a summary of total Company’s estimated future amounts due:

 
| **Period**                    | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|
| 2008 (remaining three months) |       | $          | 44,297     |   |
| 2009                          |       | 18,122     |       |
| 2010                          |       | 1,568      |       |
| Total commitment              |       | $          | 63,987     |   |

 

*Other*

 

TheCompany is also subject to legal proceedings in the normal course of business.Management believes these proceedings will not have a material adverse effecton the consolidated financial statements.

 

Inconnection with the Badger acquisition, the Company was required to fundapproximately $4,500 of equipment purchases that Badger had on order forexpansion.  The Company has funded $4,384of this commitment as of November 3, 2008.

 

**Note 18 – Segment information**

 

Duringthe second quarter of 2008, management changed the Company’s reportable segmentsto reflect changes in the management reporting structure of the organizationand the manner in which the chief operating decision maker regularly assessesinformation for decision-making purposes, including the allocation ofresources. The revised reporting structure includes two segments: “Products”(formerly “Products and Components”) and “Services” (formerly “Service,Transportation and Maintenance.” The Company’s segments and their product andservice offerings are summarized below:

 

*Products*

 

ThisProducts segment includes the manufacturing of components for the wind andenergy-related industries, including tower support structures, gearing systems,and mining and other heavy equipment. The Products segment combines previously reported segments of “Towersand Fabrication” and “Gearing Systems”.

 

*Services*

 

TheServices segment was established upon acquisition of EMS in January 2008and was supplemented by the Badger acquisition during the second quarter of2008.  This segment includesconstruction, operations, support, maintenance, and component repairs for windturbines and specialized heavy-haul trucking services.

 

*Other*

 

TheCompany applies the provisions of EITF 04-10 for segment reporting. Under theprovisions of EITF 04-10, any operating segments that do not individually meetthe aggregation criteria or quantitative thresholds described in SFAS 131 maybe combined with other operating segments that do not individually meet theaggregation criteria or quantitative thresholds to form a separate 

 

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reportablesegment. The Company has combined all operating segments that do notindividually meet the aggregation criteria established in SFAS 131 to form the “Other”segment for segment reporting. The Other segment is comprised of activities ofcorporate administration activities, and elimination of intercompanytransactions.

 

Belowis a summary of segment operations for the three and nine months ended September 30,2008 and 2007. For the three and nine months ended September, 2007, the Companyoperated as a single segment, as the Company’s only subsidiary in existence asof September 30, 2007 was its Tower Tech subsidiary.

 
| ** **                                                        | ** ** | **Products** | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------|------------|--------------|------------|--------------|------------|-----------|------------|-----------|------------|
| **As of and for the three months ended  September 30, 2008** |       |         |       |         |       |      |       |      |       |
| Revenues from external customers                                  |       | $            | 51,042     |         | $          | 13,501    |       | $         | (55        | ) | $ | 64,488 |   |
| Cost of sales                                                     |       | 43,792       |       | 8,341        |       | 56        |       | 52,189    |       |
| Gross profit                                                      |       | $            | 7,250      |         | $          | 5,160     |       | $         | (111       | ) | $ | 12,299 |   |
| Net income (loss)                                                 |       | $            | 1,400      |         | $          | (549      | )          | $         | (4,290     | ) | $ | (3,439 | ) |
| Total assets                                                      |       | $            | 289,768    |         | $          | 68,387    |       | $         | 25,908     |   | $ | 384,063 |   |

 
| ** **                                                       | ** ** | **Products** | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|--------------|------------|--------------|------------|-----------|------------|-----------|------------|
| **As of and for the nine months ended  September 30, 2008** |       |         |       |         |       |      |       |      |       |
| Revenues from external customers                                 |       | $            | 115,331    |         | $          | 25,205    |       | $         | (54        | ) | $ | 140,482 |   |
| Cost of sales                                                    |       | 95,594       |       | 14,531       |       | (43       | )          | 110,082   |       |
| Gross profit                                                     |       | $            | 19,737     |         | $          | 10,674    |       | $         | (11        | ) | $ | 30,400 |   |
| Net income (loss)                                                |       | $            | 3,190      |         | $          | (1,373    | )          | $         | (10,672    | ) | $ | (8,855 | ) |
| Total assets                                                     |       | $            | 289,768    |         | $          | 68,387    |       | $         | 25,908     |   | $ | 384,063 |   |

 

**Note 19 – Earnings per share**

 

TheCompany computes earnings per share in accordance with FASB Statement ofFinancial Accounting Standards No. 128, *Earningsper Share*(“SFAS 128”).  SFAS128 requires companies to compute earnings per share under two differentmethods, basic and diluted, and present per share data for all periods in whichstatements of operations are presented. Basic earnings per share is computed by dividing net income by the weightedaverage number of shares of common stock outstanding.  Diluted earnings per share is computed bydividing net income by the weighted average number of common stock and commonstock equivalents outstanding.

 

Thefollowing table provides a reconciliation of the numerators and denominatorsused in calculating basic and diluted earnings per share for three and ninemonths ended September 30, 2008, and the three and nine months ended September 30,2007:

 
| ** **                                             | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                             | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Basic earnings per share calculation:**              |       |                                                     |       |                                                    |       |   |   |   |   |
|                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss) income to common stockholders               |       | $                                                        | (3,439     | )                                                       | $          | 683 |   | $ | (8,855 | ) | $ | 1,344 |   |
| Weighted average of common shares  outstanding         |       | 96,470,415                                               |       | 47,724,464                                              |       | 87,692,295 |   | 44,969,545 |   |
| Basic net (loss) income per share                      |       | $                                                        | (0.04      | )                                                       | $          | 0.01 |   | $ | (0.10 | ) | $ | 0.03 |   |
|                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| **Diluted earnings per share calculation:**            |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss) income to common stockholders               |       | $                                                        | (3,439     | )                                                       | $          | 683 |   | $ | (8,855 | ) | $ | 1,344 |   |
| Weighted average of common shares  outstanding         |       | 96,470,415                                               |       | 47,724,464                                              |       | 87,692,295 |   | 44,969,545 |   |
| Stock options (1)                                      |       | —                                                   |       | —                                                  |       | — |   | — |   |
| Diluted weighted average of common shares  outstanding |       | 96,470,415                                               |       | 47,724,464                                              |       | 87,692,295 |   | 44,969,545 |   |
| Diluted net (loss) income per share                    |       | $                                                        | (0.04      | )                                                       | $          | 0.01 |   | $ | (0.10 | ) | $ | 0.03 |   |

 

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(1)    The options granted and outstanding would be anti-dilutive given theCompany’s net loss. The options have therefore been excluded from dilutedearnings per share.

 

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**Note 20 – Disclosures about fair values of financialinstruments**

 

Theestimated fair values of the Company’s financial instruments are as follows forthe dates indicated:

 
| ** **                                                                                 | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                 | ** ** | **Carrying Value**          | ** ** | **Estimated Fair  Value**  | ** ** | **Carrying Value** | ** ** | **Estimated Fair  Value** | ** ** |
| **ASSETS:**                                                                                |       |                             |       |                            |       |   |   |   |   |
| Cash and cash equivalents                                                                  |       | $                                | 34,392     |                            | $          | 34,392 |   | $ | 5,782 |   | $ | 5,782 |   |
| Prepaid expenses and other current assets                                                  |       | 18,082                           |       | 18,082                          |       | 1,946 |   | 1,946 |   |
|                                                                                       |       |                             |       |                            |       |   |   |   |   |
| **LIABILITIES:**                                                                           |       |                             |       |                            |       |   |   |   |   |
| Capital lease obligations, including  current maturities                                   |       | 1,591                            |       | 1,425                           |       | 986 |   | 1,028 |   |
| Long-term debt, including current maturities  and lines of credit & notes payable |       | 39,215                           |       | 38,611                          |       | 55,753 |   | 56,731 |   |
| Interest rate swaps                                                                        |       | 404                              |       | 404                             |       | 388 |   | 388 |   |
|                                                                                            |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

Tradereceivables and payables have an estimated market value equal to their carryingvalue. The fair value of long-term debt is estimated based on approximateborrowing rates currently available to Broadwind Energy for debt equal to theexisting debt maturities.

 

**Note 21 – Subsequent events**

 

TowerTech’s line of credit with Investors Community Bank has a maturity date of October 22,2008.  Investors Community Bank hasoffered to extend the maturity date of the line of credit to April 22,2009 and Tower Tech is currently evaluating the extension terms.

 

OnOctober 31, 2008, the Company executed an amendment (the “Amendment”) toits existing Registration Rights Agreement with Tontine, pursuant to which theCompany has agreed to register Tontine’s shares for resale. The amendmentextends the deadline for the Company’s obligation to file a registrationstatement to December 31, 2008.

 

**Item 2.****       ****Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

#  

*The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with ourcondensed consolidated financial statements and related notes thereto in Item1 , “Condensed Consolidated Financial Statements” of this Quarterly Reportand the audited consolidated financial statements and related notes andManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contained in our Annual Report on Form 10-KSB for the fiscalyear ended December 31, 2007. 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 this Item 2.  Actualresults may differ materially from these expectations due to inaccurateassumptions and known or unknown risks and uncertainties.*

 

*(Unless otherwise stated, numerical figures are inthousands, except share and per share data.)*

 

**Executive Overview**

 

Thefollowing discussion relates to the financial condition and results ofoperations for Broadwind Energy, Inc. (“Broadwind”) and its subsidiaries,(also referred to as “we,” “us,” “our,” or the “Company”).  We became a public company in February 2006,after a reverse shell transaction with Blackfoot Enterprises, Inc. whichwas incorporated in Nevada in 1996.  Fromthe time following the reverse shell transaction through February 2008, wewere known as Tower Tech Holdings Inc. On February 28, 2008 we changed our name to Broadwind Energy, Inc.and on June 20, 2008 we changed our state of incorporation from Nevada toDelaware.  Our principal executive officeis located at 47 East Chicago Avenue, Suite 332, Naperville, IL 60540. Ourphone number is (630) 637-0315 and our website address iswww.broadwindenergy.com.

 

Ourbusiness is dedicated to the production and servicing of components for energyand infrastructure-related industries. We are primarily focused on themanufacturing components for the wind and energy-related industries, including:tower support structures through our Tower Tech Systems, Inc. (“Tower Tech”)subsidiary; mining and other heavy equipment through our R.B.A. Inc. (“RBA”)subsidiary; gearing systems through our Brad Foote Gear Works, Inc. (“BradFoote”) subsidiary; construction, operations 

 

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support,maintenance, and component repairs for wind turbines through our EnergyMaintenance Service, LLC (“EMS”) subsidiary; and specialized heavy haul truckingservices through our Badger Transport, Inc. (“Badger”) subsidiary.

 

Manitowoc,Wisconsin serves as the main location of the manufacturing facilities for TowerTech, which is currently constructing additional wind tower manufacturingfacilities in Brandon, South Dakota and Abilene, Texas.  RBA’s main facility is located in Manitowoc,Wisconsin and RBA operates a second facility in Clintonville, Wisconsin.  Brad Foote has manufacturing andadministrative facilities in Cicero, Illinois and Neville Island, Pennsylvania.EMS is headquartered in Gary, South Dakota and operates service hubs inAbilene, Texas and Howard, South Dakota. Badger is headquartered in Clintonville, Wisconsin with equipmentfrequently dispatched throughout the United States.

 

Managementbelieves the following accounting policies to be critical to our financialcondition, results of operations, and cash flow, and to require management’smost subjective and complex judgments in estimating the effect of inherentuncertainties.

 

*Revenue Recognition*

 

TheCompany recognizes 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 thecontract terms. Customer deposits and other receipts are deferred andrecognized when earned.

 

*Inventories*

 

Inventoriesare stated at the lower of cost or market by comparing the cost of each item ininventory to its most recent sales price or sales order price. Any excess ofcost over the net realizable value of inventory components is included in theCompany’s inventory allowance. Market value of inventory, and management’sjudgment of the need for reserves, encompasses consideration of other businessfactors including physical condition, inventory holding period, contract terms,and usefulness. Inventories are valued based on an average cost method thatapproximates the first-in, first-out (FIFO) basis.

 

*Goodwill and other intangible assets*

 

Weaccount for our goodwill and other intangible assets under Statement ofFinancial Accounting Statements (“SFAS”) No. 142, *Goodwill and Other Intangible Assets* (“SFAS 142”).Under SFAS 142, goodwill is not amortized, but is tested for impairment atleast annually. Other intangible assets subject to amortization over theirrespective useful lives are tested for impairment at least annually.

 

*Long-lived assets*

 

Weaccount for long-lived assets in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*. The carrying values of long-lived assets,including, but not limited to, capital assets and intangible assets, areamortized over their estimated useful lives, and are periodically evaluated forimpairment when events and circumstances warrant such a review. The carryingvalue of a long-lived asset is considered impaired when the expectedundiscounted future cash flows from such asset is less than its carrying value.In that event, a loss is recognized based on the amount by which the carryingvalue exceeds the fair value of the long-lived asset.  Fair value is determined primarily using theanticipated cash flows discounted at a rate commensurate with the riskinvolved. Losses on long-lived assets to be disposed of are determined in asimilar manner, except that fair values are reduced for the cost to dispose.The Company performs impairment testing of long-lived assets on annual basis.

 

**Recent Accounting Pronouncements Affecting this Report**

 

***SFAS 159***

 

InFebruary 2007, the FASB issued Statement of Financial Accounting StandardsStatement No. 159, *The Fair ValueOption for Financial Assets and Financial Liabilities—Including an Amendment ofFASB Statement No. 115* (“SFAS 159”). This standard permitsan entity to choose to measure many financial instruments and certain otheritems at fair value. This standard is effective for financial statements issuedfor fiscal years beginning after November 15, 2007. We adopted theprovisions of SFAS 159 on January 1, 2008. We did not elect to measure anyof our financial assets or liabilities using the fair value option of SFAS 159.We will assess at each measurement date whether to use the fair value option onany future financial assets or liabilities as permitted pursuant to theprovisions of SFAS 159.

 

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***SFAS 157***

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157, *Fair ValueMeasurements* (“SFAS 157”). This standard clarifies theprinciple that fair value should be based on the assumptions that marketparticipants would use when pricing an asset or liability. Additionally, itestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  Thisstatement became effective for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  We do not believe there that this will have amaterial effect on our consolidated financial position or results ofoperations.

 

**Accounting Pronouncements Not Yet Adopted in thisReport**

 

***SFAS 157-2***

 

InFebruary 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP157-2”), which delayed the effective date by which companies must adopt certainprovisions of SFAS 157.  FSP 157-2defers the effective date of SFAS 157 for all nonfinancial assets andnonfinancial liabilities, except for items that are recognized or disclosed atfair value in the financial statements on a recurring basis, to fiscal yearsbeginning after November 15, 2008, and interim periods within those fiscalyears. The adoption of this standard is not anticipated to have a materialimpact on our financial position, results of operations, or cash flows.

 

***SFAS 141(R)***

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 141R, *Business Combinations*(“SFAS 141R”), which establishes principles and requirements for how theacquirer of a business recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree. SFAS 141R also provides guidance for recognizingand measuring the goodwill acquired in the business combination and determineswhat information to disclose to enable users of the financial statements toevaluate the nature and financial effects of the business combination.SFAS 141R is effective for fiscal years beginning after December 15,2008. Early adoption is not permitted. SFAS 141R is to be applied prospectivelyto business combinations for which the acquisition date in on or after thefirst reporting period beginning on or after December 15, 2008.

 

***SFAS 160***

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 160, *Noncontrolling Interests inConsolidated Financial Statements—an amendment of ARB No. 51* (“SFAS 160”),which establishes accounting and reporting standards for the noncontrollinginterest in a subsidiary and for the deconsolidation of a subsidiary. Itclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity that should be reported as equity in theconsolidated financial statements. SFAS 160 is effective for fiscal yearsbeginning after December 15, 2008. We have evaluated the effect of theadoption of SFAS 160, but do not presently anticipate it will have amaterial effect on our consolidated financial position or results ofoperations, as all subsidiaries are 100% owned.

 

***SFAS 161***

 

InMarch 2008, the FASB issued Statement of Financial Accounting Standards No. 161,*Disclosures about Derivative Instruments andHedging Activities* (“SFAS 161”). This statement is intended toenhance required disclosures regarding derivatives and hedging activities,including enhanced disclosures regarding how: (a) an entity usesderivative instruments; (b) derivative instruments and related hedgeditems are accounted for under FASB Statement No. 133, *Accounting for Derivative Instruments and HedgingActivities*; and (c) derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows. SFAS 161 is effective for fiscal years and interim periodsbeginning after November 15, 2008. We are currently evaluating the effectof adoption of SFAS 161, but do not presently believe that it will have amaterial effect on our consolidated financial position or results ofoperations.

 

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***Consolidated Results of Operations - Threeand Nine Months Ended September 30, 2008 Compared to Three and Nine MonthsEnded September 30, 2007***

***(in thousands)***

 

Thefollowing table sets forth selected, condensed, unaudited consolidatedfinancial data for the periods indicated.

 
| ** **                                           | ** ** | **Three Months Ended September 30,**       | ** ** | **Change** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **2008**                                                       | ** ** | **%**      | ** ** | **2007 (1)** | ** ** | **%** | ** ** | **$** | ** ** |
| ** **                                           | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales                                            |       | $                                                              | 64,488     |       | 100        | % | $ | 3,123 |   | 100 | % | $ | 61,365 |   |
| Cost of sales                                        |       | 52,189                                                         |       | 81         | %          | 1,839 |   | 59 | % | 50,350 |   |
| Gross profit                                         |       | 12,299                                                         |       | 19         | %          | 1,284 |   | 41 | % | 11,015 |   |
|                                                 |       |                                                           |       |       |       |   |   |   |   |   |   |
| Operating expenses                                   |       |                                                           |       |       |       |   |   |   |   |   |   |
| Selling, general, and administrative  expenses       |       | 12,110                                                         |       | 19         | %          | 694 |   | 22 | % | 11,416 |   |
| Amortization of intangible assets                    |       | 2,932                                                          |       | 5          | %          | — |   | 0 | % | 2,932 |   |
| Total operating expenses                             |       | 15,042                                                         |       | 23         | %          | 694 |   | 22 | % | 14,348 |   |
|                                                 |       |                                                           |       |       |       |   |   |   |   |   |   |
| Operating (loss) income                              |       | (2,743                                                         | )          | -4         | %          | 590 |   | 19 | % | (3,333 | ) |
|                                                 |       |                                                           |       |       |       |   |   |   |   |   |   |
| Other income (expense)                               |       |                                                           |       |       |       |   |   |   |   |   |   |
| Interest income, net                                 |       | 90                                                             |       | 0          | %          | 93 |   | 3 | % | (3 | ) |
| Other, net                                           |       | (319                                                           | )          | 0          | %          | — |   | 0 | % | (319 | ) |
| Other income (expense), net                          |       | (229                                                           | )          | 0          | %          | 93 |   | 3 | % | (322 | ) |
| Net (loss) income before provision for  income taxes |       | (2,972                                                         | )          | -5         | %          | 683 |   | 22 | % | (3,655 | ) |
| Provision for income taxes                           |       | 467                                                            |       | 0          | %          | — |   | 0 | % | 467 |   |
| Net (loss) income                                    |       | $                                                              | (3,439     | )          | -5         | % | $ | 683 |   | 22 | % | $ | (4,122 | ) |

 
| ** **                                           | ** ** | **Nine Months Ended September 30,**        | ** ** | **Change** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **2008**                                                       | ** ** | **%**      | ** ** | **2007 (1)** | ** ** | **%** | ** ** | **$** | ** ** |
| ** **                                           | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales                                            |       | $                                                              | 140,482    |       | 100        | % | $ | 7,985 |   | 100 | % | $ | 132,497 |   |
| Cost of sales                                        |       | 110,082                                                        |       | 78         | %          | 4,888 |   | 61 | % | 105,194 |   |
| Gross profit                                         |       | 30,400                                                         |       | 22         | %          | 3,097 |   | 39 | % | 27,303 |   |
|                                                 |       |                                                           |       |       |       |   |   |   |   |   |   |
| Operating expenses                                   |       |                                                           |       |       |       |   |   |   |   |   |   |
| Selling, general, and administrative  expenses       |       | 28,475                                                         |       | 20         | %          | 1,906 |   | 24 | % | 26,569 |   |
| Amortization of intangible assets                    |       | 8,249                                                          |       | 6          | %          | — |   | 0 | % | 8,249 |   |
| Total operating expenses                             |       | 36,724                                                         |       | 26         | %          | 1,906 |   | 24 | % | 34,818 |   |
|                                                 |       |                                                           |       |       |       |   |   |   |   |   |   |
| Operating (loss) income                              |       | (6,324                                                         | )          | -5         | %          | 1,191 |   | 15 | % | (7,515 | ) |
|                                                 |       |                                                           |       |       |       |   |   |   |   |   |   |
| Other income (expense)                               |       |                                                           |       |       |       |   |   |   |   |   |   |
| Interest (expense) income, net                       |       | (1,921                                                         | )          | -1         | %          | 153 |   | 2 | % | (2,074 | ) |
| Other, net                                           |       | 57                                                             |       | 0          | %          | — |   | 0 | % | 57 |   |
| Other (expense) income, net                          |       | (1,864                                                         | )          | -1         | %          | 153 |   | 2 | % | (2,017 | ) |
| Net (loss) income before provision for  income taxes |       | (8,188                                                         | )          | -6         | %          | 1,344 |   | 17 | % | (9,532 | ) |
| Provision for income taxes                           |       | 667                                                            |       | 0          | %          | — |   | 0 | % | 667 |   |
| Net (loss) income                                    |       | $                                                              | (8,855     | )          | -6         | % | $ | 1,344 |   | 17 | % | $ | (10,199 | ) |

 

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(1)   The data for the three and nine months ended September 30,2007 do not reflect the results of RBA, Brad Foote, EMS or Badger, which wereacquired on October 1, 2007, October 19, 2007, January 16, 2008,and June 4, 2008, respectively.

 

Ourresults for the three and nine months ended September 30, 2007 include ourTower Tech subsidiary only. We believe the table below, which presentsoperations by segment for the three and nine months ended September 30,20008, is helpful in analyzing the 

 

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consolidatedresults of operations for the three and nine months ended September 30,2008.  Please refer to Results ofOperations by Business Segment (below) for further discussion on the financialperformance of our business segments.

 
| ** **    | ** ** | **Three Months Ended September 30, 2008** | ** ** |
|---------------|------------|--------------------------------------------------------------------|------------|
| ** **    | ** ** | **Products**                                                       | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
|          |       |                                                               |       |   |   |   |   |   |   |
| Net sales     |       | $                                                                  | 51,042     |   | $ | 13,501 |   | $ | (55 | ) | $ | 64,488 |   |
| Cost of sales |       | 43,792                                                             |       | 8,341 |   | 56 |   | 52,189 |   |
| Gross profit  |       | $                                                                  | 7,250      |   | $ | 5,160 |   | $ | (111 | ) | $ | 12,299 |   |

 
| ** **    | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
|---------------|------------|-------------------------------------------------------------------|------------|
| ** **    | ** ** | **Products**                                                      | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
|          |       |                                                              |       |   |   |   |   |   |   |
| Net sales     |       | $                                                                 | 115,331    |   | $ | 25,205 |   | $ | (54 | ) | $ | 140,482 |   |
| Cost of sales |       | 95,594                                                            |       | 14,531 |   | (43 | ) | 110,082 |   |
| Gross profit  |       | $                                                                 | 19,737     |   | $ | 10,674 |   | $ | (11 | ) | $ | 30,400 |   |

 

*Sales and Cost of Sales.*  Forthe three and nine-month periods ended September 30, 2008, consolidatednet sales were $64,488 and $140,482, respectively, with related cost of salesduring that period of $52,189 and $110,082, respectively, for a gross profit of$12,299 and $30,400, respectively. In comparison, during the three andnine-month periods ended September 30, 2007, we generated sales of $3,123and $7,985, respectively, with related cost of sales of $1,839 and $4,888,respectively, for a gross profit of $1,284 and $3,097, respectively. Theincrease in consolidated sales of $61,365 and $132,497 for the three andnine-month periods ended September 30, 2008, respectively, as compared tothe same periods in 2007, was primarily due to the acquisition of Brad Foote andRBA during the fourth quarter of 2007, the acquisition of EMS during the firstquarter of 2008, and the acquisition of Badger in the second quarter of 2008,as well as increased revenues at Tower Tech.

 

*Selling, General and Administrative Expenses.*  Selling,general and administrative expenses (“SG&A”) increased to $12,110 and$28,475 for the three and nine-month period ended September 30, 2008 from$694 and $1,906 for the same respective periods in 2007. The overall increaseto SG&A is largely due to inclusion of the SG&A expenses related tooperating the companies acquired during the fourth quarter of 2007 and firstnine months of 2008, and is also attributable to increased professional feesand expenses related to the costs associated with being a public company,including SEC and Sarbanes-Oxley Section 404 compliance. In addition, wecontinued to hire and integrate new members of our management team and otheroperations, accounting and administrative professionals who joined Broadwindover the past several quarters. In the three and nine-months ended September 30,2008, we incurred, respectively, $224 and $1,128 of stock-based compensationexpense in connection with stock option grants made under the Broadwind Energy, Inc.2007 Equity Incentive Plan, which was approved by our Board of Directors in August 2007and approved by our stockholders at our 2008 Annual Meeting. There was no suchplan or related expense during the three and nine-month period ended September 30,2007. As a percentage of net sales, SG&A was 19% and 20% for the three andnine-months ended September 30, 2008, respectively, as compared to 22% and24% for the three and nine-months ended September 30, 2007, respectively.

 

*Amortization of Intangible Assets.* Amortization expense of $2,932 and $8,249 for the three and nine-monthperiods ended September 30, 2008, respectively is due to our acquisitionsand the amortization of intangible assets related to the purchases of RBA, BradFoote, EMS, and Badger.

 

*Other Income (Expense), Net.*  Otherincome and expense consists primarily of interest income and expense. Netinterest income (expense) was $90 and ($1,921) for the three and nine-monthperiods ended September 30, 2008, respectively, compared to interestincome of $93 and $153 for the same respective periods in 2007.   Other income (expense), net consists ofderivative gains/losses from interest rate swaps, losses from foreign currencytransactions and income from insurance refunds. These other components totaledincome (expense) of approximately ($319) and $57 for the three and nine monthsended September 30, 2008, respectively, and $0 and $0 for the three andnine months ended September 30, 2007, respectively.

 

Thefollowing provides a discussion of our operating results by business segment forthe three and nine months ended September 30, 2008 and 2007.

 

***Results of Operations by BusinessSegment - Three and Nine Months Ended September 30, 2008 Compared to Threeand Nine Months Ended September 30, 2007***

***(in thousands)***

 

Asof September 30, 2008, we were managing and reporting operating resultsthrough two business segments:  “Products”and “Services”. As discussed in Note 18 to our condensed consolidatedfinancial statements, “Segment Information,” our management uses revenue andgross margin to evaluate segment performance and allocate resources amongsegments. Operations data for the three and nine month periods ended September 30,2008 is summarized by segment below:

 

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*Products Segment*

 

Thetable below presents the results of operations of our Products segment for theperiods indicated:

 
| ** **    | ** ** | **Three Months Ended September 30,**       | ** ** | **Change** | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|------------|------------|
| ** **    | ** ** | **2008 (1)**                                              | ** ** | **%**      | ** ** | **2007** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                                              | 51,042     |       | 100.0      | % | $ | 3,123 |   | 100.0 | % | $ | 47,919 |   | 1534.4 | % |
| Cost of sales |       | 43,792                                                         |       | 85.8       | %          | 1,839 |   | 58.9 | % | 41,953 |   | 2281.3 | % |
| Gross profit  |       | $                                                              | 7,250      |       | 14.2       | % | $ | 1,284 |   | 41.1 | % | $ | 5,966 |   | 464.6 | % |

 
| ** **    | ** ** | **Nine Months Ended September 30,**        | ** ** | **Change** | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|------------|------------|
| ** **    | ** ** | **2008 (1)**                                              | ** ** | **%**      | ** ** | **2007** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                                              | 115,331    |       | 100.0      | % | $ | 7,985 |   | 100.0 | % | $ | 107,346 |   | 1344.3 | % |
| Cost of sales |       | 95,594                                                         |       | 82.9       | %          | 4,888 |   | 61.2 | % | 90,706 |   | 1855.7 | % |
| Gross profit  |       | $                                                              | 19,737     |       | 17.1       | % | $ | 3,097 |   | 38.8 | % | $ | 16,640 |   | 537.3 | % |

 

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(1)   The data for the three and nine months ended September 30,2007 do not include the results of operations of RBA and Brad Foote, each ofwhich were acquired during the fourth quarter of 2007.

 

*Sales and Cost of Sales.*  Forthe three and nine-month periods ended September 30, 2008, net sales were$51,042 and $115,331, respectively, with related cost of sales during theperiods of $43,792 and $95,594, respectively, for a gross profit of $7,250 and$19,737 respectively, or 14.2% and 17.1%, respectively. During the comparableperiods of 2007, we generated sales of $3,123 and $7,985, respectively, withrelated cost of sales of $1,839 and $4,888, respectively, for a gross profit of$1,284 and $3,097 respectively or 41.1% and 38.8%, respectively.   The increases in profitability between 2007and 2008 generally relate to increased volumes and production efficiencies atTower Tech and the addition of Brad Foote.

 

*Services Segment:*

 

Thetable below presents the results of operations of our Services segment for thethree and nine-month periods ended September 30, 2008:

 
| ** **    | ** ** | **Three Months Ended September 30,**       | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|
| ** **    | ** ** | **2008 (1)**                                              | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                                              | 13,501     |   | 100.0 | % |
| Cost of sales |       | 8,341                                                          |       | 61.8 | % |
| Gross profit  |       | $                                                              | 5,160      |   | 38.2 | % |

 
| ** **    | ** ** | **Nine Months Ended September 30,**        | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|
| ** **    | ** ** | **2008 (1)**                                              | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                                              | 25,205     |   | 100.0 | % |
| Cost of sales |       | 14,531                                                         |       | 57.7 | % |
| Gross profit  |       | $                                                              | 10,674     |   | 42.3 | % |

 

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(1)  The results presented for our Servicessegment includes:  (i) results ofoperations of EMS from January 16, 2008, the date Broadwind acquired EMS,through September 30, 2008, and (ii) results of operations of Badgerfrom June 4, 2008, the date Broadwind acquired Badger, through September 30,2008.

 

*Sales and Cost of Sales.*  Netsales for the period from January 16, 2008 through September 30, 2008were $25,205. Related costs of sales were $14,531, which resulted in a grossprofit of $10,674 or 42.3%.  There wereno prior period operations in this segment.

 

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**Liquidity and Capital Resources *(in thousands, except share data)***

 

Ourprimary operational liquidity and capital requirements have been for expensesassociated with the purchase and maintenance of property and equipment thatwill improve our manufacturing capacity and efficiency, costs related to ouracquisitions and related integration, as well as expenses and investmentsrelated to our general business needs. Our main sources of liquidity andcapital have been cash from financing activities.

 

During2007 and the first two quarters of 2008, we made significant investments ingrowing our business through the acquisitions of Brad Foote, RBA, EMS andBadger. The acquisitions required significant amounts of capital, which wereprovided by our existing cash balance, private placements of our common stock,and borrowings from various third parties.

 

At September 30, 2008, we had cash of $34,392, and working capitalof $47,187 compared to cash of $5,782 and a working capital deficit of $27,697at December 31, 2007. The increase in cash was due primarily to the equityfinancing completed during the second quarter of 2008, described below underthe heading “Financing Cash Flows.”  TheCompany’s restricted cash increased by $10,436 during the nine months ended September 30,2008, primarily due to cash deposits received from customers during the thirdquarter of 2008 as per the terms of the contracts.  The restrictions on this cash are expected tobe relieved over the next several quarters.

 

*Operating Cash Flows*

 

Netcash used in operating activities was $5,812 for the nine months ended September 30,2008 compared to $130 provided by operations during the nine months ended September 30,2007.  For the nine months ended September 30,2008, our net loss was $8,855 compared to net income of $1,344 for thecomparable period in 2007. The increase in working capital needs driven by rawmaterial purchases at our Tower Tech subsidiary and increases in inventory atour Brad Foote subsidiary contributed to the negative cash flow from operationsfor the period.

 

*Investing Cash Flows*

 

Cashused in investing activities totaled $84,646 for the nine months ended September 30,2008 as compared to $4,104 for the nine months ended September 30, 2007.Purchases of property and equipment related to the expansion of our Brad Footeand Tower Tech subsidiaries as well as our acquisition activity during theperiod were the primary factors for the cash used in investing activities.  In addition to the issuance of Broadwindcommon stock, the Company paid $5,811 in cash for the acquisition of Badger and$18,429 in cash for the acquisition of EMS, excluding related acquisitioncosts, during the nine month period ended September 30, 2008.  Additionally, an increase in customerdeposits increased the Company’s restricted cash by $10,436.

 

*Financing Cash Flows*

 

For the nine months ended September 30, 2008, net cash provided byfinancing activities was $119,068, which consisted primarily of the $100,000private placement, funded in April and June 2008, to Tontine CapitalPartners, L.P. (“TCP”), Tontine Partners, L.P. (“TP”), Tontine Overseas FundLtd., (“TOF”) and Tontine 25 Overseas Master Fund L.P. (“T25” and collectivelywith Tontine Capital Overseas Master Fund, L.P. (“TMF”), TCP, TP, TOF and theiraffiliates, “Tontine”).  In addition, ourshort- and long-term borrowings increased by $1,398 and $5,442, respectively,which was offset by payments on short- and long-term borrowings of $4,849 andpayments on capital lease obligations of $453. In addition, on January 16, 2008, to finance the cash portion ofthe EMS acquisition, the Company sold an aggregate of 2,031,250 shares ofunregistered common stock in a private placement to TP and T25 at $8.48 pershare for a total purchase price of $17,225, pursuant to a previously disclosedAmended and Restated Securities Purchase Agreement with TCP, TP and T25.

 

*Third Quarter Activity*

 

OnSeptember 30, 2008 EMS paid-off all outstanding long-term debt and shortterm notes payable due to DNB National Bank.  The total amounts satisfiedwere $2,420 in principal and $5 in outstanding interest.

 

*Previous Activity*

 

On April 22, 2008, the Company entered into a Securities PurchaseAgreement with certain Tontine parties, which provided for the purchase of anaggregate of 12,562,814 shares of Company common stock by Tontine at a price of$7.96 per share for a total purchase price of approximately $100,000. Wereceived the first tranche of proceeds in the amount of $40,000 on April 24,2008. The second tranche of proceeds in the amount of $60,000 was received on June 5,2008.   On April 22, 2008, theCompany entered into a 

 

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SecuritiesPurchase Agreement with a member of the Company’s Board of Directors, whichprovided for the purchase of 62,814 shares of Company common stock at a priceof $7.96 per share for a total purchase price of approximately $500.  The funding for this investment was providedon April 24, 2008.  Thomas WeiselPartners issued a fairness opinion in connection with both transactions.

 

InMarch and October 2007, we made private placements of our commonstock in amounts equal to $15,400 and $50,000, respectively, to certain Tontineparties. In connection with our acquisition of Brad Foote in October 2007and the above referenced $50,000 private placement to certain Tontine parties,TP, TMF and TOF provided us with senior subordinated convertible promissorynotes in the aggregate principal amount of $25,000 (the “Notes”). Pursuant to theirterms, the Notes were to accrue interest at 9.5% per annum until July 19,2008 and 13.5% thereafter and were to mature on October 19, 2010.  Under the terms of the Notes, Broadwind wasrequired to pay 10% of the original principal amount on the first anniversaryof issuance, 40% of the original principal amount on the second anniversary ofissuance and the remaining outstanding balance on the third anniversary ofissuance. Pursuant to the respective notes, each Note holder had the right toconvert the outstanding principal of its Note into newly issued shares of ourcommon stock at a conversion rate of $7.50 per share (the “Conversion Rights”).The Conversion Rights became effective January 19, 2008, and were fullyexercised on April 24, 2008 by TP, TOF, and TMF, who received an aggregateof 3,333,332 shares of Broadwind common stock, which represented $25,000 inoutstanding principal as of the conversion date. At that time Broadwind alsopaid $1,223 worth of related accrued interest on the Notes with cash.

 

Inconnection with our acquisition of Brad Foote, we assumed approximately $25,500of outstanding senior debt, and available lines of credit, including thefollowing loans that Brad Foote had obtained from Bank of America, formerlyknown as LaSalle Bank National Association (“BOA”) pursuant to a Loan andSecurity Agreement dated as of January 17, 1997, as amended (the “LoanAgreement”): (i) a $7,000 revolving line of credit loan (the “RevolvingLoan”); (ii) a consolidated term loan in the original principal sum ofapproximately $7,800 (the “Term Loan”); (iii) an $11,000 non-revolvingequipment line of credit (the “Equipment Loan”); and (iv) a $9,000non-revolving equipment line of credit with a term conversion feature (the “EquipmentLoan No. 2”).

 

TheRevolving Loan, which was scheduled to mature on June 30, 2008, hadapproximately $5,700 outstanding at closing of the Brad Foote acquisition, with$10,000 outstanding at September 30, 2008. The Revolving Loan was extended on September 29, 2008 to a maturitydate of January 15, 2009.  Interestis payable monthly and accrues on the Revolving Loan advances at a variablerate of Prime minus 1% (the “Base Rate”). The Term Loan, which matures on January 31,2011, had approximately $5,300 outstanding at closing of the Brad Footeacquisition, with $3,686 outstanding at September 30, 2008, and requiresmonthly principal and interest payments. The monthly amount of principal due is$132 and interest accrues on the outstanding balance of the Term Loan at theBase Rate. The Equipment Loan had approximately $10,000 outstanding at closingof the Brad Foote acquisition with $7,833 outstanding at September 30,2008. The equipment loan included an option to convert the obligation to a termnote on April 29, 2007. This conversion was effected, making theoutstanding principal balance payable in monthly principal installments of $183commencing on May 31, 2007, maturing on April 30, 2012. Interestaccrues on the outstanding balance of the converted term loan at the base rate.  The Equipment Loan No. 2, which matureson June 30, 2013, had approximately $4,500 outstanding at closing of theBrad Foote acquisition with $8,582 outstanding at September 30, 2008.  The Equipment Loan No. 2 includes anoption to convert the obligation to a term note. Interest was payable monthlyat the base rate until June 30, 2008, at which point Brad Foote beganmaking monthly principal payments of $150 plus interest, which accrues at theBase Rate on the outstanding balance of the Equipment Loan No. 2.

 

TheLoan Agreement states that the Revolving Loan, Term Loan, Equipment Loan andEquipment Loan No. 2 are secured by all of the assets of Brad Foote andthat Brad Foote must maintain insurance on the collateral. The Loan Agreementrequires Brad Foote to comply with standard covenants, including financialcovenants relating to ratios of cash flow coverage and senior debt to EBITDA,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.  Pursuant to the thirty-firstamendment to the Loan Agreement, Brad Foote had an obligation to pay down theoutstanding principal amount under the Revolving Loan by September 30,2008, and made the required payment on October 1, 2008.  Brad Foote received a waiver from Bank ofAmerica with respect to this payment, and otherwise was in compliance with thefinancial and other covenants contained in the Loan Agreement on September 30,2008.  The covenants contained in theLoan Agreement include restrictions on Brad Foote’s ability to makedistributions or dividends and incur indebtedness, which could ultimatelyaffect our ability to undertake additional debt or equity financing. If thesecovenants prevent us from securing additional financing when necessary, we planto evaluate alternate sources of funding.

 

OnOctober 4, 2007, our Tower Tech subsidiary obtained a secured line ofcredit from Investors Community Bank in the amount of $2,500, which wasincreased to $5,500 on March 21, 2008. All advances to Tower Tech underthe line of credit are guaranteed in full by Broadwind and RBA.  The line of credit has a maturity date of October 22,2008.  Investors Community Bank hasoffered to extend the maturity date of the line of credit to April 22,2009 and Tower Tech anticipates the parties will execute the extension duringthe fourth quarter of 2008.

 

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OnJanuary 16, 2008, we assumed approximately $2,500 of outstanding short-and long-term debt in connection with our acquisition of EMS. The debt iscomprised of various loans, which mature on dates ranging from 2008to 2013.  As of September 30,2008, $2,420 of this debt has been repaid.

 

Duringthe remainder of 2008, we plan to finance operations, including equipmentpurchases and other capital expenditures with working capital and externalfinancing. We believe that we will need to raise additional funding in the nearterm to finance operations and meet revenue, profitability and strategic goalsfor the foreseeable future. In addition, we continue to evaluate and assesspotential strategic acquisition targets. Cash requirements for any futureacquisitions may be substantial; however, we cannot estimate the cash or otherconsideration that may be required to finance such transactions. Unprecedenteddisruptions in the current credit and financial markets, particularly in theUnited States and Europe, have had a significant material adverse impact on anumber of financial institutions and have limited access to capital and creditfor many companies.  These disruptionscould make it more difficult for us to obtain financing for our operations, acquisitionsand anticipated capital expenditures or increase our cost of obtainingfinancing, which could have a material adverse effect on our liquidity, resultsof operations and financial condition.

 

**Interest Rate Risk**

 

Wehedge certain of our variable interest debt with fixed rate interest rateswaps. These swaps resulted in a loss of ($27) and ($16) for the three and ninemonths ended September 30, 2008, respectively, which is reported withinother income/(expense) in our statement of operations.

 

**Off-Balance Sheet Arrangements**

 

Asof September 30, 2008, we did not have any off-balance sheet arrangements.

 

**Cautionary Note Regarding Forward-Looking Statements**

 

Thepreceding discussion and analysis should be read in conjunction with ourcondensed consolidated financial statements and related notes included in Item1 of Part 1 of this Quarterly Report and the audited consolidatedfinancial statements and related notes and Management’s Discussion and Analysisor Plan of Operation contained in our Annual Report on Form 10-KSB for theyear ended December 31, 2007.  Portions of this Quarterly Reporton Form 10-Q, including the discussion and analysis in this Item 2,contain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  Any statements contained hereinthat are not historical fact, may be deemed forward-lookingstatements.  In some cases, forward-looking statements can beidentified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,”“continue,” “intend” or similar expressions.  Forward-looking statementsalso include the assumptions underlying or relating to any of the foregoingstatements.  Such forward-looking statements are based upon currentexpectations and beliefs and are subject to a number of factors anduncertainties that could cause actual results to differ materially from thosedescribed in the forward-looking statements.  Any forward-lookingstatements made herein are made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995.  Ourforward-looking statements include or relate to the following: (i) ourplans to continue to grow our business through acquisitions and integration ofprevious and future acquisitions; (ii) our beliefs with respect to thesufficiency of our working capital and our plans to evaluate alternate sourcesof funding if necessary; (iii) our ability to comply with loan covenants; (iv) ourexpectations relating to construction of new facilities and expansion ofexisting facilities; (v) our plans with respect to the use of proceedsfrom financing activities; (vi) our beliefs and expectations relating tothe recent economic downturn and the potential impact it may have on ourbusiness; and (vii) the anticipated benefits of our remediation efforts onthe strength of our internal control processes and our plans with respect tofuture remediation efforts. Forward-looking statements cannot be guaranteed and actual results mayvary materially due to the uncertainties and risks, known and unknown,associated with such statements. We caution investors that many importantfactors have affected, and in the future could affect our actual results ofoperations and cause such results to differ materially from those anticipatedin forward-looking statements made in this release and elsewhere by us or onour behalf. These factors include, but are not limited to, our ability tosuccessfully identify strategic acquisition targets and consummate acquisitionson terms favorable to us; the successful integration of acquired businesses;our need for and ability to obtain additional capital; the impact of the recenteconomic downturn on the wind energy industry; the continued availability ofcapital and financing on terms favorable to us; our ability to hire and retainmanagement and other employees; delays in completing facility expansions; ourability to successfully remediate internal control deficiencies; other generalbusiness and economic conditions; and those risks described from time to timein our reports to the Securities and Exchange Commission (including in ourAnnual Report filed on Form 10-KSB). It is not possible to foresee oridentify all factors that could cause actual results to differ from expected orhistoric results. As such, investors should not consider any list of suchfactors to be an exhaustive statement of all of the risks, uncertainties orpotentially inaccurate assumptions that investors should take into account whenmaking investment decisions. Stockholders and other readers are cautioned notto place undue reliance on forward-looking 

 

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statements,which speak only as of the date on which they are made. We do not intend toupdate publicly or revise any forward-looking statements.

 

**Item 4T.     Controls and Procedures**

 

**Material Weaknesses Previously Disclosed**

 

As discussed in Item 8A of our 2007 Annual Report on Form 10-KSB,as of December 31, 2007, we identified certain material weaknessesrelating to our accounting policies and procedures, IT environment, generalledger system, financial close and reporting, internal financial expertise,application access, segregation of duties, user developed applications andprocess level controls. In addition, although we were not required to, and didnot, perform a complete assessment of the internal controls of Brad Foote as ofDecember 31, 2007, we identified certain material weaknesses at Brad Footerelating to inventory, cost accounting, accounts receivable, billing and sales,capital expenditures, internal financial expertise and accounting policies andprocedures. As also disclosed in our 2007 Annual Report filed on form 10-KSB,we are designing and implementing actions to remediate the identified materialweaknesses.

 

**Evaluation of Disclosure Controls and Procedures**

 

OurChief Executive Officer and Chief Financial Officer evaluated the effectivenessof the Company’s disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) as of the end of the period covered inthis report. In light of the material weaknesses previously disclosed, whichhave not been completely remediated as of the end of the period covered by thisQuarterly Report, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were not effective toprovide reasonable assurance that information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act wasrecorded, processed, summarized and reported within the time periods specifiedby the Securities and Exchange Commission’s rules and forms and did notensure that information required to be disclosed in the reports that we file orsubmit under the Exchange Act was accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate 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.

 

Weanticipate the actions to be taken to remediate the material weaknesses and theresulting improvement in controls will generally strengthen our disclosurecontrols and procedures, as well as our internal control over financialreporting, and will, over time, address the material weaknesses that we identifiedin our internal control over financial reporting as of December 31, 2007.However, because many of the remediation actions we have undertaken are recentand because some of our remediation actions will be designed to improve ourinternal control over annual measures, management will not be able to concludethat the material weaknesses have been eliminated until such time as it is ableto complete its assessment of the effectiveness of internal control overfinancial reporting.  While management isexercising its best efforts to remediate material weaknesses and significantdeficiencies identified and described above, it cannot provide any assurance asto when such material weaknesses and significant deficiencies will beremediated, and other material weaknesses or significant deficiencies mayarise.

 

**Changes in Internal Controls**

 

Weare undertaking efforts to remediate the material weaknesses identified in our2007 Annual Report filed on Form 10-KSB. During the third quarter of 2008, we continued to use outside experts tosupplement the expertise in our internal staff and hired additional experiencedand qualified financial professionals. In addition, we have relied oncompensating measures including: enhanced communication and involvement of outsidelegal counsel in reporting and disclosure matters, and the continuedinvolvement of our Audit Committee, the chair of which is a financial expertwith extensive accounting and auditing experience.  Further to these efforts, during the secondquarter we hired an internal General Counsel and a Director of Compliance toassist in leading efforts surrounding public reporting and compliance with theSarbanes-Oxley Act of 2002.

 

Beginningin 2007, we engaged outside consultants to aid in the development of detailedprocess-level policies and procedures. We have continued the use of outside consultants to assist in theimprovement of our policies and procedures, testing and remediation wherenecessary to meet the requirements of the Sarbanes-Oxley Act of 2002.

 

OnJune 4, 2008, the Company completed the acquisition of Badger.  In connection with the acquisition, we haveidentified several items that represent material weaknesses or significantdeficiencies in the internal control over financial reporting at Badger. Thesematerial weaknesses are summarized below:

 

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*Internal Financial Expertise*.  The financial management of thecompany lacked the financial expertise to comply with public company reportingrequirements.  This lack of expertise had a significant impact on theability to timely close Badger’s financial statements.

 

*Accounting Policies and Procedures*.  Badger did not have detailed policiesand procedures in place to document its control structure and provide a basisfor the evaluation of internal control design or operating effectiveness.

 

*Information Technology Environment*.  Badger did not have a sophisticated accountingand reporting system to report its results of operations and financialcondition.   Additionally, Badger did not have in place adequateaccess or change controls for its systems.

 

*Segregation of duties*.  Badger did not have adequatesegregation of duties in place for its accounting personnel.

 

TheCompany has begun remediation efforts to mitigate the effects of thesedeficiencies.

 

Duringthe second quarter of 2008, we implemented a comprehensive Enterprise ResourcePlanning (ERP) software system at Tower Tech and RBA, as well as at ourcorporate headquarters.

 

Aspart of the new system implementation, access controls will be limited and willalso be supplemented by other compensating controls where necessary. Wherepossible, we have established compensating controls to mitigate the riskpresented by inadequate segregation of duties. In addition, we have begun torealign certain personnel and security access rights to help remediate thecontrol deficiency.

 

In2008, we began the process of identifying all of our user developedapplications and intend to remediate the control deficiencies through controlsin the user developed applications themselves or to implement compensatingcontrols.  These efforts, along with theimplementation of the new ERP system, which eliminate the user developedapplications in critical processes, will continue throughout 2008.  We believe that with the passage ofsufficient financial close and reporting cycles to evidence operation of thesecompensating controls, the control deficiencies will be remediated.

 

**PART II.    OTHERINFORMATION**

 

**Item 1.        Legal Proceedings**

 

Occasionally,we are a defendant in litigation arising in the ordinary course of ourbusiness, 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**

 

Set forth below is a discussion of the material changes in our riskfactors as previously disclosed in Item 6 of our Annual Report on Form 10-KSBfor the year ended December 31, 2007.

 

***Our businesses, and therefore our results ofoperation and financial condition, may be adversely affected by the currentdisruption in the global credit markets and instability of financial systems.***

 

The recent disruption in the global credit markets, the re-pricing ofcredit risk and the deterioration of the financial and real estate marketsgenerally, particularly in the U.S. and Europe, have all contributed to areduction in consumer spending and a decline in the overall U.S. economy.  Although the recent disruptions have beenprimarily in the housing, financial and insurance sectors, this could furtherexpand to the general economy and other sectors, including the wind energysector.  Tight credit, increasedunemployment and reduced consumer confidence may have negative effects ondemand for alternative sources of energy and consequently for our product andservice offerings.  In addition, someeconomists are predicting that the U.S. economy, and possibly the globaleconomy, could enter into a prolonged recession or even a depression as aresult of the foregoing factors.  Such aprolonged downturn in the U.S. or global economy could have a material adverseeffect on our business in a number of ways, including lower sales and renewalcycles if there is a reduction in demand for wind energy and could have amaterial adverse effect on our liquidity, results of operations and financialcondition.

 

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***Volatile financial markets or our ownoperating performance and liquidity could restrict our ability to accesscapital, and may increase our borrowing costs.***

 

We rely on access to both short- and long-term capital markets as asource of liquidity for capital requirements not satisfied by cash flows fromoperations.  If we are not able to accesscapital at competitive rates, the ability to implement our business plans maybe adversely affected.  Unprecedenteddisruptions in the current credit and financial markets, particularly in theUnited States and Europe, have had a significant material adverse impact on anumber of financial institutions and have limited access to capital and creditfor many companies.  These disruptionscould make it more difficult for the Company to obtain debt financing for itsoperations, acquisitions and anticipated capital expenditures or increase itscost of obtaining financing, which could have a material adverse effect on theCompany’s liquidity, results of operations and financial condition.

 

Additionally, our current short- and long-term debt agreements containvarious covenants requiring certain working capital ratios and cash flowbenchmarks to be met. Thus, violations of such covenants may restrict ourability to obtain the additional financing we need to implement our growth strategy,and may affect our ability to continue as a going concern. In the event of aloan covenant violation and inability to obtain waivers, our loans would be dueimmediately and our ability to obtain financing could be severely impacted.

 

The Board of Directors of the Company has established a FinanceCommittee to, among other things, assist the Board of Directors in monitoringand evaluating the Company’s liquidity, short and long-term financing plans andcapital structure.

 

***We are substantially dependent on a fewsignificant customers.***

 

Each of our segments has significant customers and concentrated salesto such customers.  If our relationshipswith significant customers should change materially, including as a result ofdecreased customer demand for our products and services due to the impact ofcurrent or future economic conditions on our customers, it could be difficultfor us to immediately and profitably replace lost sales in such a market wherewe have significant revenue concentration.

 

***Future sales of our common stock by one ormore of our significant stockholders may depress our share price.***

 

Tontine has publicly stated that it will begin to explore alternativesfor the disposition of shares of our common stock.  We have granted Tontine registration rightswith respect to the Broadwind common stock it holds.  Sales of substantial amounts of our commonstock in the public market, or the perception that these sales may occur, couldcause the market price of our common stock to decline.

 

**Item 2.        Unregistered Sales of Equity Securitiesand Use of Proceeds**

 

None

 

**Item 3.        Defaults Upon Senior Securities**

 

None

 

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

 

None

 

**Item 5.        Other Information**

 

None

 

**Item 6.        Exhibits**

 

Seethe Exhibit Index following the signature page to this report

 

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###### **SIGNATURES**

######  

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                    | BROADWIND  ENERGY, INC. |
|-------------------------|-------------------------|
|                    |                    |   |
|                    |                    |   |
| November 19,  2008 | By:                     | /s/  J. Cameron Drecoll |
|                    |                    | J.  Cameron Drecoll |
|                    |                    | Chief  Executive Officer |
|                    |                    |   |
|                    |                    |   |
| November 19,  2008 | By:                     | /s/  Matthew J. Gadow |
|                    |                    | Matthew  J. Gadow |
|                    |                    | Chief  Financial Officer |

 

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EXHIBIT INDEX

BROADWIND ENERGY, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2008

 
| **Exhibit Number** | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1               |       | Amendment  No. 2 to Registration Rights Agreement between the Company, Tontine  Capital Partners L.P., Tontine Partners, L.P., Tontine Capital Overseas  Master Fund, L.P., Tontine 25 Overseas Master Fund, L.P., and Tontine  Overseas Fund, Ltd. dated July 18, 2008 — incorporated by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  July 23, 2008.           |
| 10.2               |       | Thirtieth  Amendment, dated August 30, 2008, to Loan and Security Agreement dated  January 17, 1997 between Brad Foote and LaSalle Bank National  Association*                                                                                                                                                                                                                                                            |
| 10.3               |       | Note  Extension Agreement between Brad Foote and LaSalle Bank National Bank dated  August 30, 2008*                                                                                                                                                                                                                                                                                                                            |
| 10.4               |       | Amendment  No. 3 to Registration Rights Agreement between the Company, Tontine  Capital Partners L.P., Tontine Partners, L.P., Tontine Capital Overseas  Master Fund, L.P., Tontine 25 Overseas Master Fund, L.P., and Tontine  Overseas Fund, Ltd. dated September 12, 2008 — incorporated by reference  to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  September 12, 2008. |
| 10.5               |       | Thirty-First  Amendment, dated September 29, 2008, to Loan and Security Agreement  dated January 17, 1997 between Brad Foote and LaSalle Bank National  Association*                                                                                                                                                                                                                                                      |
| 10.6               |       | Note  Extension Agreement between Brad Foote and LaSalle Bank National Bank dated  September 29, 2008*                                                                                                                                                                                                                                                                                                                         |
| 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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