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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

**(AmendmentNo.2)**

** **

| **x**                                                       | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|-------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                  | ** **                                                                                               |
| **For the  quarterly period ended September 30, 2008** |
| ** **                                                  | ** **                                                                                               |
| **o**                                                       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from          to          **

 

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

 

 

**BROADWIND ENERGY, INC.**

 (Exactname of registrant as specified in its charter)

 

| **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 March 11, 2009,96,477,915 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. 2, referred to as the “Second Amendment,” toAmendment No. 1 to the Quarterly Report on Form 10-Q for the quarterended September 30, 2008, referred to as the “Amended Form 10-Q,”filed on November 19, 2008 with the Securities and Exchange Commission,referred to as the “SEC,” to:

 

·                  restate certain financial information relatedto inventory, income taxes, and revenue as discussed in Note 1 to the financialstatements in “Part I— Item 1. Condensed Consolidated Financial Statements”and in “Part I— Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations;”

 

·                  updatetables to reflect purchase price allocation adjustments in “Part I—Item 1 Condensed ConsolidatedFinancial Statements —Notes toConsolidated Financial Statements (unaudited) —Note 3 Acquisitions;”

 

·                  Update disclosures for the followingsubsequent events:

 

·                  update the description and status of theCompany’s covenants with Bank of America (“BOA”) and certain loan documentsentered into between the Company’s Brad Foote Gear Works, Inc. subsidiary(“Brad Foote”) and Bank of America on December 9, 2008  and January 16, 2009, and March 13, 2009in “Part I— Item 1. Financial Statements —Notes to Condensed ConsolidatedFinancial Statements (unaudited) —Note 7. Long-term debt,” “Part I— Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and “Part I—Item1. Condensed Consolidated Financial Statements —Notes to Condensed ConsolidatedFinancial Statements (unaudited) —Note 21. Subsequent Events;”

 

·                  update the description of the Company’s lineof credit with Investors Community Bank in “Part I—Item 1. CondensedConsolidated Financial Statements —Notes to Condensed Consolidated FinancialStatements (unaudited) —Note 21. Subsequent Events;”

 

·                  update the description and status of theagreements of the Company’s Badger Transport, Inc. subsidiary with FirstNational Bank (“FNB”), and the Company’s R.B.A., Inc. (“RBA”) and Tower TechSystems Inc. (“Tower Tech”) subsidiaries with Investors Community Bank in “PartI—Item 1. Condensed Consolidated Financial Statements —Notes to CondensedConsolidated Financial Statements (unaudited) —Note 21. SubsequentEvents;” and “Part I—Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations;”

 

·                  update thedescription of the Company’s Registration Rights Agreement (the “RegistrationRights Agreement”)  with Tontine CapitalPartners, L.P. and certain of its affiliates (collectively, “Tontine”) in Part I— Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations” and “Part I—Item 1. Condensed ConsolidatedFinancial Statements —Notes to Condensed Consolidated Financial Statements(unaudited) —Note 21. Subsequent Events;”

 

·                  update management’s evaluation of disclosurecontrols and procedures and internal control over financial reporting in “Part I—Item4T. Controls and Procedures;”

 

·                  update the Risk Factors in “Part II—Item 1A. Risk Factors” to discuss the effect of Tontine’s announcement that itwill begin to explore alternatives for the disposition of shares of our commonstock on the Company’s liquidity;

 

·                  update the Exhibits in “Part II— Item 6.Exhibits” to include as exhibits to this Second Amendment certain loandocuments entered into between Brad Foote and Bank of America on December 9,2008 and January 16, 2009; and

 

·                  update the Exhibits in “Part II—Item 6. Exhibits” to include as an exhibit the Waiver to the RegistrationRights Agreement executed by Tontine.

 

*History:*

 

Aspreviously disclosed in a Current Report on Form 8-K, on December 1,2008, the Audit Committee of the Board of Directors of the Company concluded,following a preliminary determination by the Company’s management, that thefinancial statements contained in the Amended Form 10-Q for the quarterlyperiod ended September 30, 2008 should no longer be relied upon and mustbe restated.

 

Inconjunction with the filing of the Company’s Quarterly Report on Form 10-Qfor the quarter ended September 30, 2008, management conducted a physicalinventory at its Cicero, Illinois and Neville Island, Pennsylvania Brad Footefacilities. Based on additional review, subsequent to the filing date, itwas determined that the valuation file used to value the inventory containedconversion and other errors, which resulted in an overstatement of the Company’sinventory balance as of September 30, 2008, and an understatement of theCompany’s cost of sales in the quarter ended September 30, 2008, in theamount of approximately $2.5 million.

 

Inaddition, the Company is incorporating into this Second Amendment certaingoodwill and deferred income tax error corrections associated with our June 4,2008 acquisition of Badger Transport, Inc. Subsequent to the filing date of the Company’s Quarterly Report on Form 10-Qfor the quarter ended September 30, 2008, it was determined thatmanagement reflected the revised 

 

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valuation amounts for some, but not all, of theacquired assets. The change to goodwill, the provision for income taxes anddeferred tax liability was approximately $473,000, $401,000 and $72,000,respectively.

 

TheCompany is also incorporating into this Second Amendment certain income taxadjustments to correct an error in the Company’s methodology of calculatingdeferred income taxes.  Specifically, theCompany is now using gross state income tax rates versus state income tax ratesnet of the federal tax benefit in order to calculate deferred federal anddeferred state income taxes and associated valuation allowances.  The change to the provision for income taxesand the deferred tax liability was approximately $342,000.

 

Additionally,the Company determined that an additional charge should be taken during thequarter ended September 30, 2008 to reflect a customer credit related to amulti-stage negotiation with interim accounting implications. The Company willrecord a charge of $800,000 during the third quarter to reflect this agreement.

 

Inaddition, pursuant to the rules of the SEC, “—Item 6. Exhibits” of Part IIof the Amended 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.

 

Thespecific line-item effect of the restatement on our previously issued unauditedcondensed consolidated financial statement as of and for the three and ninemonths ended September 30, 2008 as filed on Form 10-Q/A on November 19,2008 are as follows (in thousands, except share and per share data):

 
| ** **                                     | ** ** | **Consolidated Balance Sheets as of September 30, 2008** | ** ** |
|------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **As reported**                                                                        | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| **ASSETS:**                                    |       |                                                                                        |       |   |   |   |   |
| Inventories, net                               |       | $                                                                                           | 35,429     |   | $ | (2,517 | ) | $ | 32,912 |   |
| Goodwill                                       |       | 35,146                                                                                      |       | (473 | ) | 34,673 |   |
|                                           |       |                                                                                        |       |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY:** |       |                                                                                        |       |   |   |   |   |
| Accrued liabilities                            |       | 18,365                                                                                      |       | 800 |   | 19,165 |   |
| Deferred income taxes                          |       | 1,294                                                                                       |       | 270 |   | 1,564 |   |
|                                           |       |                                                                                        |       |   |   |   |   |
| Stockholders’ equity:                     |       |                                                                                        |       |   |   |   |   |
| Accumulated deficit                            |       | (18,731                                                                                     | )          | (4,060 | ) | (22,791 | ) |
|                                                |            |                                                                                             |            |  |  |  |  |  |  |  |

 
| ** **                                                      | ** ** | **Consolidated Statements of Operations**           | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **Three months ended September 30, 2008** | ** ** | **Nine months ended September 30, 2008** | ** ** |
| ** **                                                      | ** ** | **As reported**                                               | ** ** | **Adjustments** | ** ** | **Restated** | ** ** | **As reported** | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
|                                                            |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                       |       | $                                                                  | 64,488     |   | $ | (800 | ) | $ | 63,688 |   | $ | 140,482 |   | $ | (800 | ) | $ | 139,682 |   |
| Cost of sales                                                   |       | 52,189                                                             |       | 2,517 |   | 54,706 |   | 110,082 |   | 2,517 |   | 112,599 |   |
| Income tax provision                                            |       | 467                                                                |       | 743 |   | 1,210 |   | 667 |   | 743 |   | 1,410 |   |
| Net loss                                                        |       | (3,439                                                             | )          | (4,060 | ) | (7,499 | ) | (8,855 | ) | (4,060 | ) | (12,915 | ) |
|                                                            |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share - basic and  diluted                  |       | $                                                                  | (0.04      | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.05 | ) | $ | (0.15 | ) |
| Weighted average common shares outstanding  - basic and diluted |       | 96,470,415                                                         |       | — |   | 96,470,415 |   | 87,692,295 |   | — |   | 87,692,295 |   |

 

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| ** **                            | ** ** | **Consolidated Statements of Cash Flows**     | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Nine months ended September 30, 2008** | ** ** |
| ** **                            | ** ** | **As Reported**                                              | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| Net loss                              |       | $                                                                 | (8,855     | ) | $ | (4,060 | ) | $ | (12,915 | ) |
| Deferred income taxes                 |       | 391                                                               |       | 743 |   | 1,134 |   |
| Inventories, net                      |       | (21,487                                                           | )          | 2,517 |   | (18,970 | ) |
| Accrued liabilities                   |       | 5,271                                                             |       | 800 |   | 6,071 |   |
| Net cash used in operating activities |       | (5,812                                                            | )          | — |   | (5,812 | ) |
|                                       |            |                                                                   |            |  |  |  |  |  |  |  |

 

Informationnot affected by this Second Amendment is unchanged and reflects the disclosuremade at the time of the filing of the Amended Form 10-Q with the SEC on November 19,2008. Among other things, forward-looking statements made in the Amended Form 10-Qhave not been revised to reflect events that occurred or facts that becameknown to us after the filing of the Amended Form 10-Q, and such forwardlooking statements should be read in their historical context. Accordingly,this Second Amendment should be read in conjunction with the Amended Form 10-Qand the Company’s filings made with the SEC subsequent to the filing of theAmended 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                                                |       | 6                 |
|               |       | Condensed  Consolidated Balance Sheets (Unaudited)                                          |       | 6                 |
|               |       | Condensed  Consolidated Statements of Operations (Unaudited)                                |       | 7                 |
|               |       | Condensed  Consolidated Statements of Cash Flows (Unaudited)                                |       | 8                 |
|               |       | Notes to  Condensed Consolidated Financial Statements (Unaudited)                           |       | 9                 |
|               |       |                                                                                        |       |              |
| Item 2.            |       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations |       | 27                |
| Item  4T.          |       | Controls  and Procedures                                                                    |       | 38                |
|               |       |                                                                                        |       |              |
|               |       | **PART II.  OTHER INFORMATION**                                                        |       |              |
|               |       |                                                                                        |       |              |
| Item 1.            |       | Legal  Proceedings                                                                          |       | 40                |
| Item 1A.           |       | Risk Factors                                                                                |       | 40                |
| Item  2.           |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 41                |
| Item  3.           |       | Defaults  Upon Senior Securities                                                            |       | 41                |
| Item  4.           |       | Submission  of Matters to a Vote of Security Holders                                        |       | 41                |
| Item 5.            |       | Other  Information                                                                          |       | 41                |
| Item 6.            |       | Exhibits                                                                                    |       | 41                |
| Signatures         |       | 42                                                                                          |
| Exhibit Index |       | 43                                                                                          |

 

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**PART I.      FINANCIALINFORMATION**

 

**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)**                  | ** ** | ** **                      | ** ** |
| ** **                                                                                                                                                           | ** ** | **(Restated)**                   | ** ** | ** **                      | ** ** |
| **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                                                                                                      |       | 32,912                           |       | 12,983                          |       |
| Prepaid expenses and other current assets                                                                                                                            |       | 18,082                           |       | 1,946                           |       |
| Total current assets                                                                                                                                                 |       | 128,277                          |       | 34,752                          |       |
| Property and equipment, net of accumulated  depreciation of $9,902 and $2,476, respectively                                                                          |       | 108,736                          |       | 58,890                          |       |
| Goodwill                                                                                                                                                             |       | 34,673                           |       | 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                                                                                                                                                         |       | $                                | 381,073    |                            | $          | 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                                                                                                                                                  |       | 19,165                           |       | 12,457                          |       |
| Unearned revenue                                                                                                                                                     |       | 1,548                            |       | 97                              |       |
| Customer deposits                                                                                                                                                    |       | 12,011                           |       | 1,326                           |       |
| Total current liabilities                                                                                                                                            |       | 84,407                           |       | 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                                                                                                                                                |       | 1,564                            |       | 139                             |       |
| Other noncurrent liabilities                                                                                                                                         |       | 769                              |       | —                          |       |
| Total liabilities                                                                                                                                                    |       | 107,416                          |       | 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                                                                                                                                                  |       | (22,791                          | )          | (9,877                          | )          |
| Interest in variable interest entity                                                                                                                                 |       | —                           |       | 1,304                           |       |
| Total stockholders’ equity                                                                                                                                      |       | 273,657                          |       | 124,536                         |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                      |       | $                                | 381,073    |                            | $          | 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** | ** ** |
| ** **                                                      | ** ** | **(Restated)**                                           | ** ** | ** **                                              | ** ** | **(Restated)** | ** ** | ** ** | ** ** |
| Net sales                                                       |       | $                                                        | 63,688     |                                                    | $          | 3,123 |   | $ | 139,682 |   | $ | 7,985 |   |
| Cost of sales                                                   |       | 54,706                                                   |       | 1,839                                                   |       | 112,599 |   | 4,888 |   |
| Gross profit                                                    |       | 8,982                                                    |       | 1,284                                                   |       | 27,083 |   | 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                                         |       | (6,060                                                   | )          | 590                                                     |       | (9,641 | ) | 1,191 |   |
|                                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Other income (expense):                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest income (expense), net                                  |       | 90                                                       |       | 93                                                      |       | (1,921 | ) | 153 |   |
| Other, net                                                      |       | (319                                                     | )          | —                                                  |       | 57 |   | — |   |
| Total other (expense) income, net                               |       | (229                                                     | )          | 93                                                      |       | (1,864 | ) | 153 |   |
| (Loss) income before provision for income  taxes                |       | (6,289                                                   | )          | 683                                                     |       | (11,505 | ) | 1,344 |   |
| Income tax provision                                            |       | 1,210                                                    |       | —                                                  |       | 1,410 |   | — |   |
| Net (loss) income                                               |       | $                                                        | (7,499     | )                                                       | $          | 683 |   | $ | (12,915 | ) | $ | 1,344 |   |
|                                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss) income per common share - basic  and diluted         |       | $                                                        | (0.08      | )                                                       | $          | 0.01 |   | $ | (0.15 | ) | $ | 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** | ** ** |
| ** **                                                                                         | ** ** | **(Restated)**                                          | ** ** | ** ** | ** ** |
| Cash flows from operating activities:                                                              |       |                                                    |       |   |   |
| Net (loss) income                                                                                  |       | $                                                       | (12,915    | ) | $ | 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                                                                              |       | 1,134                                                   |       | — |   |
| 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                                                                                   |       | (18,970                                                 | )          | (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                                                                                |       | 6,071                                                   |       | (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.

 

*Restatement*

 

We account forthe correction of an error in previously issued financial statements inaccordance with the provisions of SFAS No. 154, *AccountingChanges and Error Corrections* (“SFAS 154”).  In accordance with the disclosure provisionsof SFAS 154, when financial statements are restated to correct an error, anentity is required to disclose that its previously issued financial statementshave been restated along with a description of the nature of the error, theeffect of the correction on each financial statement line item and any pershare amount affected for each prior period presented, and the cumulativeeffect on retained earnings or other appropriate component of equity or netassets in the statement of financial position, as of the beginning of theearliest period presented.

 

As previouslydisclosed in a Current Report on Form 8-K, on December 1, 2008, theAudit Committee of the Board of Directors of the Company concluded, following apreliminary determination by the Company’s management, that the financialstatements contained in the Amended Form 10-Q for the quarterly periodended September 30, 2008 should no longer be relied upon and must berestated.

 

Inconjunction with the filing of the Company’s Quarterly Report on Form 10-Qfor the quarter ended September 30, 2008, management conducted a physicalinventory at its Cicero, Illinois and Neville Island, Pennsylvania Brad Footefacilities. Based on additional review, subsequent to the filing date, itwas determined that the valuation file used to value the inventory containedconversion and other errors, which resulted in an overstatement of the Company’sinventory balance as of September 30, 2008, and an understatement of theCompany’s cost of sales in the quarter ended September 30, 2008, in theamount of approximately $2.5 million.

 

In addition, the Company isincorporating into this Second Amendment certain goodwill and deferred incometax error corrections associated with our June 4, 2008 acquisition ofBadger Transport, Inc.  Subsequentto the filing date of the Company’s Quarterly Report on Form 10-Q for thequarter ended September 30, 2008, it was determined that managementreflected the revised valuation amounts for some, but not all, of the acquiredassets.  The change to goodwill, theprovision for income taxes and deferred tax liability was approximately $473,$401, and $72, respectively.

 

The Company is alsoincorporating into this Second Amendment certain income tax adjustments tocorrect an error in the Company’s methodology of calculating deferred incometaxes.  Specifically, the Company is nowusing gross state income tax rates versus state income tax rates net of thefederal tax benefit in order to calculate deferred federal and deferred stateincome taxes and associated valuation allowances.  The change to the provision for income taxesand the deferred tax liability was approximately $342.

 

Additionally, the Companydetermined that an additional charge should be taken during the quarter ended September 30,2008 to reflect a customer credit related to a multi-stage negotiation withinterim accounting implications.  TheCompany will record a charge of $800 during the third quarter to reflect thisagreement.  The liability will berelieved through eight payments of $100 during the first eight months of 2009.

 

The specificline-item effect of the restatement and other recorded adjustments on ourpreviously issued unaudited condensed consolidated financial statement as ofand for the three and nine months ended September 30, 2008 as filed on Form 10-Q/Aon November 19, 2008 are as follows (in thousands, except share and pershare data):

 

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|                                           |   | **Consolidated  Balance Sheets as of September 30, 2008** |   |
|------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                           |   | **As  reported**                                          |   | **Adjustments** |   | **Restated** |   |
| **ASSETS:**                                    |   |                                                      |   |   |   |   |   |
| Inventories, net                               |   | $                                                         | 35,429 |   | $ | (2,517 | ) | $ | 32,912 |   |
| Goodwill                                       |   | 35,146                                                    |   | (473 | ) | 34,673 |   |
|                                           |   |                                                      |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY:** |   |                                                      |   |   |   |   |   |
| Deferred income taxes                          |   | 1,294                                                     |   | 270 |   | 1,564 |   |
| Accrued liabilities                            |   | 18,365                                                    |   | 800 |   | 19,165 |   |
|                                           |   |                                                      |   |   |   |   |   |
| Stockholders’ equity:                     |   |                                                      |   |   |   |   |   |
| Accumulated deficit                            |   | (18,731                                                   | )      | (4,060 | ) | (22,791 | ) |
|                                                |        |                                                           |        |  |  |  |  |  |  |  |

 
|                                                            |   | **Consolidated  Statements of Operations** |   |
|-----------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                            |   | **Three  months ended September 30, 2008** |   | **Nine  months ended September 30, 2008** |   |
|                                                            |   | **As  reported**                           |   | **Adjustments** |   | **Restated** |   | **As  reported** |   | **Adjustments** |   | **Restated** |   |
|                                                            |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                       |   | $                                          | 64,488 |   | $ | (800 | ) | $ | 63,688 |   | $ | 140,482 |   | $ | (800 | ) | $ | 139,682 |   |
| Cost of sales                                                   |   | 52,189                                     |   | 2,517 |   | 54,706 |   | 110,082 |   | 2,517 |   | 112,599 |   |
| Income tax provision                                            |   | 467                                        |   | 743 |   | 1,210 |   | 667 |   | 743 |   | 1,410 |   |
| Net loss                                                        |   | (3,439                                     | )      | (4,060 | ) | (7,499 | ) | (8,855 | ) | (4,060 | ) | (12,915 | ) |
|                                                            |   |                                       |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share - basic and  diluted                  |   | $                                          | (0.04  | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.05 | ) | $ | (0.15 | ) |
| Weighted average common shares outstanding  - basic and diluted |   | 96,470,415                                 |   | — |   | 96,470,415 |   | 87,692,295 |   | — |   | 87,692,295 |   |

 

*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 

 

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appliedprospectively to business combinations for which the acquisition date is on orafter the first reporting period beginning on 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 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. 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) endingafter November 15, 2008.  FSP SFAS133-1 and FIN 45-4 amends SFAS 133 to require the seller of credit derivativesto disclose the nature of the credit derivative, the maximum potential amountof future payments, fair value of the derivative, and the nature of anyrecourse provisions.  Disclosures must bemade for entire hybrid instruments that have embedded 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.

 

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**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** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **(Restated)**                   | ** ** | ** **                      | ** ** |
| Raw materials                                        |       | $                                | 15,302     |                            | $          | 4,230 |   |
| Work-in-process                                      |       | 17,867                           |       | 8,976                           |       |
| Finished goods                                       |       | 611                              |       | 873                             |       |
|                                                 |       | 33,780                           |       | 14,079                          |       |
| Less: allowance for excess and obsolete  inventories |       | (868                             | )          | (1,096                          | )          |
| Net inventories                                      |       | $                                | 32,912     |                            | $          | 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.

 

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

 
| Current assets                      |   | $      | 1,496  |   |
|-------------------------------------|--------|--------|--------|--------|
| Property and equipment              |   | 5,232  |   |
| Intangible - Trade Name             |   | 370    |   |
| Intangible - Customer Relationships |   | 4,380  |   |
| Intangible - Noncompete Agreement   |   | 1,490  |   |
| Goodwill                            |   | 5,154  |   |
| Total assets acquired               |   | 18,122 |   |
| Current liabilities                 |   | (2,178 | )      |
| Capital lease obligations           |   | (1,052 | )      |
| Long term debt                      |   | (2,544 | )      |
| Deferred tax liability              |   | (353   | )      |
| 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 $4,400 of equipment purchases that Badger had on order forexpansion.  The Company has funded $4,384of this commitment which is complete.

 

*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.

 

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

 
| 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                 |   | (3,545 | )      |
| Long term liabilities               |   | (981   | )      |
| 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 and energy-relatedindustries. The aggregate consideration paid in connection with the Brad Footeacquisition, which included cash and unregistered shares of the Company’scommon stock, was $133,326.

 

*Pro Forma Financial Information*

 

Thefollowing table, as restated in this Second Amendment to include the effects ofthe inventory, income tax provision, and deferred income tax adjustments,presents the consolidated financial information for the Company on a pro formabasis, assuming the acquisitions of Brad Foote, EMS and Badger had eachoccurred as of January 1, 2007. The Company is not including the pro-formaeffect of RBA because the impact is not material to its results of operationsfor the nine-month period ended September 30, 2008 or 2007. The historicalfinancial information has been adjusted to give effect to pro forma items thatare directly attributable to the acquisitions and expected to have a continuingimpact on the consolidated results. These items include adjustments to increasedepreciation related to the stepped-up basis in machinery and equipment, adjustinventory to fair market value, record amortization of intangible assets,increase interest expense for certain long-term notes payable, and reclassifycertain items to conform to the Company’s financial reporting presentation.

 

Thefollowing table, as restated, sets forth unaudited financial information andhas been compiled from historical financial statements and other information,but is not necessarily indicative of the results that actually would have beenachieved had the transaction occurred on the dates indicated or that may beachieved in the future.

 
| ** **                                            | ** ** | **Nine months ended September 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                                            | ** ** | **As reported**                                    | ** ** | **Pro-forma  adjustments** | ** ** | **Pro-forma** | ** ** | **As reported** | ** ** | **Pro-forma  adjustments** | ** ** | **Pro-forma** | ** ** |
| ** **                                            | ** ** | **(Restated)**                                          | ** ** | ** ** | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Revenues                                              |       | $                                                       | 139,682    |   | $ | 5,716 | (1) | $ | 145,398 |   | $ | 7,985 |   | 85,746 | (3) | $ | 93,731 |   |
| Net income (loss)                                     |       | (12,915                                                 | )          | (1,826 | )(2) | (14,741 | ) | 1,344 |   | (5,374 | )(4) | (4,030 | ) |
| Earnings (loss) per share basic and diluted  earnings |       | $                                                       | (0.15      | ) | $ | (0.02 | ) | $ | (0.17 | ) | $ | 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. |

 

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| (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 illustrateresults which are unaudited and are based on an acquired company’shistory.  As a result, pro-forma resultsshown above are subject to adjustment upon audits and other financiallyqualitative studies done by theCompany.

 

**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 |   |

 

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 (as restated):

 
| Balance as of December 31, 2007  |   | $      | 27,611 |   |
|---------------------------------------|--------|--------|--------|--------|
| EMS acquisition                       |   | 4,561  |   |
| Badger acquisition                    |   | 5,092  |   |
| Adjustments (1)                       |   | (2,591 | )      |
| Balance as of September 30, 2008 |   | $      | 34,673 |   |

 

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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. Typicaladjustments include outstanding professional 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.

 

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**Note 5 — Accrued liabilities**

 

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

 
| ** **                                              | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                              | ** ** | **(Restated)**                   | ** ** | ** **                      | ** ** |
| 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                                                   |       | 1,461                            |       | 615                             |       |
| Total accrued liabilities                               |       | $                                | 19,165     |                            | $          | 12,457 |   |

 

**Note 6 — Lines of credit and notespayable**

 

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 TOF. Interestthat had accumulated in the aggregate amount of $1,223 on the notes as of theconversation 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 as of 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.

 

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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. Additionally, the Company failed compliance with two of its covenants,specifically its EBITDA coverage ratio and its cash flow coverage ratiocalculations.   The Company has attaineda waiver from Bank of America of these covenants as of September 30, 2008,and otherwise was in compliance with the financial and other covenantscontained in the Loan Agreement 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** | ** ** |
|---------------------------|------------|--------------------------------------------------------|------------|
| ** **                | ** ** | **(Restated)**                                         | ** ** |
| 2008 (remaining 3 months) |       | $                                                      | 7,735      |   |
| 2009                      |       | 10,956                                                 |       |
| 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 recognize the swap at its fair market value and record thefluctuations in the fair value of the swap in current earnings. The unrealizedgain/(loss) related to these fluctuations was approximately ($27) and ($16) forthe three and nine-month periods ended September 30, 2008, respectively,and is recognized within other income (expense). The fair market value of theinterest rate swaps of $404 and $388 is recorded as a long-term liability as ofSeptember 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.

 

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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.

 

**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 otherkey employees. 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.

 

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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 also determinedfrom a public company proxy in the same industry and business operations as theCompany. The risk-free interest rate is based on US Treasury yield curve ineffect at the time of the grant. A summary of these assumptions is included inthe 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 activityas of September 30, 2008, and changes during the periods then ended ispresented 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       |   | $ | — |   |

 

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

 

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(1) Incometax benefit is not illustrated because the Company is currently operating at aloss and actual income tax benefit will not be realized in the nine monthperiod ended September 30, 2008. The result of the loss situation createsa 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 ofhalf of 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.

 

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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 andliabilities is 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** | ** ** |
| ** **                                       | ** ** | **(Restated)**                                           | ** ** | ** **                                              | ** ** | **(Restated)** | ** ** | ** ** | ** ** |
| (Loss) income before provision for income  taxes |       | $                                                        | (6,289     | )                                                       | $          | 683 |   | $ | (11,505 | ) | $ | 1,344 |   |
| Provision for income taxes                       |       | 1,210                                                    |       | —                                                  |       | 1,410 |   | — |   |
| Net (loss) income                                |       | $                                                        | (7,499     | )                                                       | $          | 683 |   | $ | (12,915 | ) | $ | 1,344 |   |

 

Effectivetax rates differ from federal statutory income tax rates primarily due tochanges in valuation allowance and provisions for state and local income taxes.Consistent with 2006 and 2007, the Company continues to maintain a fullvaluation allowance against net deferred tax assets exclusive of deferred taxliabilities associated with indefinite-lived assets. As of September 30,2008, after valuation allowance, the Company has a net deferred tax liabilityof $1,564 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 $1,210 and $1,410, respectively relates to the current quartertemporary differences 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 

 

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duringthe nine 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 torenew, each for a five-year renewal term that begins at the end of the leaseperiod just ended. The lease ending July 31, 2017 grants the Company twooptions to renew, each for a five-year renewal term that begins at the end ofthe lease period 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 withinother current assets on the consolidated balance sheets. These amounts werepaid by the Company 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 $4,400 of equipment purchases that Badger had on order forexpansion.  The Company has funded $4,384of this commitment which is complete.

 

**Note 18 — Segment information**

 

Duringthe second quarter of 2008, management changed the Company’s reportablesegments to reflect changes in the management reporting structure of theorganization and the manner in which the chief operating decision makerregularly assesses information for decision-making purposes, including theallocation of resources. 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 reportablesegment. The Company has combined all operating segments that do notindividually meet the aggregation criteria 

 

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establishedin SFAS 131 to form the “Other” segment for segment reporting. The Othersegment is comprised of activities of corporate administration activities, andelimination of intercompany transactions.

 

Belowis a summary, as restated in this Second Amendment to include the effects ofthe inventory, customer credit,  incometax provision, and deferred income tax adjustments, of segment operations forthe three and nine months ended September 30, 2008 and 2007. For the threeand nine months ended September, 2007, the Company operated as a single segment,as the Company’s only subsidiary in existence as of September 30, 2007 wasits Tower Tech subsidiary.

 
| ** **                                                        | ** ** | **Products**           | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|--------------|------------|-----------|------------|-----------|------------|
| ** **                                                        | ** ** | **(as restated)** | ** ** |
| **As of and for the three months ended  September 30, 2008** |       |                   |       |         |       |      |       |      |       |
| Revenues from external customers                                  |       | $                      | 51,042     |         | $          | 13,501    |       | $         | (855       | ) | $ | 63,688 |   |
| Cost of sales                                                     |       | 46,309                 |       | 8,341        |       | 56        |       | 54,706    |       |
| Gross profit                                                      |       | $                      | 4,733      |         | $          | 5,160     |       | $         | (911       | ) | $ | 8,982 |   |
| Net loss                                                          |       | $                      | (1,117     | )            | $          | (549      | )          | $         | (5,833     | ) | $ | (7,499 | ) |
| Total assets                                                      |       | $                      | 287,251    |         | $          | 65,476    |       | $         | 28,346     |   | $ | 381,073 |   |
|                                                              |       |                   |       |         |       |      |       |      |       |

 
| ** **                                                       | ** ** | **Products**           | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|--------------|------------|-----------|------------|-----------|------------|
| ** **                                                       | ** ** | **(as restated)** | ** ** |
| **As of and for the nine months ended  September 30, 2008** |       |                   |       |         |       |      |       |      |       |
| Revenues from external customers                                 |       | $                      | 115,331    |         | $          | 25,205    |       | $         | (854       | ) | $ | 139,682 |   |
| Cost of sales                                                    |       | 98,111                 |       | 14,531       |       | (43       | )          | 112,599   |       |
| Gross profit                                                     |       | $                      | 17,220     |         | $          | 10,674    |       | $         | (811       | ) | $ | 27,083 |   |
| Net income (loss)                                                |       | $                      | 673        |         | $          | (1,373    | )          | $         | (12,215    | ) | $ | (12,915 | ) |
| Total assets                                                     |       | $                      | 287,251    |         | $          | 65,476    |       | $         | 28,346     |   | $ | 381,073 |   |

 

**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 theweighted average 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** | ** ** |
| ** **                                             | ** ** | **(Restated)**                                           | ** ** | ** **                                              | ** ** | **(Restated)** | ** ** | ** ** | ** ** |
|                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| **Basic earnings per share calculation:**              |       |                                                     |       |                                                    |       |   |   |   |   |
|                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss) income to common stockholders               |       | $                                                        | (7,499     | )                                                       | $          | 683 |   | $ | (12,915 | ) | $ | 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                      |       | $                                                        | (0.08      | )                                                       | $          | 0.01 |   | $ | (0.15 | ) | $ | 0.03 |   |
|                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| **Diluted earnings per share calculation:**            |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss) income to common stockholders               |       | $                                                        | (7,499     | )                                                       | $          | 683 |   | $ | (12,915 | ) | $ | 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                    |       | $                                                        | (0.08      | )                                                       | $          | 0.01 |   | $ | (0.15 | ) | $ | 0.03 |   |

 

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(1)The options granted andoutstanding would be anti-dilutive given the Company’s net loss. The optionshave therefore been excluded from diluted earnings 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**

 

As previously disclosed, on December 9,2008, Brad Foote entered into a thirty-second amendment (the “Loan AgreementAmendment”) to the Loan Agreement. In connection with the Loan AgreementAmendment, Brad Foote and Bank of America also entered into an Amended andRestated Renewal Revolving Note (the “Revolving Loan”) and Note ModificationAgreements pertaining to outstanding notes under the Loan Agreement, each datedas of December 9, 2008 (the “Note Modification Agreements” and, togetherwith the Revolving Loan, the “Additional Loan Agreements”).

 

Under the terms of the LoanAgreement Amendment and the Additional Loan Agreements, Brad Foote and Bank ofAmerica agreed (i) to reduce the amount of the Revolving Loan from $10,000to $7,000, (ii) to waive Brad Foote’s violation of the covenantsconcerning EBITDA coverage ratio and cash flow coverage ratio calculations setforth in the Loan Agreement (the “Loan Agreement Covenants”), (iii) tomodify the interest rate charged on the Notes related to the Note ModificationAgreements to equal “Adjusted LIBOR,” generally defined as the rate at whichU.S. dollar deposits in a comparable amount are offered generally in the LondonInterbank Eurodollar market plus 2.5 percent, (iv) that Brad Foote paydown $3,000, from $7,000 to $4,000, of the outstanding balance on the RevolvingLoan from a loan with the Company and (v) that Brad Foote pay to Bank of Americaa covenant waiver fee in the amount of $25.

 

Priorto disclosing entry into the Loan Agreement Amendment and Additional LoanAgreements, the Company had disclosed Brad Foote’s violation of two covenantsin the Loan Agreement. Under the terms of the Loan Agreement Amendment and theAdditional Loan Agreements, Bank of America waived Brad Foote’s violation ofthe Loan Agreement Covenants for the nine-month period ended September 30,2008. As previously disclosed,on January 16, 2009, Brad Foote, 1309 South Cicero Avenue, LLC, awholly-owned subsidiary of Brad Foote (“1309”) and 5100 Neville Road, LLC, awholly-owned subsidiary of Brad Foote (“5100”) entered into an OmnibusAmendment Agreement dated January 15, 2009 (the “Omnibus Amendment”) withBank of America, amending the Loan Agreement. Among other things, the Amendment provided that (i) Bank of Americawaive Brad Foote’s violation of the Loan Agreement Covenants for the periodfrom December 31, 2008 up to but not including January 20, 2009, (ii) themaximum amount that Brad Foote may borrow under the Revolving Note issued underthe Loan Agreement is $4,000,000, (iii) the termination date of the LoanAgreement be generally extended to March 15, 2009, (iv) that forinterest periods beginning after January 20, 2009, the interest ratepayable for notes issued by Brad Foote under the Loan Agreement and under asubsidiary note issued by 1309 and 5100 be equal to the greater of (A) therate per annum equal to the British Bankers Association LIBOR Rate plus fivepercent (5%) and (B) six percent (6%), (v) Brad Foote’s financial covenants and events of default beamended and restated and (vi) BradFoote pay Bank of America an amendment and waiver fee in the amount of $25, aswell as all reasonable fees and expenses of Bank of America incurred inconnection with the drafting, negotiation, execution, delivery andeffectiveness of the Omnibus Amendment.

 

In connection with the Omnibus Amendment,Brad Foote, 1309, 5100, the Company and Bank of America entered into additionaldocuments on January 16, 2009, including (i) a PledgeAgreement pursuant to which the Company grants Bank of America a first prioritysecurity interest in all shares of stock of Brad Foote and all indebtedness tothe Company and any promissory notes and/or instruments representing suchindebtedness, (ii) an Unconditional Guaranty executed by the Company infavor of Bank of America, 

 

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whereby the Company guarantees the payment of Brad Foote’s indebtednessunder the Loan Agreement and certain other loan documents, certain agreementsdesigned to protect 1309 and 5100 against fluctuations in interest rates,currency exchange rates or commodity prices and any treasury managementservices provided to 1309 and/or 5100 by Bank of America or any affiliate ofBank of America, (iii) anUnconditional Guaranty executed by each of 1309 and 5100 in favor of Bank of America,whereby each of 1309 and 5100 guarantees the payment of Brad Foote’sindebtedness under the Loan Agreement and (iv) mortgages from 1309, 5100and Brad Foote to Bank of America, each of (i) through (iv) abovedated as of January 15, 2009.

 

OnMarch 13, 2009, Brad Foote, 1309 and 5100 entered into the Second OmnibusAmendment with BOA, further amending the Loan Agreement, and, in connectiontherewith, the Company, 1309 and 5100 entered into the Reaffirmation.  Among other things, the Second Omnibus Amendmentfurther amended and restated certain financial covenants under the LoanAgreement and set forth certain additional covenants, including a minimummonthly cumulative EBITDA covenant for Brad Foote.  The Second Omnibus Amendment also providedthat (i) BOA waive Brad Foote’s violation of the minimum EBITDA covenantfor the period ending December 31, 2008, (ii) Brad Foote pay to BOA$1.5 million of the amount outstanding on the Revolving Loan ($500,000 of whichwas paid by the Company on behalf of Brad Foote) and that the maturity date ofthe Revolving Loan be extended to January 15, 2011, (iii) the RevolvingLoan be amortized pursuant to monthly payments, (iv) BOA’s revolvingcredit commitment under the Loan Agreement be terminated, resulting in BOA havingno obligation to make revolving loans to Brad Foote under the Loan Agreement, (v)the maturity dates of the Equipment Note, Equipment Note No. 2 andSubsidiary Note be shortened to December 31, 2011 and (vi) Brad Foote payBOA an extension fee on a monthly basis through the end of 2009.

 

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.

 

Inaddition to the covenants described in the preceding paragraph, covenantscontained in the Loan Agreement include restrictions on Brad Foote’s ability tomake distributions or dividends, incur indebtedness, make subordinated debtpayments or make capital expenditures, any of which could ultimately affect ourability to undertake additional debt or equity financing.

 

OnOctober 31, 2008, the Company executed an amendment (the “RegistrationRights Amendment”) to its existing Registration Rights Agreement with Tontine,pursuant to which the Company has agreed to register Tontine’s shares forresale. The Registration Rights Amendment extended the deadline for the Company’sobligation to file a registration statement to December 31, 2008.  On January 9, 2009 Tontineexecuted a Waiver (the “Waiver”) relating to the Registration RightsAgreement.  The Waiver waives therequirement that the Company file a registration statement to register sharesheld by Tontine no later than December 31, 2008 and extends the deadlinefor the Company’s obligation to file such registration statement to March 31,2009.

 

OnMarch 13, 2009, Badger obtained a term loan from FNB (the “FNB Term Loan”)in the amount of approximately $1,538.  Aportion of the proceeds from the FNB Term Loan was used to pay off the FNB Lineand Badger’s existing term loan with FNB referenced above, with the remainderavailable for working capital. The FNB Term Loan is secured by the inventory,accounts receivable and certain equipment of Badger.  The FNB Term Loan bears interest at a rate of6.75% per annum, matures on March 13, 2013, and is guaranteed byBroadwind.

 

In October 2007, Tower Tech obtained a secured line of credit (the “ICBLine”) from Investors Community Bank (“ICB”) in the amount of $2,500, which wasincreased to $5,500 on March 21, 2008. The ICB Line is secured by substantiallyall of the assets of Tower Tech and RBA. Draws on the ICB Line bear interest ata variable rate equal to the greater of (A) 4.25% or (B) 1.75% above “ThePrevious Month Average 30 Day Libor Rate published in The Wall Street Journal.”

 

On April 7, 2008, RBA executed four (4) promissory notes in favor ofICB (the “ICB Notes”), in the aggregate principal amount of approximately$3,781, as follows: (i) term note in the maximum principal amount ofapproximately $421, bearing interest at a per annum rate of 6.85%, with amaturity date of October 5, 2012; (ii) term note in the maximum principalamount of $700, bearing interest at a per annum rate of 5.65%, with a maturitydate of April 25, 2013; (iii) term note in the maximum principal amount of$928, bearing interest at a per annum rate of 5.65%, with a maturity date ofApril 25, 2013; and (iv) line of credit note in the maximum principal amount of$1,732, bearing interest at a per annum rate of 4.48% until May 1, 2008 andthereafter at “The Previous Month Average 30 Day Libor Rate published in TheWall Street Journal”, with a maturity date of April 5, 2009 (the “Line ofCredit Note”). The ICB Notes provide for multiple advances, and are secured bysubstantially all of the assets of RBA. 

 

Pursuant to a Commercial Debt Modification Agreement dated as ofOctober 22, 2008, Tower Tech and ICB extended the maturity date of the ICB Lineto April 22, 2009. In connection with the extension, Broadwind providedre-executed guaranties to ICB for all debt owed by each of Tower Tech and RBAto ICB. In addition, Tower Tech re-executed its guaranty for debts owed by RBAto ICB, and RBA re-executed its guaranty for debts owed to ICB by Tower Tech.

 

We anticipated that each of Tower Tech and RBA would be in violation ofcertain financial covenants relating to net worth and debt to net worth ratioas of December 31, 2008. Tower Tech and RBA each received waivers on December29, 2008 from ICB for the anticipated violations.

 

On March 13, 2009, ICB agreed to extendthe maturity date of the ICB Line to March 13, 2010 (the “ICB LineExtension Agreement”).  Pursuant to theICB Line Extension Agreement, Tower Tech agreed to establish new financialcovenants with respect to minimum debt service coverage ratio and minimumtangible net worth.  Tower Tech alsoagreed to retain their primary deposit accounts with ICB and that no additionalloans or leases be entered into by Tower Tech without the prior approval ofICB.

 

On March 13, 2009, ICB agreed to extendthe maturity date of the Line of Credit Note to March 13, 2010 (the “ICBNote Extension Agreement”).  Pursuant tothe ICB Note Extension Agreement, RBA agreed to establish new financialcovenants with respect to minimum debt service coverage ratio and minimumtangible net worth.  RBA also agreed toretain their primary deposit accounts with ICB and that no additional loans orleases be entered into by RBA without the prior approval of ICB.

 

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# **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.)*

 

***Restatement of Prior Period FinancialStatements***

 

Weare filing this Amendment No. 2 to Form 10-Q, referred to as the “SecondAmendment,” to Amendment No. 1 to the Quarterly Report on Form 10-Qfor the quarter ended September 30, 2008 and filed on November 19,2008 (“the Amended Form 10-Q”) to restate our unaudited interim condensedconsolidated financial statements.

 

***Background of the Restatement***

 

OnDecember 1, 2008, the Audit Committee of the Board of Directors of theCompany concluded, following a preliminary determination by the Company’smanagement, that the financial statements contained in the Amended Form 10-Qfor the quarterly period ended September 30, 2008 should no longer berelied upon and must be restated.

 

Inconjunction with the filing of the Company’s Form 10-Q as of September 30,2008, management conducted a physical inventory at its Cicero, Illinois andNeville Island, Pennsylvania Brad Foote facilities. Based on additional review,subsequent to the filing date, it was determined that the valuation fileused to value the inventory contained conversion and other errors, whichresulted in an overstatement of the Company’s inventory balance as of September 30,2008, in the amount of approximately $2,517.

 

The Company is incorporatinginto this Second Amendment certain goodwill and deferred income tax errorcorrections associated with our June 4, 2008 acquisition of BadgerTransport, Inc.  Subsequent to thefiling date of the Company’s Quarterly Report on Form 10-Q for the quarterended September 30, 2008, it was determined that management reflected therevised valuation amounts for some, but not all, of the acquired assets.  The change to goodwill, the provision forincome taxes and deferred tax liability was approximately $473, $401 and $72,respectively.

 

Additionally, the Companydetermined that an additional charge should be taken during the quarter ended September 30,2008 to reflect a customer credit related to a multi-stage negotiation withinterim accounting implications. The Company will record a charge of $800during the third quarter to reflect this agreement.

 

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TheCompany is also incorporating into this Second Amendment certain income taxadjustments to correct an error in the Company’s methodology of calculatingdeferred income taxes.  Specifically, theCompany is now using gross state income tax rates versus state income tax ratesnet of the federal tax benefit in order to calculate deferred federal anddeferred state income taxes and associated valuation allowances.  The change to the provision for income taxesand the deferred tax liability was approximately $342.

 

***Summary of the Effects of the Restatement***

 

Theeffect of the adjustments on our condensed consolidated balance sheets resultedin a decrease in inventories in the amount of $2,517 a $473 decrease ingoodwill, a $800 increase in accrued liabilities, and a $270 increase in ourdeferred income tax liabilities, and a corresponding increase in accumulateddeficit of $4,060 in our stockholders’ equity section. The effect of theadjustments on our condensed consolidated statements of operations for thethree and nine months ended September 30, 2008 resulted in a decrease insales, an increase in cost of sales, and an increase in income tax provision of$800, $2,517, and $743 respectively, which correspondingly resulted in a $4,060increase in net loss. For the three and nine months ended September 30,2008, the effect of the adjustments on our condensed consolidated statements ofoperations resulted in an increase in net loss per basic and diluted earningsper share of $0.04 and $0.05, respectively. The effect of the adjustments onour condensed consolidated statements of cash flows for the nine months ended September 30,2008 resulted in a $4,060 increase in our net loss, a $743 increase in thechange in our deferred income taxes, a decrease of $2,517 in the change in ourinventories, and a $800 increase in the change of our accrued liabilities. Allof these respective adjustments to our consolidated statements of cash flowsfor the nine months ended September 30, 2008 were included in theoperating activity section of the consolidated statement of cash flows and didnot result in a corresponding change to our total net cash used in operatingactivities for the nine months ended September 30, 2008.  Accordingly, certain amounts presented in “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” have been restated to reflect these adjustments.

 

**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.

 

Our business is dedicated tothe production and servicing of components for energy andinfrastructure-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 support, maintenance, andcomponent repairs for wind turbines through our Energy Maintenance Service, LLC(“EMS”) subsidiary; and specialized heavy haul trucking services through ourBadger 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.

 

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*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.

 

***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.

 

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***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)** | ** ** |
| ** **                                           | ** ** | **(Restated)**                                                 | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net sales                                            |       | $                                                              | 63,688     |           | 100        | % | $ | 3,123 |   | 100 | % | $ | 60,565 |   |
| Cost of sales                                        |       | 54,706                                                         |       | 86             | %          | 1,839 |   | 59 | % | 52,867 |   |
| Gross profit                                         |       | 8,982                                                          |       | 14             | %          | 1,284 |   | 41 | % | 7,698 |   |
|                                                 |       |                                                           |       |           |       |   |   |   |   |   |   |
| 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                                                         |       | 24             | %          | 694 |   | 22 | % | 14,348 |   |
|                                                 |       |                                                           |       |           |       |   |   |   |   |   |   |
| Operating (loss) income                              |       | (6,060                                                         | )          | -10            | %          | 590 |   | 19 | % | (6,650 | ) |
|                                                 |       |                                                           |       |           |       |   |   |   |   |   |   |
| 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 |       | (6,289                                                         | )          | -10            | %          | 683 |   | 22 | % | (6,972 | ) |
| Provision for income taxes                           |       | 1,210                                                          |       | -2             | %          | — |   | 0 | % | 1,210 |   |
| Net (loss) income                                    |       | $                                                              | (7,499     | )              | -12        | % | $ | 683 |   | 22 | % | $ | (8,182 | ) |

 
| ** **                                           | ** ** | **Nine Months Ended September 30,**        | ** ** | **Change**     | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------|------------|
| ** **                                           | ** ** | **2008**                                                       | ** ** | **%**          | ** ** | **2007 (1)** | ** ** | **%** | ** ** | **$** | ** ** |
| ** **                                           | ** ** | **(in thousands, except for percentages)** | ** ** |
| ** **                                           | ** ** | **(Restated)**                                                 | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net sales                                            |       | $                                                              | 139,682    |           | 100        | % | $ | 7,985 |   | 100 | % | $ | 131,697 |   |
| Cost of sales                                        |       | 112,599                                                        |       | 81             | %          | 4,888 |   | 61 | % | 107,711 |   |
| Gross profit                                         |       | 27,083                                                         |       | 19             | %          | 3,097 |   | 39 | % | 23,986 |   |
|                                                 |       |                                                           |       |           |       |   |   |   |   |   |   |
| 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                              |       | (9,641                                                         | )          | -7             | %          | 1,191 |   | 15 | % | (10,832 | ) |
|                                                 |       |                                                           |       |           |       |   |   |   |   |   |   |
| 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 |       | (11,505                                                        | )          | -8             | %          | 1,344 |   | 17 | % | (12,849 | ) |
| Provision for income taxes                           |       | 1,410                                                          |       | -1             | %          | — |   | 0 | % | 1,410 |   |
| Net (loss) income                                    |       | $                                                              | (12,915    | )              | -9         | % | $ | 1,344 |   | 17 | % | $ | (14,259 | ) |

 

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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.

 

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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 30,2008, is helpful in analyzing the consolidated results of operations for thethree and nine months ended September 30, 2008.  Please refer to Results of Operations by BusinessSegment (below) for further discussion on the financial performance of ourbusiness segments.

 
| ** **    | ** ** | **Three Months Ended September 30, 2008** | ** ** |
|---------------|------------|--------------------------------------------------------------------|------------|
| ** **    | ** ** | **Products**                                                       | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
| ** **    | ** ** | **(Restated)**                                                     | ** ** |
| Net sales     |       | $                                                                  | 51,042     |   | $ | 13,501 |   | $ | (855 | ) | $ | 63,688 |   |
| Cost of sales |       | 46,309                                                             |       | 8,341 |   | 56 |   | 54,706 |   |
| Gross profit  |       | $                                                                  | 4,733      |   | $ | 5,160 |   | $ | (911 | ) | $ | 8,982 |   |

 
| ** **    | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
|---------------|------------|-------------------------------------------------------------------|------------|
| ** **    | ** ** | **Products**                                                      | ** ** | **Services** | ** ** | **Other** | ** ** | **Total** | ** ** |
| ** **    | ** ** | **(Restated)**                                                    | ** ** |
| Net sales     |       | $                                                                 | 115,331    |   | $ | 25,205 |   | $ | (854 | ) | $ | 139,682 |   |
| Cost of sales |       | 98,111                                                            |       | 14,531 |   | (43 | ) | 112,599 |   |
| Gross profit  |       | $                                                                 | 17,220     |   | $ | 10,674 |   | $ | (811 | ) | $ | 27,083 |   |

 

*Sales and Cost of Sales.*  Forthe three and nine-month periods ended September 30, 2008, consolidatednet sales were $63,688 and $139,682, respectively, with related cost of salesduring that period of $54,706 and $112,599, respectively, for a gross profit of$8,982 and $27,083, 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 $60,565 and $131,697 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 Footeand RBA during the fourth quarter of 2007, the acquisition of EMS during thefirst quarter of 2008, and the acquisition of Badger in the second quarter of2008, 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 overallincrease to SG&A is largely due to inclusion of the SG&A expensesrelated to operating the companies acquired during the fourth quarter of 2007and first nine months of 2008, and is also attributable to increasedprofessional fees and expenses related to the costs associated with being apublic company, including SEC and Sarbanes-Oxley Section 404 compliance.In addition, we continued to hire and integrate new members of our management teamand other operations, accounting and administrative professionals who joinedBroadwind over 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 segmentfor the three and nine months ended September 30, 2008 and 2007.

 

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***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:

 

*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)** | ** ** |
| ** **    | ** ** | **(Restated)**                                                 | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net sales     |       | $                                                              | 51,042     |           | 100.0      | % | $ | 3,123 |   | 100.0 | % | $ | 47,919 |   | 1534.4 | % |
| Cost of sales |       | 46,309                                                         |       | 90.7           | %          | 1,839 |   | 58.9 | % | 44,470 |   | 2418.2 | % |
| Gross profit  |       | $                                                              | 4,733      |           | 9.3        | % | $ | 1,284 |   | 41.1 | % | $ | 3,449 |   | 268.6 | % |

 
| ** **    | ** ** | **Nine Months Ended September 30,**        | ** ** | **Change**     | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|----------------|------------|
| ** **    | ** ** | **2008 (1)**                                              | ** ** | **%**          | ** ** | **2007** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| ** **    | ** ** | **(Restated)**                                                 | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| Net sales     |       | $                                                              | 115,331    |           | 100.0      | % | $ | 7,985 |   | 100.0 | % | $ | 107,346 |   | 1344.3 | % |
| Cost of sales |       | 98,111                                                         |       | 85.1           | %          | 4,888 |   | 61.2 | % | 93,223 |   | 1907.2 | % |
| Gross profit  |       | $                                                              | 17,220     |           | 14.9       | % | $ | 3,097 |   | 38.8 | % | $ | 14,123 |   | 456.0 | % |

 

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(1) The data for thethree and nine months ended September 30, 2007 do not include the resultsof operations of RBA and Brad Foote, each of which were acquired during thefourth quarter of 2007.

 

*Sales and Cost of Sales.*  For thethree 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 $46,309 and $98,111, respectively, for a gross profit of $4,733 and$17,220 respectively, or 9.3% and 14.9%, 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)**                                              | ** ** | **%** | ** ** |
| ** **    | ** ** | **(Restated)**                                                 | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                                              | 13,501     |   | 100.0 | % |
| Cost of sales |       | 8,341                                                          |       | 61.8 | % |
| Gross profit  |       | $                                                              | 5,160      |   | 38.2 | % |

 

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| ** **    | ** ** | **Nine Months Ended September 30,**        | ** ** |
|---------------|------------|----------------------------------------------------------------|------------|
| ** **    | ** ** | **2008 (1)**                                              | ** ** | **%** | ** ** |
| ** **    | ** ** | **(Restated)**                                                 | ** ** |
| ** **    | ** ** | **(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.

 

**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 $43,870 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 the use of this cash wereprimarily relieved during the fourth quarter of 2008.

 

*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 $12,915 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 by financing activities was $119,068, which consistedprimarily of the $100,000 private placement, funded in April and June 2008,to Tontine Capital Partners, L.P. (“TCP”), Tontine Partners, L.P. (“TP”),Tontine Overseas Fund Ltd., (“TOF”) and Tontine 25 Overseas Master Fund L.P. (“T25”and collectively with Tontine Capital Overseas Master Fund, L.P. (“TMF”), TCP,TP, TOF and their affiliates, “Tontine”). In addition, our short- and long-term

 

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borrowings increased by$1,398 and $5,442, respectively, which was offset by payments on short- andlong-term borrowings of $4,849 and payments on capital lease obligations of$453.  In addition, on January 16,2008, to finance the cash portion of the EMS acquisition, the Company sold anaggregate of 2,031,250 shares of unregistered common stock in a private placementto TP and T25 at $8.48 per share for a total purchase price of $17,225,pursuant to a previously disclosed Amended and Restated Securities PurchaseAgreement with TCP, TP and T25.

 

*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 Securities Purchase Agreement with a member of the Company’sBoard of Directors, which provided for the purchase of 62,814 shares of Companycommon stock at a price of $7.96 per share for a total purchase price ofapproximately $500.  The funding for thisinvestment was provided on April 24, 2008. Thomas Weisel Partners issued a fairness opinion in connection with bothtransactions.

 

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 totheir terms, 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 pursuant to a Loan and SecurityAgreement dated as of January 17, 1997, as amended (the “Loan Agreement”):(i) a $7,000 (now $4,000) 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 baserate.  The Equipment Loan No. 2,which matures on June 30, 2013, had approximately $4,500 outstanding atclosing of the Brad Foote acquisition with $8,582 outstanding at September 30,2008.  The Equipment Loan No. 2includes an option to convert the obligation to a term note. Interest waspayable monthly at the base rate until June 30, 2008, at which point BradFoote began making monthly principal payments of $150 plus interest, whichaccrues at the Base Rate on the outstanding balance of the Equipment Loan No. 2.

 

The Loan Agreement statesthat the Revolving Loan, Term Loan, Equipment Loan and Equipment Loan No. 2are secured by all of the assets of Brad Foote and that Brad Foote mustmaintain insurance on the collateral. The Loan Agreement requires Brad Foote tocomply with standard covenants, including financial covenants relating toratios of cash flow coverage and senior debt to EBITDA, to provide monthlyfinancial reporting and to submit our annual audited financial statements to Bankof America at the close of each fiscal year. Each of the Revolving Loan, TermLoan, Equipment Loan and Equipment Loan No. 2 become immediately due andpayable upon breach of any covenants or representations made by Brad Foote inthe Loan Agreement and upon other customary events of default.  Pursuant to the thirty-first amendment to theLoan Agreement, Brad Foote had an obligation to pay down the outstandingprincipal amount under the Revolving Loan by September 30, 2008, and madethe required payment on October 1, 2008. Brad Foote received a waiver from Bank of America with respect to thispayment. Additionally, the Company failed compliance with two of itscovenants, specifically its EBITDA coverage ratio and its cash flow coverageratio calculations.   The Company hasattained a waiver from Bank of America of these covenants as of September 30,2008, and otherwise was in compliance with the financial and other covenantscontained in the Loan Agreement as of September 30, 2008.  Thecovenants contained in the Loan Agreement include 

 

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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.

 

InOctober 2007, Tower Tech obtained a secured line of credit (the “ICB Line”)from Investors Community Bank (“ICB”) in the amount of $2,500, which wasincreased to $5,500 on March 21, 2008. The ICB Line is secured by substantiallyall of the assets of Tower Tech and RBA. Draws on the ICB Line bear interest ata variable rate equal to the greater of (A) 4.25% or (B) 1.75% above “ThePrevious Month Average 30 Day Libor Rate published in The Wall Street Journal.”

 

OnApril 7, 2008, RBA executed four (4) promissory notes in favor of ICB (the “ICBNotes”), in the aggregate principal amount of approximately $3,781, as follows:(i) term note in the maximum principal amount of approximately $421, bearinginterest at a per annum rate of 6.85%, with a maturity date of October 5, 2012;(ii) term note in the maximum principal amount of $700, bearing interest at a perannum rate of 5.65%, with a maturity date of April 25, 2013; (iii) term note inthe maximum principal amount of $928, bearing interest at a per annum rate of5.65%, with a maturity date of April 25, 2013; and (iv) line of credit note inthe maximum principal amount of $1,732, bearing interest at a per annum rate of4.48% until May 1, 2008 and thereafter at “The Previous Month Average 30 DayLibor Rate published in The Wall Street Journal”, with a maturity date of April5, 2009 (the “Line of Credit Note”). The ICB Notes provide for multipleadvances, and are secured by substantially all of the assets of RBA.

 

Pursuant to aCommercial Debt Modification Agreement dated as of October 22, 2008, Tower Techand ICB extended the maturity date of the ICB Line to April 22, 2009. Inconnection with the extension, Broadwind provided re-executed guaranties to ICBfor all debt owed by each to Tower Tech and RBA to ICB. In addition, Tower Techre-executed its guaranty for debts owed by RBA to ICB, and RBA re-executed itsguaranty for debts owed to ICB by Tower Tech.

 

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.

 

During the remainder of2008, we plan to finance operations, including equipment purchases and othercapital expenditures with working capital and external financing. We believethat we will need to raise additional funding in the near term to financeoperations and meet revenue, profitability and strategic goals for theforeseeable future. In addition, we continue to evaluate and assess potentialstrategic acquisition targets. Cash requirements for any future acquisitionsmay be substantial; however, we cannot estimate the cash or other considerationthat may be required to finance such transactions. Unprecedented disruptions inthe current credit and financial markets, particularly in the United States andEurope, have had a significant material adverse impact on a number of financialinstitutions and have limited access to capital and credit for manycompanies.  These disruptions could makeit 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.

 

*Recent Activity*

 

Aspreviously disclosed, on December 9, 2008, Brad Foote entered into theLoan Agreement Amendment. In connection with the Loan Agreement Amendment, BradFoote and Bank of America also entered into the Additional Loan Agreements.

 

Underthe terms of the Loan Agreement Amendment and the Additional Loan Agreements,Brad Foote and Bank of America agreed (i) to reduce the amount of theRevolving Loan from $10,000 to $7,000, (ii) to waive Brad Foote’sviolation of the Loan Agreement Covenants), (iii) to modify the interestrate charged on the Notes related to the Note Modification Agreements to equal“Adjusted LIBOR,” generally defined as the rate at which U.S. dollar depositsin a comparable amount are offered generally in the London Interbank Eurodollarmarket plus 2.5 percent, (iv) that Brad Foote pay down $3,000, from $7,000to $4,000, of the outstanding balance on the Revolving Loan from a loan withthe Company and (v) that Brad Foote pay to Bank of America a covenantwaiver fee in the amount of $25.

 

Priorto disclosing entry into the Loan Agreement Amendment and Additional LoanAgreements, the Company had disclosed Brad Foote’s violation of two covenantsin the Loan Agreement.  Under the terms of the Amendment and theAdditional Loan Agreements, Bank of America waived Brad Foote’s violation ofthe Loan Agreement Covenants for the nine-month period ended September 30,2008.

 

As previously disclosed, on January 16,2009, Brad Foote, 1309 South Cicero Avenue, LLC, a wholly-owned subsidiary ofBrad Foote (“1309”) and 5100 Neville Road, LLC, a wholly-owned subsidiary ofBrad Foote (“5100”) entered into an Omnibus Amendment Agreement dated January 15,2009 (the “Omnibus Amendment”) with Bank of America, amending the LoanAgreement.  Among other things, theAmendment provided that (i) Bank of America waive Brad Foote’s violation of the Loan AgreementCovenants for the period from December 31, 2008 up to but not including January 20,2009, (ii) the maximum amount that Brad Foote may borrow under theRevolving Note issued under the Loan Agreement is $4,000, (iii) thetermination date of the Loan Agreement be generally extended to March 15,2009, (iv) that for interest periods beginning after January 20,2009, the interest rate payable for notes issued by Brad Foote under the LoanAgreement and under a subsidiary note issued by 1309 and 5100 be equal to the greaterof (A) the rate per annum equal to the British Bankers Association LIBORRate plus five percent (5%) and (B) six percent (6%), (v) Brad Foote’s financial covenants andevents of default be amended and restated and (vi) Brad Foote pay Bank of America an amendment andwaiver fee in the amount of $25, as well as all reasonable fees and expenses ofBank of America incurred in connection with the drafting, negotiation, execution,delivery and effectiveness of the Omnibus Amendment.

 

In connection with the Omnibus Amendment,Brad Foote, 1309, 5100, the Company and Bank of America entered into additionaldocuments on January 16, 2009, including (i) a PledgeAgreement pursuant to which the Company grants Bank of America a first prioritysecurity interest in all shares of stock of Brad Foote and all indebtedness tothe Company and any promissory notes and/or instruments representing suchindebtedness, (ii) an Unconditional Guaranty executed by the Company infavor of Bank of America, whereby the Company guarantees the payment of BradFoote’s indebtedness under the Loan Agreement and certain other loan documents,certain agreements designed to protect 1309 and 5100 against fluctuations ininterest rates, currency exchange rates or commodity prices and any treasurymanagement services provided to 1309 and/or 5100 by Bank of America or anyaffiliate of Bank of America, (iii) anUnconditional Guaranty executed by each of 1309 and 5100 in favor of Bank ofAmerica, whereby each of 1309 and 5100 guarantees the payment of Brad Foote’sindebtedness under the Loan Agreement and (iv) mortgages from 1309, 5100and Brad Foote to Bank of America, each of (i) through (iv) abovedated as of January 15, 2009.

 

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.

 

Aspreviously disclosed, on October 31, 2008, the Company executed a RegistrationRights Amendment to its existing Registration Rights Agreement with Tontinepursuant to which the Company has agreed to register Tontine’s shares forresale. The Registration Rights Amendment extended the deadline for theCompany’s obligation to file a registration statement to December 31,2008.  On January 9, 2009Tontine executed a waiver, which waives the requirement that the Company file aregistration statement to register shares held by Tontine no later than December 31,2008 and extends the deadline for the Company’s obligation to file suchregistration statement to March 31, 2009.

 

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**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-looking statements.  Insome cases, forward-looking statements can be identified by words such as “believe,”“expect,” “anticipate,” “plan,” “potential,” “continue,” “intend” or similarexpressions.  Forward-looking statements also include the assumptionsunderlying or relating to any of the foregoing statements.  Suchforward-looking statements are based upon current expectations and beliefs andare subject to a number of factors and uncertainties that could cause actualresults to differ materially from those described in the forward-lookingstatements.  Any forward-looking statements made herein are madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Our forward-looking statements include or relateto the following: (i) our plans to continue to grow our businessthrough acquisitions and integration of previous and future acquisitions; (ii) ourbeliefs with respect to the sufficiency of our working capital and our plans toevaluate alternate sources of funding if necessary; (iii) our ability tocomply with loan covenants; (iv) our expectations relating to constructionof new facilities and expansion of existing facilities; (v) our plans withrespect to the use of proceeds from financing activities; (vi) our beliefsand expectations relating to the recent economic downturn and the potentialimpact it may have on our business; and (vii) the anticipated benefits ofour remediation efforts on the strength of our internal control processes andour plans with respect to future remediation efforts.  Forward-looking statements cannot beguaranteed and actual results may vary materially due to the uncertainties andrisks, known and unknown, associated with such statements. We caution investorsthat many important factors have affected, and in the future could affect ouractual results of operations and cause such results to differ materially fromthose anticipated in forward-looking statements made in this release andelsewhere by us or on our behalf. These factors include, but are not limitedto, our ability to successfully 

 

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identify strategic acquisition targets andconsummate acquisitions on terms favorable to us; the successful integration ofacquired businesses; our need for and ability to obtain additional capital; theimpact of the recent economic downturn on the wind energy industry; thecontinued availability of capital and financing on terms favorable to us; ourability to hire and retain management and other employees; delays in completingfacility expansions; our ability to successfully remediate internal controldeficiencies; other general business and economic conditions; and those risksdescribed from time to time in our reports to the Securities and ExchangeCommission (including in our Annual Report filed on Form 10-KSB). It isnot possible to foresee or identify all factors that could cause actual resultsto differ from expected or historic results. As such, investors should notconsider any list of such factors to be an exhaustive statement of all of therisks, uncertainties or potentially inaccurate assumptions that investorsshould take into account when making investment decisions. Stockholders andother readers are cautioned not to place undue reliance on forward-lookingstatements, which speak only as of the date on which they are made. We do notintend to update publicly or revise any forward-looking statements.

 

**Item 4T.     Controls and Procedures**

 

**MaterialWeaknesses**

 

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.

 

As previously disclosed in Item 8A of our 2007 Annual Report, amaterial weakness exists at our Brad Foote subsidiary relating to routinephysical inventory counts, the reconciliations of book to physicaladjustments, the process for maintenance of perpetual inventory recordsand related accounting for scrap and cost of goods sold.  In conjunction with the filing of the Company’sForm 10-Q as of September 30, 2008, management conducted a physicalinventory at the Brad Foote facility. Based on additional review, subsequent tothe filing date, it was determined that the valuation file used to valuethe inventory contained conversion errors and other errors.  As of September 30, 2008, a materialweakness still exists at our Brad Foote subsidiary.  Management is continuing to enhance thecontrol structure to address the previously identified material weakness andthere are no assurances that enhanced controls will remediate this materialweakness.

 

In conjunction with the filing of our Quarterly Report on the secondamended Form 10-Q/A for the quarter ended September 30, 2008, weidentified a material weakness in income taxes.   The Company did notmaintain effective controls over the completeness and accuracy of the incometax provision and related balance sheet accounts.  Specifically, theCompany’s controls over the processes and procedures related to thedetermination and review of the quarterly tax provisions were not adequate toensure that the income tax provision was prepared in accordance with generallyaccepted accounting principles.

 

In addition, the Company identified an additional material weaknessassociated with the controls over non-routine transactions.   We didnot maintain effective controls to ensure that the accounting treatment wasaccurately presented for non-routine transactions and that the relatedaccounting treatment of those transactions was appropriately reviewed to ensurecompliance with generally accepted accounting principles.

 

**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, which havenot 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 weidentified in our internal control over financial reporting as of December 31,2007. However, because many of the remediation actions we have undertaken arerecent and because some of our remediation actions will be designed to improveour internal control over annual measures, management will not be able toconclude that the material weaknesses have been eliminated until such time asit is able to complete its assessment of the effectiveness of internal controlover financial reporting.  Whilemanagement is exercising its best efforts to remediate material weaknesses andsignificant deficiencies identified and described above, it cannot provide anyassurance as to when such material weaknesses and significant deficiencies willbe remediated, and other material weaknesses or significant deficiencies mayarise.

 

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**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 outsideconsultants to supplement the expertise in our internal staff and hiredadditional experienced and qualified financial professionals. In addition, wehave relied on compensating measures including: enhanced communication andinvolvement of outside legal counsel in reporting and disclosure matters, andthe continued involvement of our Audit Committee, the chair of which is afinancial expert with extensive accounting and auditing experience.  Further to these efforts, during the secondquarter we hired an internal General Counsel and a Director of Compliance to assistin 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.  These material weaknesses are summarized below:

 

*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 sophisticatedaccounting and reporting system to report its results of operations andfinancial condition.   Additionally, Badger did not have in placeadequate access 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 the remainder of2008 and into 2009.  We believe that withthe passage of sufficient financial close and reporting cycles to evidenceoperation of these compensating controls, the control deficiencies will beremediated.

 

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**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,customer disputes and employment-related claims. To date, none of these typesof litigation, 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 disruption of ourcollection of accounts receivable from our customers and could have a materialadverse effect on our liquidity, results of operations and financial condition.

 

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

 

Tontinehas publicly stated that it will begin to explore alternatives for thedisposition of shares of our common stock. We have from time to time relied on Tontine for financing cash flowsfrom private placements of our common stock. Tontine’s intentions with respect to our common stock may affect ourability to raise cash from financing activities and could affect our liquidity.

 

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 growthstrategy, and may affect our ability to continue as a going concern. In theevent of a loan covenant violation and inability to obtain waivers, our loanswould be due immediately and our ability to obtain financing could be severelyimpacted. As previously disclosed, as a result of restating ourfinancial statements for the quarterly period ended September 30, 2008,Brad Foote was in violation of two covenants in its Loan Agreement with Bank ofAmerica.  As previously disclosed, BradFoote attained a waiver from Bank of America of these covenant violations as ofSeptember 30, 2008, and otherwise was in compliance with the financial andother covenants contained in the Loan Agreement as of September 30,2008.  Also as previously disclosed, on January 16, 2009, Brad Foote, 1309 and5100 entered into the Omnibus Amendment with Bank of America, amending the LoanAgreement.  Among other things, theOmnibus Amendment provided that Bank of America waive Brad Foote’s violation ofthe Loan Agreement Covenants for the period from December 31, 2008 up tobut not including January 20, 2009. The Omnibus Amendment also provided that Brad Foote’s financialcovenants and events of default be amended and restated.  There can be no certainty that Brad Footewill be in compliance with the amended and restated covenants contained in theLoan Agreement for any future periods, or that Brad Foote will be able toattain a waiver from Bank of America in the event of a violation of one or moresuch covenants.

 

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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. |
|----------------------|-------------------------|
|                 |                    |
|                 |                    |
| March 16,  2009 | By:                     | /s/  J. Cameron Drecoll |
|                 |                    | J.  Cameron Drecoll |
|                 |                    | Chief  Executive Officer |
|                 |                    |
|                 |                    |
| March 16,  2009 | By:                     | /s/  Matthew J. Gadow |
|                 |                    | Matthew  J. Gadow |
|                 |                    | Chief  Financial Officer |

 

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EXHIBIT INDEX

BROADWIND ENERGY, INC.

FORM 10-Q FOR THEQUARTER 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 — incorporated by reference to Exhibit 10.2 to the Company’s  Form 10-Q filed November 14, 2008.                                                                                                                                   |
| 10.3                |   | Note  Extension Agreement between Brad Foote and LaSalle Bank National Bank dated  August 30, 2008 — incorporated by reference to Exhibit 10.3 to the  Company’s Form 10-Q filed November 14, 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 — incorporated by reference to Exhibit 10.5 to the Company’s  Form 10-Q filed November 14, 2008.                                                                                                                             |
| 10.6                |   | Note  Extension Agreement between Brad Foote and LaSalle Bank National Bank dated  September 29, 2008 — incorporated by reference to Exhibit 10.6 to  the Company’s Form 10-Q filed November 14, 2008.                                                                                                                                                                                                |
| 10.7                |   | Thirty-Second  Amendment, dated December 9, 2008, to Loan and Security Agreement dated  January 17, 1997 between Brad Foote Gear Works, Inc. and Bank of  America, N.A. — incorporated by reference to Exhibit 10.1 to the  Company’s Current Report on Form 8-K filed December 10, 2008.                                                                                                   |
| 10.8                |   | Amended  and Restated Renewal Revolving Note, dated December 9, 2008, between  Brad Foote Gear Works, Inc. and Bank of America, N.A. — incorporated by  reference to Exhibit 10.2 to the Company’s Current Report on  Form 8-K filed December 10, 2008.                                                                                                                                          |
| 10.9                |   | Note  Modification Agreement, dated December 9, 2008, between Brad Foote Gear  Works, Inc. and Bank of America, N.A., pertaining to Brad Foote’s  consolidated term loan in the original principal sum of $7,899,332.98—  incorporated by reference to Exhibit 10.3 to the Company’s Current  Report on Form 8-K filed December 10, 2008.                                                   |
| 10.10               |   | Note  Modification Agreement, dated December 9, 2008, between Brad Foote Gear  Works, Inc. and Bank of America, N.A., pertaining to Brad Foote’s  $11,000,000 non-revolving equipment line of credit loan— incorporated by  reference to Exhibit 10.4 to the Company’s Current Report on  Form 8-K filed December 10, 2008.                                                                 |
| 10.11               |   | Note  Modification Agreement, dated December 9, 2008, between Brad Foote Gear  Works, Inc. and Bank of America, N.A., pertaining to Brad Foote’s  $9,000,000 non-revolving equipment line of credit loan— incorporated by  reference to Exhibit 10.5 to the Company’s Current Report on  Form 8-K filed December 10, 2008.                                                                  |
| 10.12               |   | Note  Modification Agreement, dated December 9, 2008, between Brad Foote Gear  Works, Inc. and Bank of America, N.A., pertaining to Brad Foote’s  $2,075,000 term loan— incorporated by reference to Exhibit 10.6 to the  Company’s Current Report on Form 8-K filed December 10, 2008.                                                                                                     |
| 10.13               |   | Waiver  relating to Registration Rights Agreement by Tontine Capital Partners L.P.,  Tontine Capital Overseas Master Fund, L.P., Tontine Partners, L.P., Tontine  Overseas Fund, Ltd. and Tontine 25 Overseas Master Fund, L.P., dated  January 9, 2009— incorporated by reference to Exhibit 10.1 to the  Company’s Current Report on Form 8-K filed January 15, 2009.                               |
| 10.14               |   | Omnibus Amendment Agreement by and among Brad Foote Gear  Works, Inc., 1309 South Cicero Avenue, LLC, 5100 Neville Road, LLC and  Bank of America, N.A. dated as of January 15, 2009— incorporated  by reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed January 22, 2009.                                                                                            |
| 10.15               |   | Pledge Agreement by and between Broadwind Energy, Inc. and Bank  of America, N.A. dated as of January 15, 2009— incorporated by  reference to Exhibit 10.2 to the Company’s Current Report on  Form 8-K filed January 22, 2009.                                                                                                                                                                  |
| 10.16               |   | Unconditional Guaranty by Broadwind Energy, Inc. dated as of  January 15, 2009— incorporated by reference to Exhibit 10.3  to the Company’s Current Report on Form 8-K filed January 22, 2009.                                                                                                                                                                                                   |
| 10.17               |   | Unconditional Guaranty by 1309 South Cicero Avenue, LLC and 5100  Neville Road, LLC dated as of January 15, 2009— incorporated by  reference to Exhibit 10.4 to the Company’s Current Report on  Form 8-K filed January 22, 2009.                                                                                                                                                                     |
| 10.18               |   | Mortgage relating to 1309 S. Cicero  Avenue, Cicero, Illinois, 60804, from 1309 South Cicero Avenue, LLC and Brad  Foote Gear Works, Inc. to Bank of America, N.A. dated as of  January 15, 2009— incorporated by reference to Exhibit 10.5  to the Company’s Current Report on Form 8-K filed January 22, 2009.                                                                                 |
| 10.19               |   | Mortgage, dated as of January 15, 2009, relating to 1310 S. 47th Avenue,  Cicero, Illinois, 60804, from Brad Foote Gear Works, Inc. to Bank of  America, N.A. dated as  of January 15, 2009—  incorporated by reference to Exhibit 10.6 to the Company’s Current  Report on Form 8-K filed January 22, 2009.                                                                           |

 

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| 10.20 |   | Mortgage relating to 5100 Neville  Road, Pittsburgh, Pennsylvania, 15225, from 5100 Neville Road, LLC and Brad  Foote Gear Works, Inc. to Bank of America, N.A. dated as of  January 15, 2009— incorporated by reference to Exhibit 10.7  to the Company’s Current Report on Form 8-K filed January 22, 2009. |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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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