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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

** **
| **x** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended March 31, 2010**

 

**OR**

 
| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**For thetransition period from          to**

 

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

 

 

**BROADWIND ENERGY, INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

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

(Address of principal executive offices)

 

**(630)637-0315**

(Registrant’s telephone number, including areacode)

 

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

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

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).   Yes o   No o

 

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

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).   Yes o   No x

 

Number of shares ofregistrant’s common stock, par value $0.001, outstanding as of May 4,2010: 106,759,863.

 

 

 

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** **

**BROADWIND ENERGY, INC. ANDSUBSIDIARIES**

 

**INDEX**

 
| ** ** | ** **                                                                                  | **Page No.** |
|------------|---------------------------------------------------------------------------------------------|-------------------|
|       |                                                                                        |              |
|       | **PART I.  FINANCIAL INFORMATION**                                                     |              |
|       |                                                                                        |              |
| Item 1.    | Financial Statements                                                                        | 1                 |
|       | Condensed Consolidated Balance Sheets                                                       | 1                 |
|       | Condensed Consolidated Statements of Operations                                             | 2                 |
|       | Condensed Consolidated Statements of Cash Flows                                             | 3                 |
|       | Notes to Condensed Consolidated Financial Statements                                        | 4                 |
|       |                                                                                        |              |
| Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 16                |
| Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                 | 25                |
| Item 4.    | Controls and  Procedures                                                                    | 25                |
|       |                                                                                        |              |
|       | **PART II.  OTHER INFORMATION**                                                        |              |
|       |                                                                                        |              |
| Item 1.    | Legal Proceedings                                                                           | 26                |
| Item 1A.   | Risk Factors                                                                                | 26                |
| Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 26                |
| Item 3.    | Defaults Upon  Senior Securities                                                            | 26                |
| Item 4.    | [Removed and Reserved]                                                                      | 26                |
| Item 5.    | Other Information                                                                           | 26                |
| Item 6.    | Exhibits                                                                                    | 26                |
| Signatures | 27                                                                                          |

 

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Table of Contents

 

**PART I.      FINANCIALINFORMATION**

 

**Item 1.    FinancialStatements**

 

**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share data)**

** **
| ** **                                                                                                                                                                                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                                                                                                                                                                   | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                                   |       |               |       |                  |       |
| **CURRENT ASSETS:**                                                                                                                                                                          |       |               |       |                  |       |
| Cash                                                                                                                                                                                         |       | $                  | 26,343     |                  | $          | 4,829 |   |
| Restricted cash                                                                                                                                                                              |       | —             |       | 2,010                 |       |
| Accounts receivable, net of allowance for doubtful  accounts of $2,145 and $1,641 as of March 31, 2010 and December 31,  2009, respectively                                        |       | 14,664             |       | 21,920                |       |
| Inventories, net                                                                                                                                                                             |       | 14,761             |       | 9,039                 |       |
| Prepaid expenses and other current assets                                                                                                                                                    |       | 4,511              |       | 5,688                 |       |
| Total current assets                                                                                                                                                                         |       | 60,279             |       | 43,486                |       |
| Property and equipment, net                                                                                                                                                                  |       | 133,954            |       | 136,249               |       |
| Goodwill                                                                                                                                                                                     |       | 9,715              |       | 9,715                 |       |
| Intangible assets, net                                                                                                                                                                       |       | 36,173             |       | 37,248                |       |
| Other assets                                                                                                                                                                                 |       | 3,337              |       | 3,338                 |       |
| **TOTAL ASSETS**                                                                                                                                                                             |       | $                  | 243,458    |                  | $          | 230,036 |   |
|                                                                                                                                                                                         |       |               |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                               |       |               |       |                  |       |
| **CURRENT LIABILITIES:**                                                                                                                                                                     |       |               |       |                  |       |
| Lines of credit and notes payable                                                                                                                                                            |       | $                  | —     |                  | $          | 10,717 |   |
| Current maturities of long-term debt                                                                                                                                                         |       | 2,655              |       | 9,021                 |       |
| Current portions of capital lease obligations                                                                                                                                                |       | 1,143              |       | 1,130                 |       |
| Accounts payable                                                                                                                                                                             |       | 12,265             |       | 14,710                |       |
| Accrued liabilities                                                                                                                                                                          |       | 6,115              |       | 6,965                 |       |
| Deferred revenue                                                                                                                                                                             |       | 7,973              |       | 10,199                |       |
| Total current liabilities                                                                                                                                                                    |       | 30,151             |       | 52,742                |       |
|                                                                                                                                                                                         |       |               |       |                  |       |
| **LONG-TERM LIABILITIES:**                                                                                                                                                                   |       |               |       |                  |       |
| Long-term debt, net of current maturities                                                                                                                                                    |       | 12,301             |       | 15,778                |       |
| Long-term capital lease obligations, net of  current portions                                                                                                                                |       | 3,010              |       | 3,286                 |       |
| Interest rate swap agreements                                                                                                                                                                |       | —             |       | 253                   |       |
| Deferred income tax liabilities                                                                                                                                                              |       | 465                |       | 403                   |       |
| Other                                                                                                                                                                                        |       | 1,829              |       | 1,979                 |       |
| Total long-term liabilities                                                                                                                                                                  |       | 17,605             |       | 21,699                |       |
|                                                                                                                                                                                         |       |               |       |                  |       |
| **COMMITMENTS AND CONTINGENCIES**                                                                                                                                                            |       |               |       |                  |       |
|                                                                                                                                                                                         |       |               |       |                  |       |
| **STOCKHOLDERS’ EQUITY:**                                                                                                                                                               |       |               |       |                  |       |
| Preferred stock, $0.001 par value; 10,000,000  shares authorized; no shares issued or outstanding                                                                                            |       | —             |       | —                |       |
| Common stock, $0.001 par value; 150,000,000 shares  authorized; 106,746,705 and 96,701,127 shares issued and outstanding as of  March 31, 2010 and December 31, 2009, respectively |       | 107                |       | 97                    |       |
| Additional paid-in capital                                                                                                                                                                   |       | 355,000            |       | 300,779               |       |
| Accumulated deficit                                                                                                                                                                          |       | (159,405           | )          | (145,281              | )          |
| Total stockholders’ equity                                                                                                                                                              |       | 195,702            |       | 155,595               |       |
| **TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                                         |       | $                  | 243,458    |                  | $          | 230,036 |   |

 

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

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

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

 
| ** **                                                          | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                          | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                                                                |       |                                  |       |   |   |
| Revenues                                                            |       | $                                     | 22,170     |   | $ | 53,062 |   |
| Cost  of sales                                                      |       | 26,654                                |       | 48,377 |   |
| Gross  (loss) profit                                                |       | (4,484                                | )          | 4,685 |   |
|                                                                |       |                                  |       |   |   |
| **OPERATING EXPENSES:**                                             |       |                                  |       |   |   |
| Selling,  general and administrative                                |       | 8,214                                 |       | 8,916 |   |
| Intangible  amortization                                            |       | 1,075                                 |       | 2,906 |   |
| Total  operating expenses                                           |       | 9,289                                 |       | 11,822 |   |
| Operating  loss                                                     |       | (13,773                               | )          | (7,137 | ) |
|                                                                |       |                                  |       |   |   |
| **OTHER (EXPENSE) INCOME, net:**                                    |       |                                  |       |   |   |
| Interest  expense, net                                              |       | (362                                  | )          | (542 | ) |
| Other,  net                                                         |       | 132                                   |       | 93 |   |
| Total  expense, net                                                 |       | (230                                  | )          | (449 | ) |
|                                                                |       |                                  |       |   |   |
| Net  loss before provision (benefit) for income taxes               |       | (14,003                               | )          | (7,586 | ) |
| **PROVISION (BENEFIT) FOR INCOME TAXES**                            |       | 121                                   |       | (436 | ) |
| **NET LOSS**                                                        |       | $                                     | (14,124    | ) | $ | (7,150 | ) |
|                                                                |       |                                  |       |   |   |
| **NET LOSS PER COMMON SHARE - Basic and diluted**                   |       | $                                     | (0.14      | ) | $ | (0.07 | ) |
|                                                                |       |                                  |       |   |   |
| **WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic and  diluted** |       | 104,371                               |       | 96,492 |   |

 

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

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)(In thousands)**

** **
| ** **                                                                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                           | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                                                                                 |       |                                  |       |   |   |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                            |       |                                  |       |   |   |
| Net loss                                                                             |       | $                                     | (14,124    | ) | $ | (7,150 | ) |
| **Adjustments to reconcile net loss  to net****cash used in  operating activities:** |       |                                  |       |   |   |
| Depreciation and amortization expense                                                |       | 4,834                                 |       | 6,607 |   |
| Change in fair value of interest rate swap  agreements                               |       | (253                                  | )          | (85 | ) |
| Deferred income taxes                                                                |       | 62                                    |       | (356 | ) |
| Stock-based compensation                                                             |       | 366                                   |       | 536 |   |
| Allowance for doubtful accounts                                                      |       | 504                                   |       | (1,050 | ) |
| Gain on disposal of assets                                                           |       | (7                                    | )          | (7 | ) |
| Changes in operating assets and liabilities:                                         |       |                                  |       |   |   |
| Accounts receivable                                                                  |       | 6,753                                 |       | 11,938 |   |
| Inventories                                                                          |       | (5,722                                | )          | (1,438 | ) |
| Prepaid expenses and other current assets                                            |       | 1,176                                 |       | 693 |   |
| Accounts payable                                                                     |       | (1,199                                | )          | (4,846 | ) |
| Accrued liabilities                                                                  |       | (1,012                                | )          | (1,981 | ) |
| Deferred revenues                                                                    |       | (2,226                                | )          | (3,162 | ) |
| Other non-current assets and liabilities                                             |       | (101                                  | )          | — |   |
| Net cash used in operating activities                                                |       | (10,949                               | )          | (301 | ) |
|                                                                                 |       |                                  |       |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                           |       |                                  |       |   |   |
| Purchases of property and equipment                                                  |       | (2,596                                | )          | (6,743 | ) |
| Proceeds from disposals of property and equipment                                    |       | 7                                     |       | 24 |   |
| Decrease in restricted cash                                                          |       | 2,010                                 |       | — |   |
| Net cash used in investing activities                                                |       | (579                                  | )          | (6,719 | ) |
|                                                                                 |       |                                  |       |   |   |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                           |       |                                  |       |   |   |
| Net proceeds from issuance of stock                                                  |       | 53,467                                |       | — |   |
| Common stock issued under defined contribution  401(k) plan                     |       | 172                                   |       | — |   |
| Payments on lines of credit and notes payable                                        |       | (20,561                               | )          | (4,634 | ) |
| Proceeds from lines of credit and notes payable                                      |       | —                                |       | 1,542 |   |
| Proceeds from sales-leaseback transactions                                           |       | —                                |       | 1,235 |   |
| Principal payments on capital leases                                                 |       | (263                                  | )          | (325 | ) |
| Issuance of restricted stock grants                                                  |       | 227                                   |       | 282 |   |
| Net cash provided by (used in) financing activities                                  |       | 33,042                                |       | (1,900 | ) |
|                                                                                 |       |                                  |       |   |   |
| **NET INCREASE (DECREASE) IN CASH**                                                  |       | 21,514                                |       | (8,920 | ) |
| **CASH, beginning of the period**                                                    |       | 4,829                                 |       | 15,253 |   |
| **CASH, end of the period**                                                          |       | $                                     | 26,343     |   | $ | 6,333 |   |
|                                                                                 |       |                                  |       |   |   |
| **Supplemental cash flow information:**                                              |       |                                  |       |   |   |
| Interest paid, net of capitalized interest                                           |       | $                                     | 433        |   | $ | 676 |   |
| Income taxes paid                                                                    |       | $                                     | 38         |   | $ | 506 |   |
|                                                                                 |       |                                  |       |   |   |
| **Non-cash financing activities:**                                                   |       |                                  |       |   |   |
| Common stock issued under defined contribution  401(k) plan                     |       | $                                     | 172        |   | $ | — |   |
| Issuance of restricted stock grants                                                  |       | $                                     | 227        |   | $ | 282 |   |

 

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

 

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**BROADWINDENERGY, INC. AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

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

 

**NOTE 1 — BASIS OF PRESENTATION**

 

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)for interim financial information and in accordance with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, the financial statements donot include all of the information and notes required by GAAP for completefinancial statements. In the opinion of management, all adjustments, includingnormal recurring accruals, considered necessary for a fair presentation havebeen included. Operating results for the three months ended March 31, 2010are not necessarily indicative of the results that may be expected for the yearending December 31, 2010. The December 31, 2009 consolidated balancesheets were derived from audited financial statements, but do not include alldisclosures 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-K for the year ended December 31,2009.

 

The unaudited condensedconsolidated financial statements presented herein include the accounts ofBroadwind Energy, Inc. and its wholly owned subsidiaries. As of March 31,2010, the Company had four operating subsidiaries, which consisted of BradFoote Gear Works, Inc. (“Brad Foote”), Tower Tech Systems Inc. (“TowerTech”), Energy Maintenance Service, LLC (“EMS”) and Badger Transport, Inc.(“Badger”). All inter-company transactions and balances have been eliminated.Additionally, certain reclassifications have been made to prior periodfinancial statements to conform to the current period presentation.

 

**BusinessOverview**

 

As used in this Quarterly Report on Form 10-Q, the terms “we,”“us,”“our,”“Broadwind,” and the “Company,” refer to Broadwind Energy, Inc., aDelaware corporation headquartered in Naperville, Illinois, and its whollyowned subsidiaries. TheCompany is an independent, horizontally integrated supplier of customizedproducts and services to the U.S. wind energy industry. The Company’s productand service portfolio provides its customers, including wind turbinemanufacturers, wind farm developers and wind farm operators, with access to a broadarray of wind component and service offerings. The Company manufactures gearingsystems and wind towers for the wind industry, and provides technical serviceand precision repair and engineering and specialized logistics to the windindustry in the United States.

 

In December 2009,the Company revised its reporting segment presentation into four reportableoperating segments: Towers, Gearing, Technical and Engineering Services, andLogistics. Accordingly, all current and prior period financial results havebeen revised to reflect these changes. See Note 12, “Segment Reporting,”of the notes to these condensed consolidated financial statements for furtherdiscussion of the Company’s reportable segments.

 

*Towers*

 

The Company manufactureswind towers, specifically the large and heavier wind towers that are designedfor 2 megawatt (“MW”) and larger wind turbines. The Company’s productionfacilities are strategically located in close proximity to the primary U.S.wind resource regions, sited in Wisconsin and Texas, including a recentlyconstructed third wind tower manufacturing facility in Brandon, South Dakota,which will become operational as business warrants and pending the installationof certain additional equipment. The Company also manufactures other specialtyweldments and structures for industrial customers.

 

*Gearing*

 

The Companymanufactures precision gearing systems for the wind industry in North Americaand products for industrial markets including mining and oilfield equipment,with facilities in Illinois and Pennsylvania. The Company uses an integratedmanufacturing process, which includes a machining process in Cicero, Illinois,a heat treatment process in Neville Island, Pennsylvania and a finishingprocess in the Company’s Cicero factory.

 

*Technicaland Engineering Services*

 

The Company is anindependent service provider of construction support and operations andmaintenance services to the wind industry. The Company’s specialty servicesinclude oil change-out, up-tower tooling for gearing systems, drive-train andblade repairs and component replacement. The Company’s construction supportcapabilities include assembly of towers, nacelles, blades

 

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and other components. TheCompany also provides customer support, preventive maintenance and windtechnician training. The Company’s technicians utilize regional service centersfor storage and repair of parts as well as for training. Through its precisionrepair and engineering services, the Company repairs and refurbishes complexwind components, including control systems, gearboxes and blades. The Companyalso conducts warranty inspections, commissions turbines and provides technicalassistance.

 

*Logistics*

 

The Company offersspecialized transportation, permitting and logistics management to the windindustry for oversize and overweight machinery and equipment. The Companydelivers complete turbines to the installation site, including blades, nacellesand tower sections for final erection. The Company focuses on the projectmanagement of the delivery of complete wind turbine farms.

 

**Financingand Liquidity**

 

As of March 31,2010, the Company had $26,343 in cash on hand. As discussed further inNote 6, “Debt and Credit Agreements,” of the notes to these condensedconsolidated financial statements, the Company repaid in January 2010outstanding indebtedness in the amount of $16,076 and $3,066 to Bank of Americaand Investors Community Bank, respectively. The repayment of this indebtednessreleased the Company from certain financial covenants and debt servicerequirements.

 

TheCompany’s management anticipates that the Company will be able to satisfy thecash requirements associated with, among other things, working capital needs,capital expenditures and debt and lease commitments through at least the next12 months primarily with current cash on hand, cash generated byoperations or other financing arrangements. The Company’s ability to make scheduled payments ondebt and other financial obligations will depend on future financial andoperating performance. However, if sales and subsequent collections fromseveral of the Company’s large customers, as well as revenues generated fromnew customer orders, are not materially consistent with management’sexpectations, the Company may encounter cash flow and liquidity issues.Additional funding may not be available when needed or on terms acceptable tothe Company. Furthermore, if the Company is unable to obtain additionalcapital, the Company will likely be required to delay, reduce the scope of oreliminate the Company’s plans for expansion and growth, and this could affectthe Company’s overall operations. Any additional equity financing, ifavailable, may be dilutive to stockholders, and additional debt financing, ifavailable, will likely require financial covenants or other restrictions on theCompany.

 

**NOTE 2 —EARNINGS PER SHARE**

 

The followingtable presents a reconciliation of basic and diluted earnings per share for thethree months ended March 31, 2010 and 2009 as follows:

 
| ** **                                             | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                             | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| **Basic earnings per share  calculation:**             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net  loss to common stockholders                       |       | $                                     | (14,124    | ) | $ | (7,150 | ) |
| ** **                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Weighted  average number of common shares outstanding  |       | 104,370,962                           |       | 96,491,885 |   |
| Basic  net loss per share                              |       | $                                     | (0.14      | ) | $ | (0.07 | ) |
| ** **                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Diluted earnings per share  calculation:**           | ** ** | ** **                            | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net  loss to common stockholders                       |       | $                                     | (14,124    | ) | $ | (7,150 | ) |
| ** **                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Weighted  average number of common shares outstanding  |       | 104,370,962                           |       | 96,491,885 |   |
| Common  stock equivalents:                             |       |                                  |       |   |   |
| Stock  options and unvested restricted stock units (1) |       | —                                |       | — |   |
| Weighted  average number of common shares outstanding  |       | 104,370,962                           |       | 96,491,885 |   |
| Diluted  net loss per share                            |       | $                                     | (0.14      | ) | $ | (0.07 | ) |

 

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(1) Stock options andunvested restricted stock units granted and outstanding of 1,883,751 and2,032,375 as of March 31, 2010 and 2009, respectively, are excluded fromthe computation of diluted earnings due to the anti-dilutive effect as a resultof the Company’s net loss for these respective periods.

 

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**NOTE 3 — INVENTORIES**

 

Inventories are stated atthe lower of cost or market value and primarily consist of raw material,work-in-process, and finished goods. Work-in-process consists of labor andoverhead, processing costs, purchased subcomponents and materials purchased forspecific customer orders. Finished goods consist of components purchased fromthird parties as well as components manufactured by the Company that will beused to produce final customer products.

 

The components ofinventories as of March 31, 2010 and December 31, 2009 are summarizedas follows:

 
| ** **                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2010**           | ** ** | **2009**              | ** ** |
|                                             |       |               |       |                  |       |
| Raw  materials                                   |       | $                  | 7,172      |                  | $          | 4,957 |   |
| Work-in-process                                  |       | 7,471              |       | 2,921                 |       |
| Finished  goods                                  |       | 1,803              |       | 3,338                 |       |
|                                             |       | 16,446             |       | 11,216                |       |
| Less:  Reserve for excess and obsolete inventory |       | (1,685             | )          | (2,177                | )          |
| Net  inventories                                 |       | $                  | 14,761     |                  | $          | 9,039 |   |

 

**NOTE4 — GOODWILL AND INTANGIBLE ASSETS**

 

Goodwillrepresents the excess of cost over fair market value of identifiable net assetsacquired through business purchases. The Company performs an annual goodwillimpairment test during the fourth quarter of each year, or more frequently whenevents or circumstances indicate that the carrying value of its assets may notbe recovered. Intangible assets represent the fair value assignedto definite-lived assets such as trade names, customer relationships, andnoncompete agreements as part of acquisitions completed during 2007 and 2008.Intangible assets are amortized on a straight-line basis over their estimateduseful lives, which range from 3 to 20 years. The Company tests intangibleassets for impairment only when events or circumstances indicate that thecarrying value of these assets may not be recovered.

 

As a result of the reduction in the Company’s revenues during the firstquarter of 2010 from original projections, the Company evaluated therecoverability of certain of its identifiable intangible assets and goodwillbalances. Based upon the Company’s assessment, no impairment to these assetswas identified as of March 31, 2010.

 

As of March 31, 2010 and December 31, 2009, the cost basis,accumulated amortization and net book value of intangible assets were asfollows:

 
| ** **              | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **              | ** ** | **Adjusted**            | ** ** | ** **                 | ** ** | **Net** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **              | ** ** | **Cost**                | ** ** | **Accumulated**            | ** ** | **Book** | ** ** | **Cost** | ** ** | **Accumulated** | ** ** | **Impairment** | ** ** | **Book** | ** ** |
| ** **              | ** ** | **Basis**               | ** ** | **Amortization**           | ** ** | **Value** | ** ** | **Basis** | ** ** | **Amortization** | ** ** | **Charge** | ** ** | **Value** | ** ** |
| Intangible  assets:     |       |                    |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Customer  relationships |       | $                       | 33,059     |                       | $          | (6,412 | ) | $ | 26,647 |   | $ | 106,638 |   | $ | (21,332 | ) | $ | (57,835 | ) | $ | 27,471 |   |
| Trade  names            |       | 10,159                  |       | (1,212                     | )          | 8,947 |   | 10,279 |   | (1,099 | ) | (107 | ) | 9,073 |   |
| Noncompete  agreements  |       | 1,490                   |       | (911                       | )          | 579 |   | 1,490 |   | (786 | ) | — |   | 704 |   |
|                    |       |                    |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Intangible  assets      |       | $                       | 44,708     |                       | $          | (8,535 | ) | $ | 36,173 |   | $ | 118,407 |   | $ | (23,217 | ) | $ | (57,942 | ) | $ | 37,248 |   |

 

Intangibleinvestments associated with customer relationships, trade names and noncompeteagreements are being amortized ratably over the estimated life of the relatedintangible assets. Amortization expense was $1,075 and $2,906 for the threemonths ended March 31, 2010 and 2009, respectively.

 

**NOTE5 — ACCRUED LIABILITIES**

 

Accrued liabilities as of March 31, 2010 and December 31,2009 consisted of the following:

 

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| ** **                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2010**           | ** ** | **2009**              | ** ** |
|                            |       |               |       |                  |       |
| Accrued  operating expenditures |       | $                  | 125        |                  | $          | 954 |   |
| Accrued  payroll and benefits   |       | 2,829              |       | 2,295                 |       |
| Accrued  professional fees      |       | 456                |       | 1,067                 |       |
| Accrued  warranty               |       | 1,047              |       | 918                   |       |
| Accrued  other                  |       | 1,658              |       | 1,731                 |       |
| Total  accrued liabilities      |       | $                  | 6,115      |                  | $          | 6,965 |   |

 

**NOTE6 — DEBT AND CREDIT AGREEMENTS**

 

The Company’s outstandingdebt balances as of March 31, 2010 and December 31, 2009 consisted ofthe following:

 
| ** **                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2010**           | ** ** | **2009**              | ** ** |
|                                       |       |               |       |                  |       |
| Lines  of credit                           |       | $                  | —     |                  | $          | 10,601 |   |
| Term  loans and notes payable              |       | 12,636             |       | 22,595                |       |
| Related  party note                        |       | 2,320              |       | 2,320                 |       |
|                                       |       | 14,956             |       | 35,516                |       |
| Less  - Current maturities                 |       | (2,655             | )          | (19,738               | )          |
| Long-term  debt, net of current maturities |       | $                  | 12,301     |                  | $          | 15,778 |   |

 

**CreditFacilities**

 

***Brad Foote***

 

In connection with theCompany’s acquisition of Brad Foote in October 2007, the Company assumedoutstanding debt and available lines of credit totaling approximately $25,500under various secured debt facilities (the “BOA Debt Facilities”) with Bank ofAmerica. The BOA Debt Facilities were governed by a Loan and Security Agreementdated as of January 17, 1997 (as amended and/or restated, the “LoanAgreement”).

 

On January 22, 2010,(i) Brad Foote repaid all of the outstanding principal and interest underthe BOA Debt Facilities in the aggregate amount of $16,076, and (ii) theBOA Debt Facilities were terminated.

 

***Tower Tech***

 

*ICBLine*

 

In October 2007,Tower Tech obtained a secured line of credit (the “ICB Line”) from InvestorsCommunity Bank in the amount of $2,500, which was subsequently increased to$5,500 on March 21, 2008. On March 13, 2009, Investors Community Bankagreed to extend the maturity date of the ICB Line to March 13, 2010 (the “ICBLine Extension Agreement”). Pursuant to a Master Amendment dated as of December 30,2009 (the “ICB Master Amendment”) among Investors Community Bank, Tower Techand Broadwind (as guarantor), the amount of the ICB Line was increased to$6,500, subject to borrowing base availability. On January 26, 2010, TowerTech repaid all of the outstanding indebtedness under the ICB Line in theamount of $3,066 and allowed the ICB Line to expire on March 13, 2010.

 

*ICBNotes*

 

On April 7, 2008,the Company’s wholly owned subsidiary R.B.A., Inc. (“RBA”) executed four (4) promissorynotes with Investors Community Bank (the “ICB Notes”), in the aggregateprincipal amount of approximately $3,781, as follows: (i) a term note inthe maximum principal amount of approximately $421, bearing interest at a perannum rate of 6.85%, with a maturity date of October 5, 2012; (ii) aterm 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) aterm note in the maximum principal amount of $928, bearing interest at a perannum rate of 5.65%, with a maturity date of April 25, 2013; and (iv) aline of credit note in the maximum principal amount of $1,732, bearing interestat a per annum rate of 4.48% until May 1, 2008 and thereafter at LIBORplus 1.75%, with a maturity date of April 5, 2009 (the 

 

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“Line of Credit Note”).The Line of Credit Note was subsequently modified on March 13, 2009 toextend the maturity date to March 13, 2010 and to change the interest rateto the greater of (A) 5% or (B) prime. The ICB Notes provide formultiple advances, and were secured by substantially all of the assets of RBA.

 

Pursuant to the merger ofRBA into Tower Tech on December 31, 2009, Tower Tech became the successorby merger to RBA’s interest in the loans from Investors Community Bank to RBAevidenced by the ICB Notes (other than the Line of Credit Note, which wasrepaid in full in January 2010). As of March 31, 2010, (i) thetotal amount of outstanding indebtedness under the ICB Notes was $1,563, and (ii) theeffective interest rate of the ICB Notes was 5.85%.

 

As of March 31,2010, Tower Tech was in compliance with all applicable financial covenantsrelated to the ICB Notes.

 

*GreatWestern Loan*

 

OnApril 28, 2009 (the “Construction Loan Closing Date”), Tower Tech enteredinto a Construction Loan Agreement (the “Construction Loan Agreement”) withGreat Western Bank (“GreatWestern”), pursuant to which Great Western agreed to provide up to $10,000 infinancing (the “Construction Loan”) to fund construction of Tower Tech’s windtower manufacturing facility in Brandon, South Dakota (the “Facility”). TheConstruction Loan bore interest at a rate of 7.5% per annum on all advances.The Construction Loan was originally scheduled to mature on January 5,2010, but was subsequently extended by mutual agreement.

 

TheConstruction Loan was secured by a first mortgage on the Facility and allfixtures, accounts and proceeds relating thereto, pursuant to a Mortgage (the “Mortgage”)and a Commercial Security Agreement, each between Tower Tech and Great Westernand entered into on the Construction Loan Closing Date. In addition, pursuantto an Assignment of Deposit Account (the “Assignment of Deposit Account”)entered into on the Construction Loan Closing Date, Tower Tech granted GreatWestern a security interest in a $2,000 deposit account (the “Deposit Account”).The Company also executed a Commercial Guaranty (the “Commercial Guaranty”) andentered into a Subordination Agreement in connection with the ConstructionLoan, under which it agreed to guarantee Tower Tech’s performance and tosubordinate all intercompany debt with Tower Tech to the Construction Loan.

 

Pursuantto a Letter Agreement dated as of the Construction Loan Closing Date amongGreat Western, Tower Tech and the Company, Tower Tech was granted the right, atany time prior to the maturity date of the Construction Loan, and subject tocertain parameters, to convert the Construction Loan into a term loan. TowerTech timely exercised this conversion right, and pursuant to a Change in TermsAgreement dated April 5, 2010 (the “Change in Terms Agreement”) betweenGreat Western and Tower Tech, the Construction Loan was converted to a termloan (the “Great Western Term Loan”) providing for monthly payments ofprincipal plus interest, extending the maturity date to November 5, 2016,reducing the principal amount to $6,500, and changing the per annum interestrate to 8.5%. Tower Tech was required to pay a 1.0% origination fee upon theconversion.

 

Inconnection with the conversion to the Great Western Term Loan as describedabove, (i) approximately $248 of the amount held in the Deposit Accountwas applied as a principal reduction payment in order to reduce the principalamount of the Great Western Term Loan to $6,500, (ii) the balance of theamount held in the Deposit Account was released to Tower Tech on March 31,2010, (iii) the Construction Loan Agreement was terminated and replacedwith a Business Loan Agreement dated April 5, 2010 (the “Business LoanAgreement”) by and between Great Western and Tower Tech, (iv) the Mortgagewas amended in certain respects pursuant to an Amendment to Mortgage dated April 5,2010 (the “Mortgage Amendment”) between Great Western and Tower Tech, and (v) pursuantto a Letter Agreement dated April 5, 2010 (the “Letter Agreement”) by andamong Great Western, Tower Tech and the Company, the Commercial Guaranty, theBusiness Loan Agreement and the Promissory Note executed in connection with theConstruction Loan were each modified in certain respects.

 

TheGreat Western Term Loan contains representations, warranties and covenants thatare customary to a term financing arrangement and contains no financialcovenants. As of March 31, 2010, total outstanding indebtedness under the ConstructionLoan was $6,500.

 

***Badger***

 

On March 13, 2009,Badger obtained a term loan (the “FNB Term Loan”) from First National Bank (“FNB”)in the principal amount of approximately $1,538. A portion of the proceeds fromthe FNB Term Loan was used to pay off Badger’s existing term loan and revolvingline of credit with FNB, with the remainder available for working capital. TheFNB Term Loan is secured by the inventory, accounts receivable and certainequipment of Badger, and is guaranteed by the Company. The FNB Term Loan bearsinterest at a rate of 6.75% per annum, matures on March 13, 2013, andrequires monthly payments of principal and interest. The FNB Term Loan containsno financial covenants. As of March 31, 2010, the total amount ofoutstanding indebtedness under the FNB Term Loan was $1,190.

 

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On September 30,2009, Badger obtained a term loan (the “GE Capital Term Loan”) from GeneralElectric Capital Corporation in the principal amount of approximately $1,000.The GE Capital Term Loan is secured by certain equipment of Badger, and isguaranteed by the Company. The GE Capital Term Loan bears interest at a rate of7.76% per annum, matures on September 30, 2014, and requires monthlypayments of principal and interest. The GE Capital Term Loan contains nofinancial covenants. As of March 31, 2010, the total amount of outstandingindebtedness under the GE Capital Term Loan was $907.

 

**SellingShareholder Notes**

 

On May 26,2009, the Company entered into a settlement agreement (the “SettlementAgreement”) with the former owners of Brad Foote (the “Selling Shareholders”),including J. Cameron Drecoll, the Company’s Chief Executive Officerand a member of its Board of Directors, related to the post-closing escrowestablished in connection with the Company’s acquisition of Brad Foote. Underthe terms of the Settlement Agreement, among other terms, the Company issuedthree promissory notes to the Selling Shareholders in the aggregate principalamount of $3,000 (the “Selling Shareholder Notes”). The Selling ShareholderNotes mature on May 28, 2012 and bear interest at a rate of 7% per annum,with interest payments due quarterly. The Selling Shareholder Note issued to Mr. Drecollin the principal amount of $2,320 and pursuant to the terms of the SettlementAgreement is deemed by the Company to be a related party transaction. As of March 31,2010, principal of $3,000 and accrued interest of $52 were outstanding underthe Selling Shareholder Notes. The Company has accounted for the SellingShareholder Notes as long-term debt in its condensed consolidated balancesheets.

 

**NOTE7 — INTEREST RATE SWAP AGREEMENTS**

 

As part of the Company’sacquisition of Brad Foote in October 2007, the Company assumed twointerest rate swap agreements. These swap agreements were intended to minimizethe impact of interest rate fluctuations on certain debt instruments. Interestrate swap agreements involve exchanges of fixed or floating rate interestpayments periodically over the life of the agreement without the exchange ofthe underlying principal amounts. Derivatives are measured at fair value andrecognized as either assets or liabilities on the Company’s balance sheet. Theaccounting for changes in the fair value of a derivative is dependent upon theuse of the derivative and its resulting designation. Unless specific hedgeaccounting criteria are met, changes in the fair value of the derivative mustbe recognized currently in earnings. The Company’s interest rate swaps did notqualify for hedge accounting, and therefore, the Company was required to recognizethe swap agreements at their fair market value and record the fluctuations inthe fair value of the swap agreements in current earnings.

 

In February 2010,the Company settled both interest rate swap agreements for $270 in connectionwith the repayment of all outstanding indebtedness to Bank of America in January 2010.

 

**NOTE 8 — STOCKHOLDERS’ EQUITY**

 

On January 21, 2010, the Company completed apublic offering of its common stock, par value $0.001 per share, at an offeringprice of $5.75 per share. In the offering, the Company sold 10,000,000 newlyissued shares of its common stock for approximately $54,625 in proceeds afterdeducting underwriting discounts, but before deducting other offering relatedcosts. In connection with the offering, the Company incurred $1,158 in costsassociated with professional and other offering related expenses, which havebeen netted against the proceeds received in additional paid-in capital in theCompany’s consolidated balance sheets as of March 31, 2010.

 

On March 26, 2010, the Company issued 32,761shares of its common stock for an aggregate fair value of $172 in connectionwith matching contributions made under its defined contribution 401(k) safeharbor plan.

 

**NOTE 9 — INCOME TAXES**

 

The Company accounts forincome taxes based upon an asset and liability approach. Deferred tax assetsand liabilities represent the future tax consequences of the differencesbetween the financial statement carrying amounts of assets and liabilitiesversus the tax basis of assets and liabilities. Under this method, deferred taxassets are recognized for deductible temporary differences, and operating lossand tax credit carryforwards. Deferred tax liabilities are recognized fortaxable temporary differences. Deferred tax assets are reduced by a valuationallowance when, in the opinion of management, it is more likely than not thatsome portion or all of the deferred tax assets will not be realized. The impactof tax rate changes on deferred tax assets and liabilities is recognized in theyear that the change is enacted.

 

The Company recognizesinterest and penalties related to uncertain tax positions in income taxexpense. As of March 31, 2010 and December 31, 2009, the Company hadaccrued interest or penalties related to uncertain tax positions totaling $32and $10, respectively.

 

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The Company files incometax returns in U.S. federal and state jurisdictions. As of March 31, 2010,open tax years in federal and some state jurisdictions date back to 1996 due tothe taxing authorities’ ability to adjust operating loss carryforwards. Nochanges in settled tax years have occurred through March 31, 2010. The Companydoes not anticipate there will be a material change in the total amount ofunrecognized tax benefits within the next 12 months.

 

The following tablepresents the income tax provision (benefit) for the three months ended March 31,2010 and 2009 as follows:

 
| ** **                                            | ** ** | **For the Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                            | ** ** | **2010**                                      | ** ** | **2009** | ** ** |
|                                                  |       |                                          |       |   |   |
| Net  loss before (benefit) provision for income taxes |       | $                                             | (14,003    | ) | $ | (7,586 | ) |
| Provision  (benefit) for income taxes                 |       | 121                                           |       | (436 | ) |
| Net  loss                                             |       | $                                             | (14,124    | ) | $ | (7,150 | ) |

 

Effective tax rates differfrom federal statutory income tax rates primarily due to changes in the Company’svaluation allowance, permanent differences and provisions for state and localincome taxes. As of March 31, 2010, the Company had a net deferred taxliability of $465 primarily related to temporary differences inindefinite-lived assets. These indefinite-lived assets consist of taxdeductible goodwill from business acquisitions completed during 2007 and 2008.During the three months ended March 31, 2010, the Company recorded aprovision for income taxes of $121 compared to a benefit for income taxes of$436 during the three months ended March 31, 2009. The increase in incometaxes during the three months ended March 31, 2010 was primarilyattributable to a full income tax valuation allowance for federal income taxreporting purposes resulting from the Company’s net operating losscarryforwards and due to a favorable change in the method of calculating stateincome taxes in the prior year. The income tax benefit recorded during thethree months ended March 31, 2009 related to a decrease in state incometaxes and deferred state income tax liabilities as a result of a favorablechange in the state of Wisconsin’s method of calculating state income taxes.

 

**NOTE10 — SHARE-BASED COMPENSATION**

 

**Overviewof Share-Based Compensation Plan**

 

The Company grantsincentive stock options and other equity awards pursuant to the BroadwindEnergy, Inc. 2007 Equity Incentive Plan (the “EIP”), which was approved bythe Company’s Board of Directors in October 2007 and by the Company’sstockholders in June 2008. The EIP was subsequently amended in August 2008by the Company’s Board of Directors to include certain non-material amendmentsto clarify the terms and conditions of restricted stock awards and to providethat the administrator of the EIP has the authority to authorize futureamendments to the EIP. The EIP was further amended by the Company’sstockholders in June 2009 to increase the number of shares of common stockauthorized for issuance under the EIP. As amended, the EIP reserves 5,500,000shares of common stock for grants to officers, directors, employees,consultants and advisors upon whose efforts the success of the Company and itsaffiliates will depend to a large degree. As of March 31, 2010, theCompany had reserved 1,472,565 shares for the exercise of stock optionsoutstanding, 411,186 shares for restricted stock unit awards outstanding and3,374,275 additional shares for future stock awards under the EIP. As of March 31,2010, 241,974 shares of common stock reserved for stock options and restrictedstock unit awards under the EIP have been issued in the form of common stock.

 

*StockOptions.*    Theexercise price of stock options granted under the EIP is equal to the closingprice of the Company’s common stock on the date of grant. Stock optionsgenerally become exercisable on the anniversary of the grant date, with vestingterms that may range from one to five years from the date of grant.Additionally, stock options expire ten years after the date of grant. If a planparticipant’s employment is terminated during the vesting period, he or sheforfeits the right to unvested stock option awards.

 

*RestrictedStock.*    Thegranting of restricted stock units is provided for under the EIP. Restrictedstock units generally vest on the anniversary of the grant date, with vestingterms that range from immediate vesting to five years from the date of grant.The fair value of each unit granted is equal to the closing price of theCompany’s common stock on the date of grant and is expensed ratably over thevesting term of the restricted stock award. If a plan participant’s employmentis terminated during the vesting period, he or she forfeits the right to anyunvested portion of the restricted stock units.

 

The following tablesummarizes stock option activity during the three months ended March 31,2010 under the EIP as follows:

 

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| ** **                                | ** ** | **Options** | ** ** | **Weighted Average   Exercise Price** | ** ** |
|-------------------------------------------|------------|-------------|------------|---------------------------------------|------------|
| Outstanding  as of December 31, 2009 |       | 1,402,163   |       | $                                     | 11.08      |   |
| Granted                                   |       | 229,828     |       | $                                     | 5.44       |   |
| Exercised                                 |       | —      |       | —                                |       |
| Forfeited                                 |       | (122,366    | )          | $                                     | 10.40      |   |
| Expired                                   |       | (37,060     | )          | $                                     | 19.56      |   |
| Outstanding  as of March 31, 2010    |       | 1,472,565   |       | $                                     | 10.04      |   |
|                                      |       |        |       |                                  |       |
| Exercisable  as of March 31, 2010    |       | 375,933     |       | $                                     | 10.30      |   |

 

The following tablesummarizes restricted stock unit activity during the three months ended March 31,2010 under the EIP as follows:

 
| ** **                                | ** ** | **Number of Units** | ** ** | **Weighted Average   Grant-Date Fair Value   Per Unit** | ** ** |
|-------------------------------------------|------------|---------------------|------------|---------------------------------------------------------|------------|
| Outstanding  as of December 31, 2009 |       | 279,151             |       | $                                                       | 8.76       |   |
| Granted                                   |       | 150,019             |       | $                                                       | 5.43       |   |
| Vested                                    |       | (17,984             | )          | $                                                       | 6.03       |   |
| Forfeited                                 |       | —              |       | —                                                  |       |
| Outstanding  as of March 31, 2010    |       | 411,186             |       | $                                                       | 7.66       |   |

 

The fair value of eachstock option award is estimated on the date of grant using the Black-Scholesoption pricing model. The determination of the fair value of each stock optionis affected by the Company’s stock price on the date of grant, as well asassumptions regarding a number of highly complex and subjective variables.These variables include, but are not limited to, the Company’s expected stockprice volatility over the expected life of the awards and actual and projectedstock option exercise behavior. The weighted average fair value per share ofstock option awards granted during the three months ended March 31, 2010and 2009, and assumptions used to value stock options, are as follows:

 
| ** **                                                           | ** ** | **For the Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                           | ** ** | **2010**                                      | ** ** | **2009** | ** ** |
| Dividend  yield                                                      |       | —                                        |       | — |   |
| Risk-free  interest rate                                             |       | 3.1                                           | %          | 2.0 | % |
| Weighted  average volatility                                         |       | 85.0                                          | %          | 85.0 | % |
| Expected  life (in years)                                            |       | 6.5                                           |       | 6.5 |   |
| Weighted  average grant date fair value per share of options granted |       | $                                             | 4.02       |   | $ | 2.29 |   |
|                                                                      |            |                                               |            |  |  |  |  |

 

Dividend yield is zero asthe Company currently does not pay a dividend.

 

Risk-free rate is basedon the implied yield currently available on U.S. Treasury zero coupon issueswith a remaining term equal to the expected life of the award.

 

During the three monthsended March 31, 2010 and 2009, the Company utilized a standard volatilityassumption of 85% for estimating the fair value of stock options awarded basedon comparable volatility averages for the energy related sector.

 

The expected life of eachstock option award granted is derived using the “simplified method” forestimating the expected term of a “vanilla-option” in accordance with StaffAccounting Bulletin (“SAB”) No. 107, “*Share-BasedPayment*,” as amended by SAB No. 110, “*Share-Based Payment*.” The fair value ofeach unit of restricted stock is equal to the fair market value of the Company’scommon stock as of the date of grant.

 

During the three monthsended March 31, 2010 and 2009, the Company utilized a forfeiture rate of10% for estimating the forfeitures of stock options granted.

 

The following tablesummarizes share-based compensation expense included in the Company’s condensedconsolidated statements of operations for the three months March 31, 2010and 2009 as follows:

 

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| ** **                                                  | ** ** | **For the Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                  | ** ** | **2010**                                      | ** ** | **2009** | ** ** |
| **Share-based compensation expense:**                       | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Selling,  general and administrative                        |       | $                                             | 593        |   | $ | 818 |   |
| Income  tax benefit (1)                                     |       | —                                        |       | — |   |
| Net  effect of share-based compensation expense on net loss |       | $                                             | 593        |   | $ | 818 |   |
|                                                        |       |                                          |       |   |   |
| **Reduction in earnings per share:**                        | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Basic  and diluted earnings per share (2)                   |       | $                                             | 0.01       |   | $ | 0.01 |   |

 

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(1) Income taxbenefit is not illustrated because the Company is currently operating at a lossand an actual income tax benefit was not realized for the three months ended March 31,2010 and 2009. The result of the loss situation creates a timing difference,resulting in a deferred tax asset, which is fully reserved for in the Company’svaluation allowance.

 

(2) Diluted earningsper share for the three months ended March 31, 2010 and 2009 does notinclude common stock equivalents due to their anti-dilutive nature as a resultof the Company’s net losses for these respective periods. Accordingly, basicearnings per share and diluted earnings per share are identical for all periodspresented.

 

As of March 31,2010, the Company estimates that pre-tax compensation expense for all unvestedshare-based awards, including both stock options and restricted stock units, inthe amount of approximately $7,863 will be recognized through the year 2014.The Company expects to satisfy the exercise of stock options and futuredistribution of shares of restricted stock by issuing new shares of commonstock.

 

**NOTE11 — RECENT ACCOUNTING PRONOUNCEMENTS**

 

The following is alisting of recent accounting standards issued by the Financial AccountingStandards Board (“FASB”) and their effect on the Company.

 

In February 2010,the FASB issued Accounting Standards Update (“ASU”) 2010-09, *Subsequent Events*(Topic 855). ASU 2010-09 removes the requirements for Securities and ExchangeCommission (“SEC”)registrants to disclose a date, in both issued and revised financialstatements, through which subsequent events have been reviewed. The adoption ofthis standard did not have a material effect on the financial position, resultsof operations or cash flows of the Company.

 

In January 2010, theFASB issued ASU 2010-06, *Fair Value Measurementsand Disclosures* (Topic 820).  ASU 2010-06 providesadditional disclosure requirements related to fair value measurements. ASU2010-06 is effective for interim and annual reporting periods beginning after December 15,2009, except for the disclosures about purchases, sales, issuances, andsettlements in the roll forward of activity in Level 3 fair valuemeasurements.  Disclosure requirements applicable to Level 3transactions are effective for fiscal years beginning after December 15,2010 and for interim periods within those fiscal years, with early adoptionpermitted.  The portion of ASU 2010-06 that was effective beginningafter December 15, 2009 did not have a material effect on the financialposition, results of operations or cash flows of the Company. Additionally, theCompany does not anticipate that the disclosure requirements applicable toLevel 3 transactions that are effective for fiscal years beginning after December 15,2010 will have a material effect on the financial position, results ofoperations or cash flows of the Company.

 

In October 2009, theFASB issued ASU 2009-13, *Revenue Recognition*(Topic 605). ASU 2009-13 provides additional guidance related to the accountingfor multiple-deliverable arrangements to account for products or services(deliverables) separately rather than as a combined unit and eliminates theresidual method of allocation.  ASU 2009-13 is effectiveprospectively for revenue arrangements entered into or materially modified infiscal years beginning on or after June 15, 2010, with early adoptionpermitted. The Company does not anticipate that the provisions of ASU 2009-13will have a material effect on the financial position, results of operations orcash flows of the Company.

 

**NOTE12 — SEGMENT REPORTING**

 

In December 2009,the Company revised its reporting segments. The revised reporting structureincludes four reportable segments: “Towers” (formerly “Products”), “Gearing”(formerly “Products”), “Technical and Engineering Services” (formerly “Services”)and “Logistics”(formerly “Services”). Accordingly, all prior period segmentinformation has been reclassified to properly reflect the Company’s currentreportable segments.

 

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

 

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***Towers***

 

The Company manufactureswind towers, specifically the large and heavier wind towers that are designedfor 2 MW and larger wind turbines. The Company’s production facilities arestrategically located in close proximity to the primary U.S. wind resourceregions, sited in Wisconsin and Texas, including a recently constructed thirdwind tower manufacturing facility in Brandon, South Dakota, which will becomeoperational as business warrants and pending the installation of certainadditional equipment. The Company also manufactures other specialty weldmentsand structures for industrial customers.

 

***Gearing***

 

The Companymanufactures precision gearing systems for the wind industry in North Americaand products for industrial markets including mining and oilfield equipment,with facilities in Illinois and Pennsylvania. The Company uses an integratedmanufacturing process, which includes a machining process in Cicero, Illinois,a heat treatment process in Neville Island, Pennsylvania and a finishingprocess in the Company’s Cicero factory.

 

***Technical andEngineering Services***

 

The Company is anindependent service provider of construction support and operations andmaintenance services to the wind industry. The Company’s specialty servicesinclude oil change-out, up-tower tooling for gearing systems, drive-train andblade repairs and component replacement. The Company’s construction supportcapabilities include assembly of towers, nacelles, blades and other components.The Company also provides customer support, preventive maintenance and windtechnician training. The Company’s technicians utilize regional service centersfor storage and repair of parts as well as for training. Through its precisionrepair and engineering services, the Company repairs and refurbishes complexwind components, including control systems, gearboxes and blades. The Companyalso conducts warranty inspections, commissions turbines and provides technicalassistance. The Company’s service locations are in Illinois, California, SouthDakota, Texas and Colorado.

 

***Logistics***

 

The Company offersspecialized transportation, permitting and logistics management to the wind industryfor oversize and overweight machinery and equipment. The Company deliverscomplete turbines to the installation site, including blades, nacelles andtower sections for final erection. The Company focuses on the projectmanagement of the delivery of complete wind turbine farms.

 

***Corporate and Other***

 

“Corporate and Other” iscomprised of adjustments to reconcile segment results to consolidated results,which primarily includes corporate administrative expenses and intercompanyeliminations.

 

Summary financialinformation by reportable segment is as follows:

 
| ** **                          | ** ** | **Revenues**                                  | ** ** | **Operating (Loss) Profit**                   | ** ** |
|-------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **For the Three Months Ended March 31,** | ** ** | **For the Three Months Ended March 31,** | ** ** |
| ** **                          | ** ** | **2010**                                      | ** ** | **2009**                                      | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segments:**                       |       |                                          |       |                                          |       |   |   |   |   |
| ** **                          |       |                                          |       |                                          |       |   |   |   |   |
| Towers                              |       | $                                             | 12,046     |                                          | $          | 20,104 |   | $ | (1,277 | ) | $ | (68 | ) |
| Gearing                             |       | 7,717                                         |       | 23,030                                        |       | (5,128 | ) | (3,867 | ) |
| Technical  and Engineering Services |       | 2,022                                         |       | 7,410                                         |       | (2,450 | ) | 24 |   |
| Logistics                           |       | 460                                           |       | 2,819                                         |       | (1,708 | ) | (950 | ) |
| Corporate  and Other (1)            |       | (75                                           | )          | (301                                          | )          | (3,210 | ) | (2,276 | ) |
|                                |       | $                                             | 22,170     |                                          | $          | 53,062 |   | $ | (13,773 | ) | $ | (7,137 | ) |

 
| ** **                          | ** ** | **Depreciation and Amortization**             | ** ** | **Capital Expenditures**                      | ** ** |
|-------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **For the Three Months Ended March 31,** | ** ** | **For the Three Months Ended March 31,** | ** ** |
| ** **                          | ** ** | **2010**                                      | ** ** | **2009**                                      | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segments:**                       |       |                                          |       |                                          |       |   |   |   |   |
|                                |       |                                          |       |                                          |       |   |   |   |   |
| Towers                              |       | $                                             | 854        |                                          | $          | 748 |   | $ | 1,252 |   | $ | 6,925 |   |
| Gearing  (2)                        |       | 2,448                                         |       | 4,245                                         |       | 1,106 |   | (634 | ) |
| Technical  and Engineering Services |       | 817                                           |       | 741                                           |       | 228 |   | 82 |   |
| Logistics                           |       | 674                                           |       | 839                                           |       | 6 |   | 368 |   |
| Corporate  and Other (1)            |       | 41                                            |       | 34                                            |       | 4 |   | 2 |   |
|                                |       | $                                             | 4,834      |                                          | $          | 6,607 |   | $ | 2,596 |   | $ | 6,743 |   |

 

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| ** **                          | ** ** | **Total Assets as of** | ** ** | ** **            | ** ** | ** ** |
|-------------------------------------|------------|------------------------|------------|-----------------------|------------|------------|
| ** **                          | ** ** | **March 31,**     | ** ** | **December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                |       | **2010**               | ** ** | **2009**              |       |       |   |   |   |   |
| **Segments:**                       |       |                   |       |                  |       |       |   |   |   |   |
|                                |       |                   |       |                  |       |       |   |   |   |   |
| Towers                              |       | $                      | 81,039     |                  | $          | 80,146     |   |   |   |   |   |   |
| Gearing                             |       | 86,956                 |       | 92,665                |       |       |   |   |   |   |
| Technical  and Engineering Services |       | 33,500                 |       | 36,417                |       |       |   |   |   |   |
| Logistics                           |       | 20,226                 |       | 21,259                |       |       |   |   |   |   |
| Corporate  and Other (3)            |       | 21,737                 |       | (451                  | )          |       |   |   |   |   |
|                                |       | $                      | 243,458    |                  | $          | 230,036    |   |   |   |   |   |   |

 

----

(1) “Corporate andOther” includes corporate administrative expenses and intercompanyeliminations. Corporate selling, general and   administrative expenses includes corporate salaries and benefits,share-based compensation, and professional fees.

 

(2) Gearing segmentcapital expenditures for the three months ended March 31, 2009 reflectscash amounts received in connection with the return of certain capitalequipment expenditures made during 2008.

 

(3) “Corporate andOther” includes assets of the corporate headquarters and intercompanyeliminations.

 

**NOTE13 — COMMITMENTS AND CONTINGENCIES**

 

*PurchaseCommitments*

 

During 2010, the Companyissued purchase commitments in connection with equipment purchases for theCompany’s MW gearbox refurbishment center, which totaled $2,700 as of March 31,2010.

 

During 2009 and 2010, theCompany issued purchase commitments in connection with equipment purchases forthe Company’s wind tower manufacturing facility located in Brandon, SouthDakota, which totaled approximately $1,269 as of March 31, 2010.

 

During 2008, the Companyissued purchase commitments in connection with gearing equipment totaling$4,888, of which the Company made a $1,324 deposit. As of March 31, 2010,outstanding purchase orders totaled $3,564.

 

*LegalProceedings*

 

From time to time, theCompany is subject to legal proceedings or claims arising from its normalcourse of operations. The Company accrues for costs related to losscontingencies when such costs are probable and reasonably estimable. As of March 31,2010, the Company is not aware of any material pending legal proceedings orthreatened litigation that would have a material adverse effect on the Company’sfinancial condition or results of operations, although no assurance can begiven with respect to the ultimate outcome of pending actions.

 

*CustomerDisputes*

 

From time to time, theCompany may be involved in disputes with its customers regarding matters suchas warranty liability, pricing and contract performance. During the thirdquarter of 2009, the Company became involved in a contract dispute with acustomer, pursuant to which it initially reserved $1,500 related to thesettlement of this matter. The Company and the customer are currently innegotiations to resolve this dispute. As of March 31, 2010, the Companyhad recorded an aggregate reserve of $1,900 related to disputes with itscustomers, of which $1,600 is reserved in the Company’s allowance for doubtfulaccounts and $300 in its warranty reserves.

 

*EnvironmentalCompliance and Remediation Liabilities*

 

The Company’s operationsand products are subject to a variety of environmental laws and regulations inthe jurisdictions in which the Company operates and sells products governing,among other things, air emissions, wastewater discharges, the use, handling anddisposal of hazardous materials, soil and groundwater contamination, employeehealth and safety, and product content, performance and packaging. Also,certain environmental laws can impose the entire cost or a portion of the costof investigating and cleaning up a contaminated site, regardless of fault, uponany one or more of a number of parties, including the current or previous owneror operator of the site. These environmental laws also impose liability onany person who arranges for the disposal or treatment

 

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of hazardous substancesat a contaminated site. Third parties may also make claims against owners oroperators of sites and users of disposal sites for personal injuries andproperty damage associated with releases of hazardous substances from thosesites.

 

*WarrantyLiability*

 

The Company provideswarranty terms that range from two to seven years for various products relatingto workmanship and materials supplied by the Company. From time to time,customers may submit warranty claims against the Company. In certain contracts,the Company has recourse provisions for items that would enable recovery fromthird parties for amounts paid to customers under warranty provisions. As of March 31,2010 and December 31, 2009, estimated product warranty liability was$1,047 and $918, respectively, and is recorded within accrued liabilities inthe Company’s condensed consolidated balance sheets.

 

The changes in the carryingamount of the Company’s total product warranty liability for the three monthsended March 31, 2010 and 2009 were as follows:

 
| ** **                    | ** ** | **As of**          | ** ** |
|-------------------------------|------------|--------------------|------------|
| ** **                    | ** ** | **March 31,** | ** ** |
| ** **                    | ** ** | **2010**           | ** ** | **2009** | ** ** |
|                          |       |               |       |   |   |
| Balance,  beginning of period |       | $                  | 918        |   | $ | 890 |   |
| Warranty  expense             |       | 138                |       | 320 |   |
| Warranty  claims              |       | (9                 | )          | (13 | ) |
| Balance,  end of period       |       | $                  | 1,047      |   | $ | 1,197 |   |

 

*Sale-LeasebackTransactions*

 

The Company has enteredinto sale-leaseback agreements whereby certain owned equipment is sold to athird party financing company in exchange for cash and the applicablesubsidiary then leases back the equipment from the purchaser. The primarypurpose of these arrangements is to provide additional liquidity to meetworking capital requirements. Depending on the terms of the lease agreement,the lease may be classified as an operating or capital lease. In addition, thesale of the assets may result in a gain or loss, which must be amortized toother income or loss in the Company’s statement of operations over the life ofthe operating lease. As of March 31, 2010, the minimum monthly paymentsdue under these lease agreements totaled $98.

 

*Other*

 

As of March 31,2010, approximately 27% of the Company’s employees were covered by twocollective bargaining agreements with local unions in Cicero, Illinois andNeville Island, Pennsylvania. Collective bargaining agreements with the Company’sCicero and Neville Island unions were ratified by local unions in the fourthquarter of 2009 and the first quarter of 2010, respectively, and are scheduledto remain in effect through October 2012 and February 2014,respectively.

 

**NOTE14 — SUBSEQUENT EVENTS**

 

Asdescribed above in Note 6 “Debt and Credit Agreements”, pursuant to the Changein Terms Agreement, as of April 5, 2010, the Construction Loan wasconverted to the Great Western Term Loan, providing for monthly payments ofprincipal plus interest, extending the maturity date to November 5, 2016,reducing the principal amount to $6,500, and changing the per annum interestrate to 8.5%.   In connection therewith, (i) approximately $248 ofthe amount held in the Deposit Account was applied as a principal reductionpayment in order to reduce the principal amount of the Great Western Term Loanto $6,500, (ii) the balance of the amount held in the Deposit Account wasreleased to Tower Tech on March 31, 2010, (iii) the Construction LoanAgreement was terminated and replaced with the Business Loan Agreement, (iv) theMortgage was amended in certain respects pursuant to the Mortgage Amendment,and (v) the Commercial Guaranty, the Business Loan Agreement and thePromissory Note executed in connection with the Construction Loan were eachmodified in certain respects pursuant to the Letter Agreement.  Tower Techwas required to pay a 1.0% origination fee upon the conversion. The Great WesternTerm Loan contains no financial covenants.

 

OnApril 27, 2010, Tower Tech entered into an Amended and Restated Lease forIndustrial/Manufacturing Space with City Centre, L.L.C., a Wisconsin limitedliability company, with an effective date of May 1, 2010 (the “Lease”). The Lease amends and restates in its entirety the existing lease for Tower Tech’swind tower manufacturing facility in Manitowoc, Wisconsin.  Among otherterms, (i) the description of the leased premises was modified to includeadditional land for staging and laydown of materials, employee parking, and apotential railroad spur line, and (ii) the rental amounts were increasedto reflect the expanded premises.  The 

 

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expirationdate of the current lease term will remain December 31, 2014, and TowerTech will continue to have five (5) consecutive options to extend thelease term for five (5) years each.

 

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

 

*Thefollowing discussion and analysis of our financial condition and results ofoperations should be read in conjunction with our condensed consolidatedfinancial statements and related notes thereto in Item 1, “FinancialStatements,” of this Quarterly Report and the audited consolidated financialstatements and related notes and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contained in our Annual Report onForm 10-K for the year ended December 31, 2009. The discussion belowcontains forward-looking statements that are based upon our currentexpectations and are subject to uncertainty and changes in circumstancesincluding, but not limited to, those identified in “Cautionary Note RegardingForward-Looking Statements” at the end of Item 2.  Actual results may differ materially fromthese expectations due to inaccurate assumptions and known or unknown risks anduncertainties.*

 

*** (Dollars arepresented in thousands except share data or unless otherwise stated)***

 

**OUR BUSINESS**

 

***First Quarter Overview***

 

During the first quarterof 2010, the Company continued to be affected by the ongoing economic slowdownin the wind energy industry. On a consolidated basis, revenues for the threemonths ended March 31, 2010 decreased by approximately 58% compared torevenues during the comparable period in the prior year. Our reduction inrevenues was due to the continuation in the delay and curtailment of tower andgearing production orders under some of our key customer agreements, lowerservice contracts resulting from the timing of wind farm installation andmaintenance projects and a reduction in non-wind related revenues. We believethese factors were largely attributable to underlying market and economicconditions, and created production and volume inefficiencies for the Company.These inefficiencies negatively affected our operating profits and margins.Although we anticipate that our revenues and operating profits will improveduring the balance of the year based upon an increase in our quoting activity,timing of our backlog, and wind farm development and installation projectsscheduled for the current year, we cannot provide reasonable assurance thatimproved market conditions will occur or that we will be able to capitalize onthese opportunities.

 

As a result of thereduction in our revenues during the quarter from original projections, weevaluated the recoverability of certain identifiable intangible assets andgoodwill balances. Based upon our assessment, we determined that no impairmenthad occurred as of March 31, 2010. We believe that the revenue weakness weanticipate to occur during the first half of this year is short-term and marketdriven in nature and that we do not expect this to impact our long-termprospects and cash flows. However, a continued economic slowdown may result inimpairment to our goodwill and intangible assets and could result in changes toour expectations with respect to future financial results and cash flows. Thesechanges could indicate an unfavorable change in management’s estimates of thefair value of our reportable segments and could result in a review of ourgoodwill and intangible assets, which could indicate potential impairment tothe carrying value of the Company’s assets.

 

We improved our liquidityposition by completing a common stock offering in January 2010, whereby weraised $54,625 in proceeds, net of underwriting discounts, through the sale of10,000,000 shares of our common stock. A portion of the proceeds from thisoffering were used to repay outstanding indebtedness under debt agreements withBank of America and Investors Community Bank and to settle our interest rateswap agreements. We intend to use the remainder of these proceeds for generaloperating purposes and specific capital expenditures to help us grow ourrevenues and to improve the profitability of our business.

 

During the quarter, wecompleted the construction of a new wind tower manufacturing facility inBrandon, South Dakota. This new wind tower manufacturing facility will increaseour presence in a key demographic region in the U.S. wind energy market andwill provide for additional production capacity. We have purchase commitmentsfor manufacturing equipment for this facility and we anticipate that thesecommitments will be fulfilled and that this location will become operational asbusiness warrants.

 

In addition, we are inthe process of establishing a MW gearbox refurbishment center to service thegrowing number of up-tower gearboxes with product warranty expirations. Therefurbishment center will be part of our operations within our Technical andEngineering Services segment and will be located in Abilene, Texas. We arecurrently in the process of making capital expenditures and we anticipatecommencing operations during the fourth quarter of this year.

 

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**RESULTS OF OPERATIONS**

 

**Three Months Ended March 31, 2010 Compared toThree Months Ended March 31, 2009**

 

The summary of selected financial data table below should be referencedin connection with a review of the following discussion of our results ofoperations for the three months ended March 31, 2010 compared to the threemonths ended March 31, 2009.

 
| ** **                                            | ** ** | **Three Months Ended March 31,** | ** ** | **2010 vs. 2009**        | ** ** |
|-------------------------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **2010**                              | ** ** | **% of Total   Revenue** | ** ** | **2009** | ** ** | **% of Total   Revenue** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|                                                  |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Revenues                                              |       | $                                     | 22,170     |                     | 100.0      | % | $ | 53,062 |   | 100.0 | % | $ | (30,892 | ) | -58.2 | % |
| Cost  of sales                                        |       | 26,654                                |       | 120.2                    | %          | 48,377 |   | 91.2 | % | (21,723 | ) | -44.9 | % |
| Gross  (loss) profit                                  |       | (4,484                                | )          | -20.2                    | %          | 4,685 |   | 8.8 | % | (9,169 | ) | -195.7 | % |
|                                                  |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Operating  expenses                                   |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Selling,  general and administrative expenses         |       | 8,214                                 |       | 37.1                     | %          | 8,916 |   | 16.8 | % | (702 | ) | -7.9 | % |
| Intangible  amortization                              |       | 1,075                                 |       | 4.8                      | %          | 2,906 |   | 5.5 | % | (1,831 | ) | -63.0 | % |
| Total  operating expenses                             |       | 9,289                                 |       | 41.9                     | %          | 11,822 |   | 22.3 | % | (2,533 | ) | -21.4 | % |
|                                                  |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Operating  loss                                       |       | (13,773                               | )          | -62.1                    | %          | (7,137 | ) | -13.5 | % | (6,636 | ) | 93.0 | % |
|                                                  |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Other  income (expense)                               |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Interest  expense, net                                |       | (362                                  | )          | -1.6                     | %          | (542 | ) | -1.0 | % | 180 |   | -33.2 | % |
| Other,  net                                           |       | 132                                   |       | 0.6                      | %          | 93 |   | 0.2 | % | 39 |   | 41.9 | % |
| Other  expense, net                                   |       | (230                                  | )          | -1.0                     | %          | (449 | ) | -0.8 | % | 219 |   | -48.8 | % |
|                                                  |       |                                  |       |                     |       |   |   |   |   |   |   |   |   |
| Net  loss before provision (benefit) for income taxes |       | (14,003                               | )          | -63.1                    | %          | (7,586 | ) | -14.3 | % | (6,417 | ) | 84.6 | % |
| Provision  (benefit) for income taxes                 |       | 121                                   |       | 0.6                      | %          | (436 | ) | -0.8 | % | 557 |   | 127.8 | % |
| Net  loss                                             |       | $                                     | (14,124    | )                        | -63.7      | % | $ | (7,150 | ) | -13.5 | % | $ | (6,974 | ) | 97.5 | % |

 

***Consolidated***

 

Revenues decreased$30,892 or 58%, from $53,062 during the three months ended March 31, 2009,to $22,170 during the three months ended March 31, 2010. The decrease inrevenues was primarily attributable to the continued economic slowdown in thewind energy industry, which resulted in fewer wind towers and gearing setsshipped, increased competition and competitive pricing pressure in ourlogistics and technical and engineering services business, and a general declinein non-wind related revenues associated with the broader economic marketconditions.

 

Gross profit decreased$9,169, from $4,685 during the three months ended March 31, 2009, to agross loss of $4,484 during the three months March 31, 2010. The decreasein gross profit was primarily attributable to the overall reduction inrevenues, which created production and volume inefficiencies. The reduction inwind tower and gearing orders led to the under absorption of overhead costs andthe reduction in service and transportation contracts negatively affected ouroverhead cost structures. As a result, our gross margin declined from 8.8%during the three months ended March 31, 2009, to (20.2%) during the threemonths ended March 31, 2010.

 

Selling, general and administrativeexpenses decreased from $8,916 during the three months ended March 31,2009, to $8,214 during the three months ended March 31, 2010. The decreasewas primarily attributable to cost reduction initiatives implemented in thebeginning of 2009 to mitigate the effects of an overall decline in productionvolumes, lower professional and audit related fees associated with thecompletion of certain compliance and regulatory reporting initiatives, and theabsence of one-time start up costs incurred in the prior year related to thecommencement of operations at our Abilene, Texas wind tower manufacturingfacility.

 

Intangible amortizationexpense decreased from $2,906 during the three months ended March 31,2009, to $1,075 during the three months ended March 31, 2010. The decreasein amortization expense was due to a $57,942 impairment charge taken withrespect to customer relationships and trade name intangibles during the fourthquarter of 2009.  The result of the impairmentcharge

 

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reduced amortizationexpense by approximately 63% during the current quarter and will continue toprovide a favorable benefit to amortization expense on a prospective basis.

 

Total other expense, net,decreased from $449 during the three months ended March 31, 2009, to $230during the three months ended March 31, 2010. The decrease was primarilyattributable to a reduction in interest expense resulting from the repayment ofoutstanding debt under our Bank of America and Investor Community Bank debtagreements in January 2010.

 

During the three monthsended March 31, 2009, we reported a benefit for income taxes of $436,compared to a provision for income taxes of $121 during the three months ended March 31,2010. The increase in income taxes was primarily attributable to a favorablereduction in income taxes during the first quarter of 2009. During the firstquarter of 2009, the Company recorded a tax benefit associated with a reductionin state income tax and deferred state income tax liabilities related to afavorable change in the State of Wisconsin’s method of calculating state incometax on a prospective basis.

 

Net loss increased from$7,150 during the three months ended March 31, 2009, to $14,124 during thethree months ended March 31, 2010, primarily as a result of the factorsdescribed above.

 

**TowersSegment**

 

The following tablesummarizes the Towers segment operating results for the three months ended March 31,2010 and 2009:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|------------------------|------------|
| ** **       | ** ** | **March 31,**     | ** ** |
| ** **       | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **             | ** ** |   | ** ** |
| Revenues         |       | $                      | 12,046     |   | $ | 20,104 |   |
| Operating loss   |       | (1,277                 | )          | (68 | ) |
| Operating margin |       | -10.6                  | %          | -0.3 | % |
|                  |            |                        |            |  |  |  |  |

 

Towers segment revenuesdecreased $8,058, from $20,104 during the three months ended March 31,2009, to $12,046 during the three months ended March 31, 2010.  The decrease in revenues was attributable toan approximate 27% decline in the average selling price of wind towersmanufactured and also due to a 15% decline in production volume of wind towersmanufactured. The decline in the average selling price was primarilyattributable to lower steel prices, which are included in the selling price ofwind towers manufactured under the majority of our customer agreements.Additionally, specialty weldment revenues decreased by $1,805 compared to theprior year due to the continued economic weakness in heavy equipmentmanufacturing.

 

Towers segment operatingloss increased $1,209, from $68 during the three months ended March 31,2009, to $1,277 during the three month ended March 31, 2010. The increasedoperating loss was attributable to lower production volumes of wind towers andspecialty weldment revenues. Partly offsetting these factors, operating resultsbenefited from the absence of start-up costs incurred at our wind towermanufacturing facility in Abilene, Texas in the prior year. As a result of thefactors described above, operating margin decreased from (0.3%) during thethree months ended March 31, 2009, to (10.6%) during the three monthsended March 31, 2010.

 

**GearingSegment**

 

The following tablesummarizes the Gearing segment operating results for the three months ended March 31,2010 and 2009:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|------------------------|------------|
| ** **       | ** ** | **March 31,**     | ** ** |
| ** **       | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **             | ** ** |   | ** ** |
| Revenues         |       | $                      | 7,717      |   | $ | 23,030 |   |
| Operating loss   |       | (5,128                 | )          | (3,867 | ) |
| Operating margin |       | -66.5                  | %          | -16.8 | % |
|                  |            |                        |            |  |  |  |  |

 

Gearing segment revenuesdecreased $15,313, from $23,030 during the three months ended March 31,2009, to $7,717 during the three months ended March 31, 2010.  The decrease in revenues was attributable toan approximate reduction of 60% and 72% in our wind gearing and industrialsales, respectively. Lower wind gearing revenues reflected reduced demand fromour key wind gearing customers. The decrease in industrial revenues representedan overall decline in production orders from several of our key industrialcustomers as compared to the prior year.

 

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Gearing segment operatingloss increased $1,261, from $3,867 during the three months ended March 31,2009, to $5,128 during the three months ended March 31, 2010. Theincreased operating loss was due to reduced production volumes, partiallyoffset by improvements in product scrap, physical inventory adjustments andlower professional fees. As a result of the factors described above, operatingmargin decreased from (16.8%) during the three months ended March 31,2009, to (66.5%) during the three months ended March 31, 2010.

 

**Technicaland Engineering Services Segment**

 

The following tablesummarizes the Technical and Engineering Services segment operating results forthe three months ended March 31, 2010 and 2009:

 
| ** **              | ** ** | **Three Months Ended** | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **March 31,**     | ** ** |
| ** **              | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **              | ** ** | ** **             | ** ** |   | ** ** |
| Revenues                |       | $                      | 2,022      |   | $ | 7,410 |   |
| Operating (loss) income |       | (2,450                 | )          | $ | 24 |   |
| Operating margin        |       | -121.2                 | %          | 0.3 | % |
|                         |            |                        |            |  |  |  |  |

 

Technical and EngineeringServices segment revenues decreased $5,388, from $7,410 during the three monthsended March 31, 2009, to $2,022 during the three months ended March 31,2010.  The decrease in revenues wasprimarily attributable to a 64% and 83% decline in technical and engineeringservice revenues, respectively. The decrease in technical service revenuesrelated to a decline in the number of maintenance and service techniciansdeployed during the current year as several of our key customers have chosen toin-house a greater share of their maintenance activities due to fewer wind farmstart-ups. The decrease in engineering service revenues was primarily due tolower blade refurbishment activity compared to the prior year.

 

Technical and EngineeringServices segment reported operating income of $24 during the three months endedMarch 31, 2009, compared to an operating loss of $2,450 during the threemonths ended March 31, 2010. The operating loss incurred in the quarterwas primarily attributable to a reduction in service activity and the impact ofcompetitive pricing pressure, which was partially offset by reduced operatingexpenses. As a result of the factors described above, operating margindecreased from 0.3% during the three months ended March 31, 2009, to(121.2%) during the three months ended March 31, 2010.

 

**LogisticsSegment**

 

The following tablesummarizes the Logistics segment operating results for the three months ended March 31,2010 and 2009:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|------------------------|------------|
| ** **       | ** ** | **March 31,**     | ** ** |
| ** **       | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **             | ** ** |   | ** ** |
| Revenues         |       | $                      | 460        |   | $ | 2,819 |   |
| Operating loss   |       | (1,708                 | )          | $ | (950 | ) |
| Operating margin |       | -371.3                 | %          | -33.7 | % |
|                  |            |                        |            |  |  |  |  |

 

Logistics segmentrevenues decreased $2,359, from $2,819 during the three months ended March 31,2009, to $460 during the three months ended March 31, 2010.  The decrease in revenues was primarilyattributable to a reduction in transport contracts entered into during thecurrent quarter, higher revenues in the prior year related to the completion ofa large wind farm transportation contract, and a reduction in contract pricingdue to competitive pricing pressure. During the current quarter, revenues wereapproximately 76% lower due to a reduction in transportation routes completed.In addition, competitive pricing pressure reduced the average revenue per routeload in the current quarter by approximately 8%.

 

Logistics segmentoperating loss increased $758, from $950 during the three months ended March 31,2009, to $1,708 during the three months ended March 31, 2010. The increasein operating loss was attributable to transportation volume inefficienciesresulting from a decline in contracts awarded during the current quarter andalso due to a reduction in operating margins related to competitive pricingpressure. Partly offsetting these factors were lower operating expenses due toexpense curtailments and employee 

 

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furloughs due to lowtransportation volumes.  As a result ofthe factors described above, operating margin decreased from (33.7%) during thethree months ended March 31, 2009, to (371.3%) during the three monthsended March 31, 2010.

 

**Corporateand Other**

 

Corporate and Otherexpense increased $934, from $2,276 during the three months ended March 31,2009, to $3,210 during the three months ended March 31, 2010. The increasein expense was attributable to an increase in salaries and benefits expenserelated to an increase in employee headcount, severance expense, and adiscretionary special recognition bonus award to certain employees inconnection with our common stock offering in January 2010. The increase insalaries and benefits expenses was partially offset by a reduction inprofessional and audit related fees due to the completion of certain complianceand public reporting requirements and due to in-sourcing certain activities.

 

**SELECTED FINANCIAL DATA**

 

The following non-GAAPfinancial measure presented below relates to earnings before interest, taxes,depreciation, amortization and share-based payments (“Adjusted EBITDA”) and ispresented for illustrative purposes as an accompaniment to our unauditedfinancial results of operations for the three months ended March 31, 2010and 2009. Adjusted EBITDA should not be considered an alternative to, nor isthere any implication that it is more meaningful than, any measure ofperformance or liquidity promulgated under GAAP. We believe that AdjustedEBITDA is particularly meaningful due principally to the role acquisitions haveplayed in the development of the Company. Historically, our growth throughacquisitions has resulted in significant non-cash depreciation and amortizationexpense, which was primarily attributable to a significant portion of thepurchase price of our acquired businesses being allocated to depreciable fixedassets and definite-lived intangible assets. The following Adjusted EBITDAcalculation is derived from our unaudited condensed consolidated financialresults for the three months ended March 31, 2010 and 2009, as follows:

 
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **March 31**      | ** ** |
| ** **                            | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **                            | ** ** | **(unaudited)**        | ** ** |
| Net  loss                             |       | $                      | (14,124    | ) | $ | (7,150 | ) |
| Provision  (benefit) for income taxes |       | 121                    |       | (436 | ) |
| Interest  expense, net                |       | 362                    |       | 542 |   |
| Depreciation  and amortization        |       | 4,834                  |       | 6,607 |   |
| Share-based  compensation             |       | 593                    |       | 818 |   |
| Adjusted  EBITDA                      |       | $                      | (8,214     | ) | $ | 381 |   |

 

**SUMMARYOF CRITICAL ACCOUNTING POLICIES**

 

The methods, estimatesand judgments that we use in applying our critical accounting policies have asignificant impact on the results that we report in our financial statements.Some of our accounting policies require us to make difficult and subjectivejudgments, often as a result of the need to make estimates regarding mattersthat are inherently uncertain.

 

We have identifiedthe accounting policies and estimates listed below as those that we believerequire management’s most subjective and complex judgments in estimating theeffect of inherent uncertainties. This section should also be read inconjunction with Note 1, “Description of Business and Summary of SignificantAccounting Policies,” of the notes to our consolidated financial statements in Part II,Item 8 of our Annual Report on Form 10-K for the year ended December 31,2009, which includes a discussion of these and other significant accountingpolicies.

 

**RevenueRecognition**

 

We recognize revenue whenthe earnings process is complete and when persuasive evidence of an arrangementexists, transfer of title has occurred or services have been rendered, theselling price is fixed or determinable, collectability is reasonably assured,and delivery has occurred per the terms of the contract. Customer deposits andother receipts are deferred and recognized when the revenue is realized andearned.

 

In some instances,products are sold under terms included in bill and hold sales arrangements thatresult in different timing for revenue recognition. Assuming the requiredrevenue recognition criteria are met, revenue is recognized upon completion ofproduct manufacture and customer acceptance.

 

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**WarrantyLiability**

 

We provide warranty termsthat range from two to seven years for various products relating to workmanshipand materials supplied by us. From time to time, customers may submit warrantyclaims to us. In certain contracts, we have recourse provisions for items thatwould enable recovery from third parties for amounts paid to customers underwarranty provisions. As of March 31, 2010 and December 31, 2009, ourestimated product warranty liability was $1,047 and $918, respectively, and isrecorded within accrued liabilities in our consolidated balance sheets.

 

**Inventories**

 

Inventories are stated atthe lower of cost or market. We have recorded a reserve for excess of cost overmarket value in our inventory allowance. Market value of inventory, andmanagement’s judgment of the need for reserves, encompasses consideration ofother business factors including physical condition, inventory holding period,contract terms, and usefulness. Inventories are valued based on an average costmethod that approximates the first-in, first-out (FIFO) basis.

 

Inventories consist ofraw materials, work-in-process, and finished goods. Raw materials consist ofcomponents and parts for general production use. Work-in-process consists oflabor and overhead, processing costs, purchased subcomponents, and materialspurchased for specific customer orders. Finished goods consist of componentspurchased from third parties as well as components manufactured by us that willbe used to produce final customer products.

 

**Goodwilland Intangible Assets**

 

Goodwill represents theexcess of cost over fair market value of identifiable net assets acquiredthrough business purchases. We perform our annual goodwill impairment testduring the fourth quarter of each year, or more frequently when events orcircumstances indicate that the carrying value of our assets may not berecovered. We test intangible assets for impairment when events orcircumstances indicate that the carrying value of our assets may not berecovered. In evaluating the recoverability of the carrying value of goodwilland other intangible assets, we must make assumptions regarding the fair valueof our reporting units. Our method of determining the fair value is based uponour estimate of the projected future discounted cash flows of our reportingunits.

 

If our fair valueestimates or related assumptions change in the future, we may be required torecord additional impairment charges related to goodwill and intangible assets.

 

**Long-LivedAssets**

 

We review property andequipment and other long-lived assets for impairment whenever events orcircumstances indicate that carrying amounts may not be recoverable. If suchevents or changes in circumstances occur, we will recognize an impairment lossif the undiscounted future cash flows expected to be generated by the asset areless than the carrying value of the related asset. The impairment loss wouldadjust the asset to its fair value.

 

In evaluating therecoverability of long-lived assets, we must make assumptions regardingestimated future cash flows and other factors to determine the fair value ofsuch assets. If our fair value estimates or related assumptions change in thefuture, we may be required to record impairment charges related to property andequipment and long-lived assets.

 

**IncomeTaxes**

 

We account for incometaxes based upon an asset and liability approach. Deferred tax assets andliabilities represent the future tax consequences of the differences betweenthe financial statement carrying amounts of assets and liabilities versus thetax basis of assets and liabilities. Under this method, deferred tax assets arerecognized for deductible temporary differences, and operating loss and taxcredit carryforwards. Deferred tax liabilities are recognized for taxabletemporary differences. Deferred tax assets are reduced by a valuation allowancewhen, in the opinion of management, it is more likely than not that someportion or all of the deferred tax assets will not be realized. The impact oftax rate changes on deferred tax assets and liabilities is recognized in theyear that the change is enacted.

 

In connection with thepreparation of our consolidated financial statements, we are required toestimate our income tax liability for each of the tax jurisdictions in which weoperate. This process involves estimating our actual current income tax expenseand assessing temporary differences resulting from differing treatment ofcertain income or expense items for income tax reporting and financialreporting purposes. We also recognize the expected future income tax benefitsof net operating loss carryforwards as deferred income tax assets. Inevaluating the realizability of deferred income tax assets associated with netoperating loss carryforwards, we consider, among other things, expected futuretaxable income, the expected timing of the reversals of existing temporaryreporting differences, and the expected impact of tax planning strategies thatmay be implemented to prevent the potential loss of future income tax benefits.Changes in, among other things, income tax legislation, statutory income taxrates, or future taxable

 

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income levels couldmaterially impact our valuation of income tax assets and liabilities and couldcause our income tax provision to vary significantly among financial reportingperiods.

 

We also account for theuncertainty in income taxes related to the recognition and measurement of a taxposition taken or expected to be taken in an income tax return. We follow theapplicable pronouncement guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure, and transitionrelated to the uncertainty in these income tax positions.

 

**RecentAccounting Pronouncements**

 

The following is alisting of recent accounting standards issued by the FASB and their effect onthe Company.

 

In February 2010,the FASB issued ASU 2010-09, *Subsequent Events*(Topic 855). ASU 2010-09 removes the requirements for SEC registrants todisclose a date, in both issued and revised financial statements, through whichsubsequent events have been reviewed. The adoption of this standard did nothave a material effect on the financial position, results of operations or cashflows of the Company.

 

In January 2010, theFASB issued ASU 2010-06, *Fair Value Measurementsand Disclosures* (Topic 820).  ASU 2010-06 providesadditional disclosure requirements related to fair value measurements. ASU2010-06 is effective for interim and annual reporting periods beginning after December 15,2009, except for the disclosures about purchases, sales, issuances, andsettlements in the roll forward of activity in Level 3 fair valuemeasurements.  Disclosure requirements applicable to Level 3transactions are effective for fiscal years beginning after December 15,2010 and for interim periods within those fiscal years, with early adoptionpermitted.  The portion of ASU 2010-06 that was effective beginningafter December 15, 2009 did not have a material effect on the financialposition, results of operations or cash flows of the Company. Additionally, theCompany does not anticipate that the disclosure requirements applicable toLevel 3 transactions that are effective for fiscal years beginning after December 15,2010 will have a material effect on the financial position, results ofoperations or cash flows of the Company.

 

In October 2009, theFASB issued ASU 2009-13, *Revenue Recognition*(Topic 605). ASU 2009-13 provides additional guidance related to the accountingfor multiple-deliverable arrangements to account for products or services(deliverables) separately rather than as a combined unit and eliminates theresidual method of allocation.  ASU 2009-13 is effectiveprospectively for revenue arrangements entered into or materially modified infiscal years beginning on or after June 15, 2010, with early adoptionpermitted. The Company does not anticipate that the provisions of ASU 2009-13will have a material effect on the financial position, results of operations orcash flows of the Company.

 

**LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES**

 

Asof March 31, 2010, our cash on hand totaled $26,343. We improved upon ourliquidity needs by completing an equity offering in January, whereby we sold 10,000,000 newly issued shares ofour common stock for proceeds of approximately $54,625, net of underwritingdiscounts.  Additionally, the completion ofour equity offering enabled us to use a portion of these proceeds to reduce ouroutstanding indebtedness. In January 2010, we repaid outstanding indebtedness due to Bank ofAmerica and Investors Community Bank in the amounts of $16,076 and $3,066,respectively. The repayment of this indebtedness reduced our future debtservice requirements, eliminated subsidiary-specific financial covenantrequirements and asset liens. We intend to use the remainder of these proceedsfor general operating purposes and specific capital expenditures to help usgrow our business. We intend to pursue the establishment of a senior creditfacility, which will enable us to better manage our working capital and othershort-term cash requirements. We believe that these actions will enable us tobetter manage our operating and liquidity needs and will facilitate investingin capital expenditures that will successfully grow our business, along withestablishing adequate liquidity to support our working capital needs.

 

Weanticipate that we will be able to satisfy the cash requirements associatedwith, among other things, our working capital needs, capital expenditures, debtand lease commitments through at least the next 12 months primarily withour current cash on hand, cash generated by operations or other financingarrangements. Ourability to make scheduled payments on our debt and other financial obligationswill depend on our future financial and operating performance. However, ifsales and subsequent collections from several of our large customers, as wellas revenues generated from new customer orders, are not materially consistentwith management’s expectations, we may encounter cash flow and liquidity issues.Additional funding may not be available when needed or on terms acceptable tothe Company. Furthermore, if we are unable to obtain additional capital, wewill likely be required to delay, reduce the scope of or eliminate our plansfor expansion and growth, and this could affect our overall operations. Anyadditional equity financing, if available, may be dilutive to stockholders, andadditional debt financing, if available, will likely require financialcovenants or other restrictions on the Company.

 

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While we believe that wewill continue to have sufficient cash flows to operate our businesses, therecan be no assurances that our operations will generate sufficient cash or thatcredit facilities will be available to us in an amount sufficient to enable usto pay our indebtedness or to fund our other liquidity needs.

 

**Sources and Uses of Cash**

 

***Operating Cash Flows***

 

During the three months ended March 31, 2010 and 2009, net cashused in operating activities totaled $10,949 and $301, respectively. Theincrease in net cash used in operating activities was primarily attributable toincreased operating losses, an increase in our inventories and due to a smallerreduction in outstanding receivables. Changes in our inventories during thethree months ended March 31, 2010 increased $5,722 compared to the prioryear, which primarily reflected a restocking of our wind tower inventorylevels.

 

***Investing Cash Flows***

 

Duringthe three months ended March 31, 2010 and 2009, net cash flows used ininvesting activities totaled $579 and $6,719, respectively. The decrease in netcash used in investing activities as compared to the prior period was primarilyattributable to a reduction in capital expenditures during the current year dueto the wind-down of projects initiated in prior years. During the three monthsended March 31, 2009, the Company made capital expenditures totaling $6,743,which primarily related to the construction of a new wind tower facility inAbilene, Texas. During the three months ended March 31, 2010, the Companymade capital expenditures totaling $2,596 related to equipment purchases forour newly constructed wind tower manufacturing facility in Brandon, SouthDakota and gearing equipment purchases. Cash flows from investing activitiesincreased $2,010 during the three months ended March 31, 2010, due to therelease of a security interest as part of the conversion of the ConstructionLoan into the Great Western Term Loan.

 

***Financing Cash Flows***

 

During the three monthsended March 31, 2010, net cash flows provided by financing activitiestotaled $33,042, compared to net cash used in financing activities for thethree months ended March 31, 2009, which totaled $1,900. The increase innet cash provided by financing activities as compared to the prior period wasattributable to the equity offering completed by the Company in January 2010,partially offset by higher payments on lines of credit and notes payable. On January 21, 2010, the Companycompleted a public offering of its common stock at an offering price of $5.75per share. In the offering, the Company sold 10,000,000 newly issued shares ofits common stock for approximately $54,625, net of underwriting discounts. Uponcompletion of the equity offering, we repaid in January 2010 outstandingindebtedness due to Bank of America and Investors Community Bank in the amountsof $16,076 and $3,066, respectively.

 

**Contractual Obligations**

 

The followingtable sets forth, as of March 31, 2010, minimum future cash payments dueunder contractual obligations, including, among others, our debt and creditagreements, non-cancelable operating and capital lease agreements and purchasecommitments. We are presenting this table to reflect the repayment ofoutstanding indebtedness in the aggregate amount of $19,142 to Bank of Americaand Investors Community Bank in January 2010 and as a result of theconversion of the Construction Loan into the Great Western Term Loan in April 2010.

 
| ** **                          | ** ** | **2010 (Remaining   nine months)** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015 &   Thereafter** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------------------------|------------|-----------|------------|
|                                |       |                               |       |     |       |     |       |     |       |     |       |                             |       |      |       |
| Debt  and credit agreements (1)     |       | $                                  | 1,944      |     | $          | 2,584    |       | $        | 5,123      |     | $          | 2,297                            |       | $         | 1,173      |   | $ | 1,835 |   | $ | 14,956 |   |
| Estimated  interest payments (2)    |       | 834                                |       | 962      |       | 650      |       | 370      |       | 250      |       | 214                              |       | 3,280     |       |
| Operating  lease obligations        |       | 4,331                              |       | 5,651    |       | 5,022    |       | 3,272    |       | 2,712    |       | 6,797                            |       | 27,785    |       |
| Capital  lease obligations (3)      |       | 1,121                              |       | 1,385    |       | 1,355    |       | 994      |       | —   |       | —                           |       | 4,855     |       |
| Purchase  commitments               |       | 7,533                              |       | —   |       | —   |       | —   |       | —   |       | —                           |       | 7,533     |       |
| Total  contractual cash obligations |       | $                                  | 15,763     |     | $          | 10,582   |       | $        | 12,150     |     | $          | 6,933                            |       | $         | 4,135      |   | $ | 8,846 |   | $ | 58,409 |   |

 

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(1) Debt and creditagreements represent the minimum future principal payments due under ouroutstanding contractual obligations. Assumptions used to derive these amountswere the total required minimum principal payments due and the maturity datesof our debt and credit agreements.

 

(2) Interestpayments represent an amount calculated for expected interest payments dueunder our outstanding debt and credit agreements. Assumptions used to derivethese amounts were based upon current interest rates as of March 31, 2010,required minimum principal payments due, and the maturity dates of our debt andcredit agreements.

 

(3) Capital leaseobligations include both the future principal and interest payments related tothese agreements.

 

*Debt and Credit Agreements.*    Debt and creditagreements include outstanding borrowings under our lines of credit, term notesrelated to vehicle and equipment purchases, and notes payable related to anescrow agreement settlement and a purchase agreement for manufacturing equipment.See Note 6, “Debt and Credit Agreements,” in the notes to our condensedconsolidated financial statements for further discussion of our outstandingindebtedness and credit agreements.

 

*Operating Lease Obligations.*    We lease themajority of our facilities and certain equipment under operating leasesexpiring at various dates through 2023. Lease terms generally range from two to15 years, with renewal options for extended terms. The amounts in thetable above represent future minimum lease payments for non-cancelableoperating leases.

 

*Capital Lease Obligations.*    We have capitallease obligations related to certain manufacturing equipment and vehiclesexpiring at various dates through 2013. As of March 31, 2010, the balanceof our outstanding capital lease obligations was approximately $4,855, whichincludes accrued interest of approximately $702.

 

*PurchaseCommitments.*    Purchasecommitments represent outstanding purchase orders related to equipmentpurchases for the Company’s recently constructed wind tower manufacturingfacility in Brandon, South Dakota, outstanding purchase orders relating toequipment purchases for the establishment of a MW gearbox refurbishment centerin Abilene, Texas and outstanding purchase orders related to gearing equipmentpurchases.

 

**Off-Balance Sheet Arrangements**

 

During 2009, Tower Techand Badger each entered into sale-leaseback agreements whereby they soldcertain equipment to third party financing companies in exchange for aggregateproceeds of $3,505 and agreed to lease the equipment back for a stated periodof time. The primary purpose of these arrangements was to provide additionalliquidity for meeting working capital requirements. The lease terms under theseagreements range from three to four years and require aggregate monthly leasepayments of $98. In addition, the sale of the assets resulted in an aggregategain on disposition of $78, which is being amortized over the lives of theoperating leases to other income in our condensed consolidated statements of operations.

 

**CautionaryNote Regarding Forward-Looking Statements**

 

The preceding discussionand analysis should be read in conjunction with our condensed consolidatedfinancial statements and related notes included in Item 1 of Part I ofthis Quarterly Report on Form 10-Q and the audited consolidated financialstatements and related notes and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contained in our Annual Report onForm 10-K for the year ended December 31, 2009. Portions of thisQuarterly Report on Form 10-Q, including the discussion and analysis inthis Item 2, contain “forward-lookingstatements”—that is, statements related to future, not past, events—within themeaning of Section 27A of the Securities Act of 1933, as amended, and in Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”), thatreflect our current expectations regarding our future growth, results ofoperations, cash flows, performance and business prospects, and opportunities,as well as assumptions made by, and information currently available to, ourmanagement. Forward-looking statements include any statement that does notdirectly relate to a current or historical fact. We have tried to identifyforward-looking statements by using words such as “anticipate,” “believe,” “expect,”“intend,” “will,” “should,” “may,” “plan” and similar expressions, but thesewords are not the exclusive means of identifying forward-looking statements.These statements are based on information currently available to us and aresubject to various risks, uncertainties, and other factors, including, but notlimited to, those discussed in Item 1A “Risk Factors” in Part I inour Annual Report on Form 10-K for the year ended December 31, 2009,that could cause our actual growth, results of operations, financial condition,cash flows, performance and business prospects and opportunities to differmaterially from those expressed in, or implied by, these statements. Ourforward-looking statements may include or relate to the following: (i) ourplans to continue to grow our business through organic growth and integrationof previous and future acquisitions; (ii) our beliefs with respect to thesufficiency of our liquidity and our plans to evaluate alternate sources offunding if necessary; (iii) our expectations relating to the extension,continuation or renewal of federal tax incentives and grants and staterenewable portfolio standards; (iv) our expectations relating toconstruction of new facilities, expansion of existing facilities andsufficiency of our existing capacity to meet the demands of our customers andsupport expectations regarding 

 

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ourgrowth; (v) our plans with respect to the use of proceeds from financingactivities; (vi) our beliefs and expectations relating to the economicdownturn and the potential impact it may have on our business, including ourcustomers; (vii) the anticipated benefits of our remediation efforts onthe strength of our internal control processes and our plans with respect tofuture remediation efforts; and (viii) our beliefs regarding the state ofthe wind energy market generally. You should not consider any list of suchfactors to be an exhaustive statement of all of the risks, uncertainties, orpotentially inaccurate assumptions that could cause our current expectations orbeliefs to change. Except as expressly required by the federal securities laws,we undertake no obligation to update such factors or to publicly announce theresults of any of the forward-looking statements contained herein to reflectfuture events, developments, or changed circumstances or for any other reason.

 

**Item3.        Quantitative and QualitativeDisclosures About Market Risk**

 

There has been nosignificant change in our exposure to market risk during the first three monthsof 2010. For a discussion of our exposure to market risk, refer to “Quantitativeand Qualitative Disclosures About Market Risk,” contained in Part II,Item 7A, of our Annual Report on Form 10-K for the year ended December 31,2009.

 

**Item 4.       Controls and Procedures**

 

**MaterialWeakness**

 

In conjunction with thefiling of Amendment No. 2 on Form 10-Q/A for the quarter ended September 30,2008, we identified a material weakness associated with the controls overnon-routine revenue transactions and the related accounting treatment of thosetransactions to ensure compliance with GAAP. In response, management continuedto enhance the control structure to address these material weaknesses; however,at our Brad Foote subsidiary, the controls implemented were not sufficient tofully remediate this material weakness as it related to our fourth quarter 2009interim monthly financial statements. Based on this assessment, managementdetermined that, as of December 31, 2009, we did not maintain effectiveinternal control over financial reporting due to the previously reportedmaterial weakness related to non-routine revenue transactions discussed above,which remained outstanding at December 31, 2009.

 

***Remediation Activities and Changes in Internal Control OverFinancial Reporting***

 

Management has continuedits remediation efforts to reduce the risk presented by the existing materialweakness. Since year-end, we have made key personnel changes, enhanced ourinternal controls and implemented additional internal control procedures todetect, monitor and review transactions that are deemed by the Company to benon-routine revenue transactions. The impact of remediation efforts initiatedby management will not be fully known until our assessment of internal controlover financial reporting is completed as of December 31, 2010.

 

**Evaluationof Disclosure Controls and Procedures**

 

Our Chief ExecutiveOfficer and Chief Financial Officer evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) as of the end of the period covered in this report. In light of thematerial weakness associated with the controls over non-routine revenuetransactions , which has not been completely remediated as of the end of theperiod covered by this Quarterly Report, our Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures were noteffective to provide reasonable assurance that information required to bedisclosed by the Company in the reports that it files or submits under theExchange Act was recorded, processed, summarized and reported within the timeperiods specified by the SEC’s rules and forms and did not ensure thatinformation required to be disclosed in the reports that we file or submitunder the Exchange Act was accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

We anticipate the actionsto be taken to remediate this material weakness and the resulting improvementin controls will generally strengthen our disclosure controls and procedures,as well as our internal control over financial reporting, and will, over time,address the material weakness that we identified in our internal control overfinancial reporting as of December 31, 2009. However, because many of theremediation actions we have undertaken are recent and because some of ourremediation actions will be designed to improve our internal control overannual measures, management will not be able to conclude that the materialweakness has been eliminated until such time as it is able to complete itsassessment of the effectiveness of internal control over financialreporting.  While management is exercising its best efforts to remediatethe material weakness identified and described above, we cannot provide anyassurance as to when such material weakness will be remediated.

 

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** **

**PART II.   OTHER INFORMATION**

 

**Item 1.       Legal Proceedings**

 

From time to time,Broadwind and its subsidiaries are involved in litigation relating to claimsarising out of our operations in the normal course of business. As of March 31,2010, we are not aware of material pending legal proceedings or threatenedlitigation that would have a material adverse effect on our financial conditionor results of operations, although no assurance can be given with respect tothe ultimate outcome of pending actions.

 

**Item 1A: Risk Factors**

 

Therewere no material changes to our risk factors as previously disclosed in Item 1Aof our Annual Report on Form 10-K for the year ended December 31,2009.

 

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

 

None

 

**Item 3.       Defaults Upon Senior Securities**

 

None

 

**Item 4.       [Removed and Reserved]**

 

**Item 5.       Other Information**

 

None

 

**Item 6.       Exhibits**

 

The exhibits listed onthe Exhibit Index following the signature page are filed as part ofthis Quarterly Report.

 

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###### **SIGNATURES**

######  

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

 
|             | BROADWIND ENERGY, INC. |
|------------------|------------------------|
|             |                   |   |
|             |                   |   |
| May 7, 2010 | By:                    | /s/ J. Cameron Drecoll |
|             |                   | J. Cameron Drecoll |
|             |                   | Chief Executive Officer |
|             |                   |   |
|             |                   |   |
| May 7, 2010 | By:                    | /s/ Stephanie K.  Kushner |
|             |                   | Stephanie K. Kushner |
|             |                   | Chief Financial Officer |

 

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EXHIBIT INDEX

BROADWIND ENERGY,INC.

FORM 10-Q FORTHE QUARTER ENDED MARCH 31, 2010

 
| **Exhibit  Number** | ** ** | **Exhibit**                                                                                                                                                    |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Letter Agreement, dated  April 5, 2010, by and among Broadwind Energy, Inc., Tower Tech  Systems Inc. and Great Western Bank*                        |
| 10.2                |       | Amendment to Mortgage,  dated April 5, 2010, by and between Tower Tech Systems Inc. and Great  Western Bank*                                              |
| 10.3                |       | Business Loan  Agreement, dated April 5, 2010, by and between Tower Tech Systems Inc.  and Great Western Bank*                                            |
| 10.4                |       | Change in Terms  Agreement, dated April 5, 2010, by and between Tower Tech Systems Inc.  and Great Western Bank*                                          |
| 10.5                |       | Amended and Restated  Lease for Industrial/Manufacturing Space, dated as of May 1, 2010, by  and between Tower Tech Systems Inc. and City Centre, L.L.C.* |
| 10.6                |       | Form of Indemnification  Agreement*                                                                                                                            |
| 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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