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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

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

** **

**Commission file number 0-31313**

** **

 

**BROADWINDENERGY, INC.**

 (Exact name of registrant asspecified in its charter)

 

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

 

**47 East Chicago Avenue, Suite 332, Naperville, IL 60540**

(Address of principal executive offices)

 

**(630) 637-0315**

(Registrant’s telephone number, including area code)

 

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

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

 

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

 

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

 

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

 

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

Yes  o   No  x

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: As of August 1, 2008, 96,470,415shares of the registrant’s common stock were outstanding.

 

 

 

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**BROADWIND ENERGY, INC. ANDSUBSIDIARIES**

 

**INDEX**

 
| ** **                              | ** ** | ** **                                                                                  | ** ** | **Page No.** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|-------------------|------------|
|                                    |       |                                                                                        |       |              |       |
| **PART I.  FINANCIAL INFORMATION** |       |
|                                    |       |                                                                                        |       |              |       |
| Item  1.                                |       | Condensed  Consolidated Financial Statements                                                |       | 3                 |       |
|                                    |       | Condensed  Consolidated Balance Sheets (Unaudited)                                          |       | 3                 |       |
|                                    |       | Condensed  Consolidated Statements of Operations (Unaudited)                                |       | 4                 |       |
|                                    |       | Condensed  Consolidated Statements of Cash Flows (Unaudited)                                |       | 5                 |       |
|                                    |       | Notes  to Condensed Consolidated Financial Statements (Unaudited)                           |       | 6                 |       |
|                                    |       |                                                                                        |       |              |       |
| Item  2.                                |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 21                |       |
| Item 4T.                           |       | Controls and  Procedures                                                                    |       | 31                |       |
|                                    |       |                                                                                        |       |              |       |
| **PART II. OTHER  INFORMATION**    |       |
|                                    |       |                                                                                        |       |              |       |
| Item 1.                                 |       | Legal Proceedings                                                                           |       | 32                |       |
| Item  2.                                |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 32                |       |
| Item  3.                                |       | Defaults Upon  Senior Securities                                                            |       | 32                |       |
| Item  4.                                |       | Submission of  Matters to a Vote of Security Holders                                        |       | 33                |       |
| Item 5.                                 |       | Other Information                                                                           |       | 33                |       |
| Item 6.                                 |       | Exhibits                                                                                    |       | 33                |       |
| Signatures                              |       | 34                                                                                          |       |
| Exhibit Index                      |       | 35                                                                                          |       |

 

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** **

**PART I.        FINANCIALINFORMATION**

 

**Item 1.                    Condensed****Consolidated****Financial Statements**

 

**BROADWIND ENERGY, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**

 

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

** **
| ** **                                                                                                                                                          | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                          | ** ** | **(Unaudited)**             | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                          |       |                        |       |                            |       |
| Current assets:                                                                                                                                                     |       |                        |       |                            |       |
| Cash                                                                                                                                                                |       | $                           | 81,869     |                            | $          | 5,782 |   |
| Restricted cash                                                                                                                                                     |       | 1,000                       |       | 500                             |       |
| Accounts receivable, net of allowance of $1,275 and $2,983, respectively                                                                                            |       | 31,016                      |       | 13,541                          |       |
| Inventories, net of allowance of $1,096 and $1,096, respectively                                                                                                    |       | 19,232                      |       | 12,983                          |       |
| Prepaid expenses and other current assets                                                                                                                           |       | 1,000                       |       | 1,946                           |       |
| Total current assets                                                                                                                                                |       | 134,117                     |       | 34,752                          |       |
|                                                                                                                                                                |       |                        |       |                            |       |
| Property and equipment, net of accumulated depreciation of $6,957 and  $2,476, respectively                                                                         |       | 86,802                      |       | 58,890                          |       |
| Goodwill                                                                                                                                                            |       | 37,819                      |       | 27,611                          |       |
| Intangibles, net of accumulated amortization of $6,972 and $1,655, respectively                                                                                     |       | 110,334                     |       | 84,022                          |       |
| Other noncurrent assets                                                                                                                                             |       | 1,427                       |       | 543                             |       |
| TOTAL ASSETS                                                                                                                                                        |       | $                           | 370,499    |                            | $          | 205,818 |   |
|                                                                                                                                                                |       |                        |       |                            |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                      |       |                        |       |                            |       |
| Current liabilities:                                                                                                                                                |       |                        |       |                            |       |
| Lines of credit and notes payable                                                                                                                                   |       | $                           | 6,928      |                            | $          | 440 |   |
| Notes payable to related parties                                                                                                                                    |       | —                      |       | 25,000                          |       |
| Current maturities of long-term debt                                                                                                                                |       | 17,176                      |       | 12,693                          |       |
| Current portions of long-term capital lease obligations                                                                                                             |       | 295                         |       | 300                             |       |
| Accounts payable                                                                                                                                                    |       | 13,643                      |       | 10,136                          |       |
| Accrued liabilities                                                                                                                                                 |       | 9,988                       |       | 12,457                          |       |
| Unearned revenue                                                                                                                                                    |       | 91                          |       | 97                              |       |
| Customer deposits                                                                                                                                                   |       | 13,486                      |       | 1,326                           |       |
| Total current liabilities                                                                                                                                           |       | 61,607                      |       | 62,449                          |       |
| Long-term debt, net of current maturities                                                                                                                           |       | 21,921                      |       | 17,620                          |       |
| Capital lease obligations, net of current portions                                                                                                                  |       | 2,165                       |       | 686                             |       |
| Interest rate swaps                                                                                                                                                 |       | 377                         |       | 388                             |       |
| Deferred income taxes                                                                                                                                               |       | 3,542                       |       | 139                             |       |
| Total liabilities                                                                                                                                                   |       | 89,612                      |       | 81,282                          |       |
|                                                                                                                                                                |       |                        |       |                            |       |
| Commitments and contingencies                                                                                                                                       |       |                        |       |                            |       |
|                                                                                                                                                                |       |                        |       |                            |       |
| Stockholders’ equity:                                                                                                                                          |       |                        |       |                            |       |
| Common stock, $.001 par value: 150,000,000 and 100,000,000 shares authorized,  respectively; 96,470,415 and 76,260,912 shares issued and outstanding,  respectively |       | 96                          |       | 76                              |       |
| Additional paid-in capital                                                                                                                                          |       | 296,127                     |       | 133,033                         |       |
| Accumulated deficit                                                                                                                                                 |       | (15,336                     | )          | (9,877                          | )          |
| Interest in variable interest entity                                                                                                                                |       | —                      |       | 1,304                           |       |
| Total stockholders’ equity                                                                                                                                     |       | 280,887                     |       | 124,536                         |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                     |       | $                           | 370,499    |                            | $          | 205,818 |   |

 

 

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**BROADWIND ENERGY, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

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

 
| ** **                                                     | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net sales                                                      |       | $                                                   | 40,830     |                                              | $          | 2,643 |   | $ | 75,994 |   | $ | 4,862 |   |
| Cost of sales                                                  |       | 30,739                                              |       | 1,527                                             |       | 57,893 |   | 3,050 |   |
| Gross profit                                                   |       | 10,091                                              |       | 1,116                                             |       | 18,101 |   | 1,812 |   |
|                                                           |       |                                                |       |                                              |       |   |   |   |   |
| Operating costs and expenses:                                  |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general and administrative expenses                   |       | 8,995                                               |       | 751                                               |       | 16,365 |   | 1,211 |   |
| Amortization of intangible assets                              |       | 2,738                                               |       | —                                            |       | 5,317 |   | — |   |
| Total operating costs and expenses                             |       | 11,733                                              |       | 751                                               |       | 21,682 |   | 1,211 |   |
| Operating income (loss)                                        |       | (1,642                                              | )          | 365                                               |       | (3,581 | ) | 601 |   |
|                                                           |       |                                                |       |                                              |       |   |   |   |   |
| Other income (expense):                                        |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense, net                                          |       | (794                                                | )          | 114                                               |       | (2,011 | ) | 59 |   |
| Other, net                                                     |       | 475                                                 |       | —                                            |       | 376 |   | — |   |
| Total other income (expense), net                              |       | (319                                                | )          | 114                                               |       | (1,635 | ) | 59 |   |
| Income (loss) before provision for income taxes                |       | (1,961                                              | )          | 479                                               |       | (5,216 | ) | 660 |   |
| Provision for income taxes                                     |       | 12                                                  |       | —                                            |       | 200 |   | — |   |
| Net income (loss)                                              |       | $                                                   | (1,973     | )                                                 | $          | 479 |   | $ | (5,416 | ) | $ | 660 |   |
|                                                           |       |                                                |       |                                              |       |   |   |   |   |
| Net income (loss) per common share - basic and diluted         |       | $                                                   | (0.02      | )                                                 | $          | 0.01 |   | $ | (0.07 | ) | $ | 0.02 |   |
| Weighted average common shares outstanding - basic and diluted |       | 86,821,984                                          |       | 47,724,464                                        |       | 83,255,004 |   | 43,584,476 |   |

 

 

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**BROADWIND ENERGY, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(UNAUDITED)(in thousands)**

 
| ** **                                                                            | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                            | ** ** | **2008**                           | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                                 |       |                               |       |   |   |
| Net income (loss)                                                                     |       | $                                  | (5,416     | ) | $ | 660 |   |
|                                                                                  |       |                               |       |   |   |
| Adjustments to reconcile net income (loss) to net cash used in  operating activities: |       |                               |       |   |   |
| Depreciation                                                                          |       | 4,481                              |       | 198 |   |
| Amortization of intangible assets                                                     |       | 5,317                              |       | 191 |   |
| Change in valuation of interest rate swap                                             |       | (11                                | )          | — |   |
| Deferred income taxes                                                                 |       | 200                                |       | — |   |
| Stock issued for marketing costs                                                      |       | —                             |       | 240 |   |
| Stock-based compensation expense                                                      |       | 784                                |       | — |   |
| Loss on disposal of assets                                                            |       | 22                                 |       | — |   |
| Allowance for doubtful accounts                                                       |       | (1,708                             | )          | — |   |
|                                                                                  |       |                               |       |   |   |
| Changes in operating assets and liabilities:                                          |       |                               |       |   |   |
| Accounts receivable                                                                   |       | (10,472                            | )          | (1,784 | ) |
| Inventories, net                                                                      |       | (5,753                             | )          | (91 | ) |
| Prepaids and other accounts receivable                                                |       | 1,101                              |       | (512 | ) |
| Other non-current assets                                                              |       | (865                               | )          | (2 | ) |
| Accounts payable                                                                      |       | (2,554                             | )          | (1,055 | ) |
| Accrued liabilities                                                                   |       | (3,709                             | )          | (1,013 | ) |
| Customer deposits                                                                     |       | 12,160                             |       | 1,664 |   |
| Unearned revenue                                                                      |       | (11                                | )          | — |   |
| Net cash used in operating activities                                                 |       | (6,434                             | )          | (1,504 | ) |
|                                                                                  |       |                               |       |   |   |
| Cash flows from investing activity:                                                   |       |                               |       |   |   |
| Cash paid for acquisitions, net of cash received                                      |       | (24,955                            | )          | — |   |
| Purchases of property and equipment                                                   |       | (20,465                            | )          | (1,778 | ) |
| Increase in related party receivable                                                  |       | —                             |       | (34 | ) |
| Increase (decrease) in restricted cash                                                |       | (500                               | )          | (500 | ) |
| Net cash used in investing activities                                                 |       | (45,920                            | )          | (2,312 | ) |
|                                                                                  |       |                               |       |   |   |
| Cash flows from financing activities:                                                 |       |                               |       |   |   |
| Proceeds from the issuance of common stock                                            |       | 117,725                            |       | 15,400 |   |
| Payment of lines of credit                                                            |       | (1,000                             | )          | (3,512 | ) |
| Payments on related party notes payable                                               |       | (1,365                             | )          | — |   |
| Increase in notes payable and lines of credit                                         |       | 5,942                              |       |   |   |
| Payments on notes payable and lines of credit                                         |       | (315                               | )          | — |   |
| Proceeds from long-term debt                                                          |       | 8,893                              |       | — |   |
| Payments on long-term debt                                                            |       | (70                                | )          | (527 | ) |
| Principal payments on capital leases                                                  |       | (1,488                             | )          | — |   |
| Issuance of restricted stock grants                                                   |       | 119                                |       | — |   |
| Refund of bond issuance fees                                                          |       | —                             |       | 11 |   |
| Net cash provided by financing activities                                             |       | 128,441                            |       | 11,372 |   |
| Net increase in cash                                                                  |       | 76,087                             |       | 8,353 |   |
| Cash at beginning of period                                                           |       | 5,782                              |       | 125 |   |
|                                                                                  |       |                               |       |   |   |
| Cash at end of period                                                                 |       | $                                  | 81,869     |   | $ | 8,478 |   |
|                                                                                  |       |                               |       |   |   |
| Non-cash disclosure information:                                                      |       |                               |       |   |   |
| Accounts payable incurred for the purchase of equipment                               |       | $                                  | 4,518      |   |   |   |
| Common stock issued for acquisitions                                                  |       | $                                  | 19,821     |   |   |   |
| Non-cash purchase accounting allocation changes                                       |       | $                                  | 2,758      |   |   |   |

 

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BROADWIND ENERGY, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

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

 

**Note 1 — Nature of business and summary of significant accountingpolicies**

 

Theaccompanying unaudited condensed consolidated financial information has beenprepared by Broadwind Energy, Inc., a Delaware corporation (“Broadwind”),and its subsidiaries (also referred toas “we,” “us,” “our,” or the “Company”) in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”) forinterim financial information and the instructions to Form 10-Q and Article 8-03of Regulation S-X of the Securities and Exchange Commission (the “SEC”).Accordingly, it does not include all of the information and notes required byGAAP for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair statement of this financial information have been included.Financial results for the interim three and six-month periods ended June 30, 2008 are not necessarily indicativeof the results that may be expected for the year ending December 31, 2008.The December 31, 2007 condensed consolidated balance sheet was derivedfrom audited financial statements, but does not include all disclosuresrequired by GAAP. This financial information should be read in conjunction withthe consolidated financial statements and notes included in the Company’sAnnual Report on Form 10-KSB for the year ended December 31, 2007.

 

Broadwind became a public company in February 2006,after a reverse shell transaction with Blackfoot Enterprises, Inc. whichwas incorporated in Nevada in 1996.  Fromthe time following the reverse shell transaction through February 2008, wewere known as Tower Tech Holdings Inc. On February 28, 2008, we changed our name to Broadwind Energy, Inc.,and on June 20, 2008, Broadwind changed its state of incorporation fromNevada to Delaware.  Our principalexecutive office is located at 47 East Chicago Avenue, Suite 332,Naperville, IL 60540. Our phone number is (630) 637-0315 and our websiteaddress is www.broadwindenergy.com.

 

Our business is dedicated to the productionand servicing of components for energy and infrastructure-related industries.We are primarily focused on manufacturing components for the wind industry,including: tower support structures through our Tower Tech Systems, Inc. (“TowerTech”) subsidiary; mining and other heavy equipment through our R.B.A. Inc. (“RBA”)subsidiary; gearing systems through our Brad Foote Gear Works, Inc. (“BradFoote”) subsidiary; construction, operations, support, maintenance, and componentrepairs for wind turbines through our Energy Maintenance Service, LLC (“EMS”)subsidiary; and transportation services through our Badger Transport, Inc.(“Badger”) subsidiary.

 

Manitowoc, Wisconsin serves as the mainlocation of the manufacturing facilities for our Tower Tech and RBAsubsidiaries.  RBA also operates in asecond facility located in Clintonville, Wisconsin, which was establishedduring the second quarter of 2008.  OurBrad Foote subsidiary has manufacturing and administrative facilities inCicero, Illinois and Neville Island, Pennsylvania. Our EMS subsidiary isheadquartered in Gary, South Dakota and established a service hub facility inAbilene, Texas during the second quarter of 2008.  Badger is headquartered in Clintonville,Wisconsin with equipment dispatched throughout the United States.

 

Duringthe second quarter of 2008, the Company completed transactions resulting in thesale of an aggregate of $100,500 worth of its common stock at $7.96 per share,of which $500, or 62,814 shares, were purchased by a member of the Company’sBoard of Directors and an aggregate of $100,000 worth, or 12,562,814 shares,were purchased by Tontine Capital Partners, L.P. (“TCP”), Tontine Partners,L.P. (“TP”), Tontine Overseas Fund, Ltd. (“TOF”) and Tontine 25 Overseas MasterFund L.P. (“T25”, and collectively with Tontine Capital Overseas Master Fund,L.P. (“TMF”), TCP, TP and TMF, “Tontine”). Thomas Weisel Partners issued a fairness opinion in connection with theTontine parties’ investment.

 

OnJune 4, 2008, the Company acquired all of the outstanding capital stock ofBadger for total purchase price of $11,811, excluding acquisition costs.  The purchase price consisted of $5,811 ofcash and 581,959 unregistered shares of Broadwind common stock at a price pershare of $10.31, which represented the average closing price of Broadwindcommon stock for the thirty trading days preceding execution of the Badgeracquisition agreement.  The Companyentered into a registration rights agreement with the former owner of Badgerthat provides the former owner with limited piggyback registration rights.  The Company financed the cash portion of theacquisition with cash on hand.

 

TheCompany held its Annual Meeting of Stockholders on June 20, 2008 inNaperville, Illinois.  At the AnnualMeeting, the Company’s stockholders approved the Broadwind Energy, Inc.2007 Equity Incentive Plan (“EIP”); elected six incumbent director nominees to the Company’sBoard of Directors for one year terms; approved the reincorporation of theCompany from the State of Nevada to the State of Delaware; approved anamendment to the Company’s Articles of Incorporation to 

 

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increase the authorizednumber of common shares from 100,000,000 to 150,000,000; and ratified theselection of Grant Thornton LLP as the Company’s independent registered publicaccounting firm for 2008.

 

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

 

*Basis of consolidation*

 

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

 

*Revenue Recognition*

 

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

 

*Segment reporting*

 

Asof June 30, 2008, Broadwind operates and manages two reportingsegments:  Products and Components; andService, Transportation and Maintenance. Initially, the Company created aService and Maintenance segment in January 2008 when it acquired EMS.  In connection with the June 2008acquisition of Badger, a transportation services company, we added atransportation component to this segment and created the Service,Transportation and Maintenance segment. For the three and six months ended June 30, 2007, the Companyoperated as a single segment, Towers & Fabrication, as the Company’sonly subsidiary in existence as of June 30, 2007 was its Tower Techsubsidiary.  The Towers &Fabrication segment is now part of the Products and Components segment, whichalso includes the Company’s previously reported Gearing Systems segment.  Refer to Note 18 for summarized financialinformation of the Company’s segments.

 

*Reclassification*

 

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

 

*Effect of recently issued accounting standards*

 

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

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157, *Fair ValueMeasurements* (“SFAS 157”). This standard clarifies theprinciple that fair value should be based on the assumptions that marketparticipants would use when pricing an asset or liability. Additionally, itestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.

 

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

 

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

 

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

 

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

 

**Note 2 — Inventories**

 

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

** **
| ** **                                        | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| Raw materials                                     |       | $                      | 11,538     |                       | $          | 4,230 |   |
| Work-in-process                                   |       | 8,195                  |       | 8,976                      |       |
| Finished goods                                    |       | 595                    |       | 873                        |       |
|                                              |       | 20,328                 |       | 14,079                     |       |
| Less: Reserve for excess and obsolete inventories |       | (1,096                 | )          | (1,096                     | )          |
| Net inventories                                   |       | $                      | 19,232     |                       | $          | 12,983 |   |

 

**Note 3 — Acquisitions**

 

*Badger Transport, Inc.*

 

OnJune 4, 2008, the Company acquired all of the outstanding shares of Badgerfor aggregate purchase price of $11,811 exclusive of $125 oftransaction-related acquisition costs. The purchase price consisted of $5,811 of cash and 581,959 unregisteredshares of Broadwind common stock at a price per share of $10.31.  The Company entered into a registrationrights agreement with the former owner of Badger that provides the former ownerwith limited piggyback registration rights. The Company financed the cash portion of the acquisition with cash onhand.

 

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

 

| Current assets            |   | $      | 1,387  |   |
|---------------------------|--------|--------|--------|--------|
| Property and equipment    |   | 6,619  |   |
| Other assets              |   | 299    |   |
| Trade name                |   | 310    |   |
| Non-compete agreement     |   | 1,370  |   |
| Customer relationships    |   | 3,440  |   |
| Goodwill                  |   | 8,201  |   |
| Total assets acquired     |   | 21,626 |   |
| Current liabilities       |   | (1,640 | )      |
| Capital lease obligations |   | (4,281 | )      |
| Long-term debt            |   | (568   | )      |
| Deferred tax liability    |   | (3,201 | )      |
| Total liabilities assumed |   | (9,690 | )      |
| Net assets acquired       |   | $      | 11,936 |   |

 

TheCompany may adjust goodwill as necessary as it finalizes purchase priceallocations for acquisitions.  Typicaladjustments include outstanding professional fees and fixed asset valuations.  None of the goodwill associated with thepurchase of Badger is expected to be deductible for income tax purposes.

 

In connection with the Badger acquisition, the Company was required tofund approximately $4,500 of equipment purchases that Badger had on order forexpansion.  The Company has funded $3,933of this commitment as of August 11, 2008.

 

*Energy Maintenance Service, LLC*

 

As disclosed in theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31,2008, on January 16, 2008, the Company acquired all of the outstandingmembership interests in EMS, a South Dakota based company engaged in the sale,installation, and repair of wind-powered electric generators. The aggregateconsideration paid was $32,772, which included 1,629,834 shares of the Company’scommon stock at a price per share of $8.48 and $522 of transaction-relatedacquisition costs.  The cash portion ofthe purchase price was financed by a private placement of Company common stock,as described in Note 10 below.

 

The following tablesummarizes the estimated fair values of the EMS assets acquired and liabilitiesassumed on the date of the acquisition:

 

| Current assets            |   | $      | 4,712  |   |
|---------------------------|--------|--------|--------|--------|
| Property and equipment    |   | 1,549  |   |
| Trade name                |   | 1,790  |   |
| Customer relationships    |   | 24,700 |   |
| Goodwill                  |   | 4,547  |   |
| Total assets acquired     |   | 37,298 |   |
| Current liabilities       |   | (3,556 | )      |
| Long-term liabilities     |   | (970   | )      |
| Total liabilities assumed |   | (4,526 | )      |
| Net assets acquired       |   | $      | 32,772 |   |

 

The Company may adjustgoodwill as necessary as it finalizes purchase price allocations foracquisitions. Typical adjustments include outstanding professional fees andfixed asset valuations.****Goodwill of$4,025, and other intangibles of $26,490 are expected to be deductible forincome tax purposes over 15 years.

 

The Company does not haveany contingent payments or commitments in relation to the acquisition of EMS,with the exception of certain stock options that were awarded as a result ofthe acquisition. Stock options are a share-based compensation expense and aresubject to accounting treatment under SFAS No. 123(R) as discussed inNote 11.

 

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*Brad Foote Gear Works, Inc.*

 

Asdisclosed in the Company’s Annual Report on Form 10-KSB for the year endedDecember 31, 2007, on October 19, 2007, the Company acquired all ofthe outstanding capital stock of Brad Foote, an Illinois-based manufacturer ofgearing systems for the wind turbine, oil and gas and energy-relatedindustries. The aggregate consideration paid in connection with the Brad Footeacquisition, which included cash and unregistered shares of the Company’scommon stock, was $133,179.

 

*Pro Forma Financial Information*

 

Thefollowing table represents the consolidated financial information for theCompany on a pro forma basis, assuming the acquisitions of EMS, Brad Foote, andBadger had each occurred as of January 1, 2007. The Company is notincluding the pro-forma effect of RBA because the impact is not material to itsresults of operations for the three and six-month periods ended June 30,2008 or 2007. The historical financial information has been adjusted to giveeffect to pro forma items that are directly attributable to the acquisitionsand expected to have a continuing impact on the consolidated results. Theseitems include adjustments to increase depreciation related to the stepped-upbasis in machinery and equipment, adjust inventory to fair market value, recordamortization of intangible assets, increase interest expense for certainlong-term notes payable, and reclassify certain items to conform to the Company’sfinancial reporting presentation.

 

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

 
| ** **                | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------|------------|------------------------------------|------------|
| ** **                | ** ** | **2008**                           | ** ** | **2007** | ** ** |
| ** **                | ** ** | ** **                         | ** ** | **Pro-forma** | ** ** | ** ** | ** ** | ** ** | ** ** | **Pro-forma** | ** ** | ** ** | ** ** |
| ** **                | ** ** | **As reported**                    | ** ** | **adjustments** | ** ** | **Pro-forma** | ** ** | **As reported** | ** ** | **adjustments** | ** ** | **Pro-forma** | ** ** |
| Revenues                  |       | $                                  | 75,994     |   | $ | 4,646 | (1) | $ | 80,640 |   | $ | 4,862 |   | $ | 53,495 | (3) | $ | 58,357 |   |
| Net income (loss)         |       | $                                  | (5,416     | ) | (1,060 | )(2) | $ | (6,476 | ) | $ | 660 |   | $ | 6,052 | (4) | $ | 6,712 |   |
| Earnings (loss) per share |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted         |       | $                                  | (0.07      | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | 0.02 |   | $ | 0.13 |   | $ | 0.15 |   |

----

(1)                  Represents revenue of EMSand Badger for the period from January 1, 2008 through the respectiveacquisition dates.

(2)                  Represents net loss of EMSand Badger for the period from January 1, 2008 through the respectiveacquisition dates. Adjustments to net loss include increases to depreciationrelated to the increase in fair market value of machinery and equipment to fairvalue, amortization of acquired intangible assets, and adjustments to interestincome and interest expense relating to the Company’s assumption of certainshort and long-term borrowings of EMS and Badger.

(3)                  Represents revenue of EMS,Brad Foote, and Badger for the period from January 1, 2007 through June 30,2007.

(4)                  Represents net income ofEMS, Brad Foote, and Badger for the period from January 1, 2007 through June 30,2007. Adjustments to net income include increases to depreciation related tothe stepped up basis in machinery and equipment to fair value, increases incost of goods sold due to increasing inventory to fair market value,amortization of acquired intangible assets, and adjustments to interest incomeand interest expense relating to the Company’s assumption of certain short- andlong-term borrowings of EMS, Brad Foote and Badger.

 

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

 

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**Note 4 — Goodwill and intangible assets**

 

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

 
| ** **                           | ** ** | **Trade names** | ** ** | **Customer  relationships** | ** ** | **Non-Compete** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-----------------|------------|-----------------------------|------------|-----------------|------------|-----------|------------|
| Balance as of December 31, 2007 |       | $               | 8,119      |                        | $          | 77,558          |       | $         | —     |   | $ | 85,677 |   |
| EMS acquisition                      |       | 1,790           |       | 24,700                      |       | —          |       | 26,490    |       |
| Badger acquisition                   |       | 310             |       | 3,440                       |       | 1,370           |       | 5,120     |       |
| Adjustments                          |       | 10              |       | 9                           |       | —          |       | 19        |       |
| Balance as of June 30, 2008     |       | $               | 10,229     |                        | $          | 105,707         |       | $         | 1,370      |   | $ | 117,306 |   |

 

Intangible assets subjectto amortization are as follows as of June 30, 2008:

 
| **Intangible**         | ** ** | **Weighted  Average  Remaining  Amortization  Period (Years)** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
|------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| Trade names            |       | 19.37                                                               |       | $                               | 10,229     |                          | $          | (409                          | )          | $ | 9,820 |   |
| Customer relationships |       | 9.84                                                                |       | 105,707                         |       | (6,549                        | )          | 99,158                        |       |
| Noncompete Agreements  |       | 2.92                                                                |       | 1,370                           |       | (14                           | )          | 1,356                         |       |
| Total                  |       |                                                                |       | $                               | 117,306    |                          | $          | (6,972                        | )          | $ | 110,334 |   |

 

Amortizationexpense on trademarks, customer relationships and non-compete agreements, whichis being recorded ratably over the estimated life of the related intangibleassets, was $2,738 and $5,317, respectively, for the three and six months endedJune 30, 2008. There was no such amortization expense for the three andsix months ended June 30, 2007 as the underlying intangible assets wereacquired subsequent to June 30, 2007.

 

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

 

| Balance as of December 31, 2007 |   | $      | 27,611 |   |
|--------------------------------------|--------|--------|--------|--------|
| EMS acquisition                      |   | 4,547  |   |
| Badger acquisition                   |   | 8,201  |   |
| Adjustments (1)                      |   | (2,540 | )      |
| Balance as of June 30, 2008     |   | $      | 37,819 |   |

----

(1) Comprisedof purchase price allocation adjustments recorded in connection with theCompany’s acquisition of Brad Foote in the fourth quarter of 2007. Theadjustments were to adjust certain machinery and equipment to fair value andrecord additional acquisition-related costs. The Company may adjust goodwill asnecessary as it finalizes purchase price allocations for acquisitions.  Typical adjustments includeoutstanding professional fees and fixed asset valuations

 

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

 

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**Note 5 — Accrued liabilities**

 

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

** **
| ** **                                             | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| Accrued operating expenditures                         |       | $                      | 5,357      |                       | $          | 4,217 |   |
| Reimbursements due under Brad Foote purchase agreement |       | 1,519                  |       | 5,171                      |       |
| Accrued payroll, employee benefits, and related taxes  |       | 2,524                  |       | 1,894                      |       |
| Accrued rent                                           |       | 440                    |       | 492                        |       |
| Accrued interest                                       |       | 23                     |       | 560                        |       |
| Other                                                  |       | 125                    |       | 123                        |       |
| Total accrued liabilities                              |       | $                      | 9,988      |                       | $          | 12,457 |   |

 

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

 

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

 
| ** **                                          | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| **Third party**                                     | ** ** | ** **             | ** ** | ** **                 | ** ** |
| Line of credit (Libor + 1.75%)                      |       | $                      | 6,125      |                       | $          | — |   |
| Line of credit (8.50%)                              |       | 468                    |       | —                     |       |
| Note payable (Prime + 0.50%)                        |       | 84                     |       | —                     |       |
| Note payable (7.49%)                                |       | 251                    |       |                       |       |
| Bank note (6.85%)                                   |       | —                 |       | 440                        |       |
| Total third party lines of credit and notes payable |       | 6,928                  |       | 440                        |       |
| ** **                                          | ** ** | ** **             | ** ** | ** **                 | ** ** |
| **Related party**                                   | ** ** | ** **             | ** ** | ** **                 | ** ** |
| 9.5% related party note, subject to conversion      |       | —                 |       | 25,000                     |       |
| Total related party notes payable                   |       | —                 |       | 25,000                     |       |
| Total lines of credit and notes payable             |       | $                      | 6,928      |                       | $          | 25,440 |   |

 

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

 

In connection with its acquisition of EMS, on January16, 2008 the Company issued a related-party note to Joseph A. Kolbach, a formermember of EMS who remains employed by the Company as the president of EMS. Thenote was in the amount of $1,365 and related to a limited liability company taxpayment.  In May 2008, the Company paidthe note in full.

 

**Note 7 — Long-term debt**

 

Long-termdebt at June 30, 2008 and December 31, 2007 consisted of the following:

 
| ** **                                         | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| 2007 equipment line note, due 2013                 |       | $                      | 8,877      |                       | $          | 5,947 |   |
| Revolving note, due 2008                           |       | 8,500                  |       | 7,887                      |       |
| 2006 equipment line note, due 2012                 |       | 8,433                  |       | 9,533                      |       |
| 2006 term note, due 2011                           |       | 4,081                  |       | 4,871                      |       |
| 2008 term note, due 2013                           |       | 1,902                  |       | 2,075                      |       |
| 5.65% fixed rate loan, due 2013                    |       | 1,573                  |       | —                     |       |
| Fixed rate notes 4.75% to 17.00%, due 2008 to 2012 |       | 3,415                  |       | —                     |       |
| Variable rate loan (prime plus 1.50%), due 2008    |       | 1,491                  |       | —                     |       |
| Variable rate loan (prime plus 1.50%), due 2013    |       | 425                    |       | —                     |       |
| 6.85% fixed rate loan, due 2012                    |       | 400                    |       | —                     |       |
| Total long-term debt                               |       | 39,097                 |       | 30,313                     |       |
| Less current maturities                            |       | (17,176                | )          | (12,693                    | )          |
| Total long-term debt, less current maturities      |       | $                      | 21,921     |                       | $          | 17,620 |   |

 

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Maturities of long-termdebt for each of the five years following June 30, 2008 are as follows:

 

| **Period**                | ** ** | **Principal amount of  long-term debt** | ** ** |
|---------------------------|------------|-----------------------------------------|------------|
| 2008 (remaining 6 months) |       | $                                       | 13,587     |   |
| 2009                      |       | 7,193                                   |       |
| 2010                      |       | 7,235                                   |       |
| 2011                      |       | 5,631                                   |       |
| 2012                      |       | 3,459                                   |       |
| 2013                      |       | 1,693                                   |       |
| Thereafter                |       | 299                                     |       |
| Total                     |       | $                                       | 39,097     |   |

 

TheCompany was in compliance with all debt covenants as of June 30, 2008,with the exception of a debt coverage ratio related to an EMS note in the amountof $1,491 at June 30, 2008.  On August 8,2008, the Company refinanced the note and received notice and a one-time waiverfor the covenant violation from its lender.

 

**Note 8 —Interest rate swaps**

 

In 2007, the Company entered into two interest rate swap agreements tominimize the impact of interest rate fluctuations on its debt. Interest rateswap agreements involve exchanges of fixed or floating rate interest paymentsperiodically over the life of the agreement without the exchange of theunderlying principal amounts.  Under theprovisions of SFAS No. 133, all derivatives are measured at fair value andrecognized as either assets or liabilities in 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 fair value must be recognized currentlyin earnings. The Company’s interest rate swaps do not qualify for hedgeaccounting under SFAS No. 133. Therefore, the Company is required torecognize the swap at its fair market value and record the fluctuations in thefair value of the swap in current earnings. The unrealized gain related tothese fluctuations was approximately $241 and $11 for the three and six-monthended June 30, 2008, respectively, and is recognized within interestexpense, net. The fair market value of the interest rate swaps of $377 and $388is recorded as a long-term liability as of June 30, 2008 and December 31,2007, respectively.

 

**Note 9 — Capital leases**

 

TheCompany leases equipment from various financing companies under capital leaseswith terms that extend to 2012. The economic substance of the leases is thatthe Company is financing the acquisition of the assets through the leases, andaccordingly, they are recorded in the Company’s assets and liabilities.Amortization of the capital leases has been included in depreciation expense.The following is an analysis of the leased assets included in property andequipment as of June 30, 2008 and December 31, 2007.

 
| ** **                    | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------|------------|------------------------|------------|----------------------------|------------|
| Machinery and equipment       |       | $                      | 3,732      |                       | $          | 1,589 |   |
| Less accumulated depreciation |       | (150                   | )          | (25                        | )          |
| Net machinery and equipment   |       | $                      | 3,582      |                       | $          | 1,564 |   |
|                               |            |                        |            |                            |            |  |  |  |

 

Gross capital lease assets obtained through the acquisition of Badgerwas $5,769.

 

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Futureminimum rental payments due under capitalized leases:

 

| **Period Ending**                              | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------|------------|
| 2008 (remaining 6 months)                      |       | $          | 656        |   |
| 2009                                           |       | 1,122      |       |
| 2010                                           |       | 453        |       |
| 2011                                           |       | 360        |       |
| 2012                                           |       | 194        |       |
| 2013                                           |       | 75         |       |
| Thereafter                                     |       | —     |       |
| Total minimum lease payments                   |       |       | 2,860      |   |
| Less: amounts representing interest            |       | (400       | )          |
| Present value of future minimum lease payments |       | 2,460      |       |
| Less: current portion                          |       | (295       | )          |
| Capital lease obligation, noncurrent           |       | $          | 2,165      |   |
|                                                |            |            |            |  |  |

 

**Note 10 — Stockholders’ equity**

 

On January 16, 2008, to finance the cash portion of the EMSacquisition, the Company sold an aggregate of 2,031,250 shares of unregisteredcommon stock in a private placement to TP and T25 at $8.48 per share for atotal purchase price of $17,225, pursuant to a previously disclosed Amended andRestated Securities Purchase Agreement with TCP, TP and T25.

 

In connection with the acquisition of EMS, on January 16, 2008,the Company issued 1,629,834 shares of unregistered common stock to the membersof EMS, calculated at $8.48 per share, for total stock consideration of$13,821.  Upon consummation of theCompany’s acquisition of EMS, 7,500 shares of restricted stock previouslygranted to certain Company executives vested; another 7,500 restricted sharesremain unvested, and have a vesting date of January 16, 2009.

 

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

 

On April 24, 2008, TMF,TP, and TOF each converted the full original principal amount of theirrespective 9.5% related party notes into shares of Company common stock.  Upon conversion, an aggregate of 3,333,332shares of the Company’s common stock were issued to TMF, TP and TOF.

 

OnJune 4, 2008, the Company acquired all of the outstanding capital stock ofBadger for total purchase price of $11,881, exclusive of transaction-related acquisitioncosts.  A portion of the purchase priceconsisted of 581,959 unregistered shares of Broadwind’s common stock at a priceper share of $10.31.

 

**Note 11 — Stock-based compensation**

 

TheCompany grants incentive stock options and other equity awards pursuant to theEIP which was approved by the Company’s Board of Directors in October 2007and by the Company’s stockholders in June of 2008. On August 8, 2008,the Company’s Board of Directors approved certain non-materialamendments to the EIP that clarify the terms and conditions ofrestricted stock grants under the EIP and provide that the administratorof the EIP has the authority to effect future amendments to the plan.The EIP reserves 3,500,000 shares of common stock for grants to officers,directors, and other key employees. Total stock-based compensation expense included in the Company’sconsolidated statements of operations for the three and six months ended June 30,2008 is $403 and $784, respectively. There was no stock-based compensationexpense for the three and six months ended June 30, 2007.  There were 2,042,000 shares available forgrant under the EIP as of June 30, 2008.

 

*StockOptions*

 

Compensationexpense for incentive stock option grants is recognized over the requisiteservice period for vesting of the award, or to an employee’s eligibleretirement date, if earlier and applicable. As of June 30, 2008, theCompany had $7,340 of unrecognized compensation expense related to theoutstanding stock options, which will be recognized over a weighted-averageperiod of 4.75 years.

 

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

 

| ** **                                     | ** ** | **Six months ended  June 30, 2008** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|
| Dividend yield                                 |       | 0.00                                     | %          |
| Expected volatility                            |       | 60.00                                    | %          |
| Risk-free interest rate                        |       | 2.20%  - 4.24                            | %          |
| Expected term (in years)                       |       | 3  - 5 years                             |       |
| Weighted-average fair value of options granted |       | $                                        | 5.61       |   |
| Forfeiture rate                                |       | 0                                        | %          |
|                                                |            |                                          |            |  |

 

Asummary of stock option activity as of June 30, 2008, and changes duringthe period then ended is presented below:

 
| ** **                                  | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term (Years)** | ** ** |
|---------------------------------------------|------------|------------|------------|-----------------------------------------|------------|-------------------------------------------------------------------|------------|
| Options Outstanding at January 1, 2008 |       | 950,000    |       | $                                       | 7.92       |                                                              | 9.56       |   |
| Options Granted                             |       | 533,000    |       | $                                       | 15.00      |                                                              | 9.67       |   |
| Options Exercised                           |       | —     |       | $                                       | —     |                                                              | —     |   |
| Options Forfeited                           |       | (40,000    | )          | $                                       | 10.90      |                                                              | 10.00      |   |
| Options Outstanding at June 30, 2008   |       | 1,443,000  |       | $                                       | 10.45      |                                                              | 9.60       |   |
|                                        |       |       |       |                                    |       |                                                              |       |
| Options Exercisable at June 30, 2008   |       | —     |       | $                                       | —     |                                                              | —     |   |

 

Thefollowing table summarizes share-based compensation expense related toshare-based awards subject to SFAS No. 123(R) recognized during theperiods indicated:

 
| ** **                                                                          | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                          | ** ** | **2008**                                     | ** ** | **2007** | ** ** |
| Share-based compensation expense included in consolidated statement  of operations: |       |                                         |       |   |   |
| Selling, general, and administrative                                                |       | $                                            | 784        |   | $ | — |   |
| Income tax benefit (1)                                                              |       | —                                       |       | — |   |
| Net effect of share-based compensation expense on net income (loss)                 |       | $                                            | (784       | ) | $ | — |   |
| Decrease in basic income (loss) per share                                           |       | $                                            | —     |   | $ | — |   |
| Decrease in diluted income (loss) per share                                         |       | $                                            | —     |   | $ | — |   |

 

Aggregateintrinsic value of options outstanding as of June 30, 2008 was $12,823.

 

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(1)          Income tax benefit is not illustrated because theCompany is currently operating at a loss and actual income tax benefit will notbe realized in the six month period ended June 30, 2008.  The result of the loss situation creates atiming difference, resulting in a deferred tax asset.

 

*RestrictedStock*

 

TheEIP permits the Company to award restricted stock and restricted stock unitssubject to risks of forfeiture or vesting. In the fourth quarter of 2007, the Company granted restricted stockunits to three executives, with vesting of half of the shares based oncompletion of the Company’s EMS acquisition and time-based vesting for theremaining half of the shares. The Company fully recognizes compensation expenseon vested restricted shares that have been granted and recognizes compensationexpense pro-rata on unvested shares over the life of the vesting period.  The fair value of the vested and unvestedshares is

 

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calculatedby multiplying the number of shares by the weighted average price on the grantdate.  For the six months ended June 30,2008, the Company had $37 of stock-based compensation expense related tonon-vested awards.

 

Restrictedstock activity is summarized for the six months ended June 30, 2008

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

 

Totalfair value of vested shares was $82 as of June 30, 2008.

 

**Note 12 — Income taxes**

 

TheCompany accounts for income taxes pursuant to SFAS No. 109, *Accounting for Income Taxes*, which provides for an asset andliability approach to accounting for income taxes. 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 liabilities are recognized for taxable temporarydifferences. Deferred tax assets are reduced by a valuation allowance when, inthe opinion of management, it is more likely than not that some portion or allof the deferred tax assets will not be realized. The impact of the tax ratechanges on deferred tax assets and liabilities is recognized in the year thatthe change is enacted.

 

TheCompany adopted the provision of Financial Standards Accounting BoardInterpretation No. 48 “Accounting for Uncertainty in Income Taxes — Aninterpretation of FASB Statement No. 109 (“FIN 48”) on January 1,2007. As a result of the implementation of FIN 48, the Company recognized nomaterial adjustments in the liability for unrecognized income taxbenefits.  There have been no significantchanges in unrecognized income tax benefits during the first two quarters of2008.

 

TheCompany recognizes interest and penalties related to uncertain tax position inincome tax expense.  As of June 30,2008, the Company had no accrued interest or penalties related to uncertain taxpositions.

 

TheCompany files income tax returns in the U.S. federal and statejurisdictions.  As of June 30, 2008,open tax years in the federal and some state jurisdictions date back to 1996due to the taxing authorities’ ability to adjust operating loss carryforwards.  No changes in settled taxyears have occurred through June, 2008. The Company does not anticipate there will be a material change in thetotal amount of unrecognized tax benefits within the next 12 months.

 
| ** **                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                      | ** ** | **2008**                             | ** ** | **2007**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Income (loss) before provision for income taxes |       | $                                    | (1,961     | )                                  | $          | 479 |   | $ | (5,216 | ) | $ | 660 |   |
| Provision for income taxes                      |       | 12                                   |       | —                             |       | 200 |   | — |   |
| Net Income                                      |       | $                                    | (1,973     | )                                  | $          | 479 |   | $ | (5,416 | ) | $ | 660 |   |

 

Effectivetax rates differ from federal statutory income tax rates primarily due tochange in valuation allowance and provisions for state and local incometaxes.  Consistent with 2006 and 2007,the Company continues to maintain a full valuation allowance against netdeferred tax assets exclusive of deferred tax liabilities associated withindefinite-lived assets.  As of June 30,2008, after valuation allowance, the Company has a net deferred tax liabilityof $3,542 related entirely to temporary differences in indefinite-lived assets.These indefinite-lived assets consist of tax deductible goodwill from recentbusiness acquisitions.  The income taxexpense for the three and six months ended June 30, 2008 of $12 and $200,respectively relates to the current quarter temporary differences in theseindefinite-lived assets.

 

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**Note 13 — Employee benefit plans**

 

OnOctober 19, 2007, the Company began sponsoring a defined contributionsavings plan for Brad Foote and Tower Tech that allows substantially all BradFoote and Tower Tech employees to contribute a portion of their pre-tax and/orafter-tax income up to statutory limits. The plan requires the Company to match50% of the participants’ contributions up to 4% of the participants’ compensation.  The Company recognized $85 of matchingexpense during the six months ended June 30, 2008 related to the BradFoote and Tower Tech plans.

 

Effectiveas of the date of the acquisition of RBA, the Company sponsors a definedcontribution savings plan that allows RBA employees to contribute a portion oftheir pre-tax and/or after-tax income up to statutory limits. The plan requiresthe Company to match 100% of the participants’ contributions up to 3% of theparticipants’ compensation.  RBArecognized $18 of matching expense during the six months ended June 30,2008.

 

Effectiveas of the date of the acquisition of EMS, the Company sponsors a definedcontribution savings plan covering substantially all EMS employees. The Companycan provide a discretionary match and/or profit sharing contribution eachyear.  EMS recognized $0 of matchingexpense during the six months ended June 30, 2008.

 

Effectiveas of the date of the acquisition of Badger, the Company sponsors a definedcontribution savings plan covering substantially all Badger employees. The planrequires the Company to match 100% of the participants’ contributions up to 3%and an additional 50% up to 5% of the participants’ compensation.  Badger recognized $4 of matching expensesince the acquisition date.

 

OnOctober 24, 2007, the Company adopted its 2007 Deferred Compensation Plan,which provides incentives and rewards to certain key employees and non-employeedirectors of the Company who are selected by the Board of Directors toparticipate. As of June 30, 2008 and December 31, 2007, the Companyhad accrued $141 and $0, respectively, for amounts due under this plan.

 

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

 

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

 

**Note 14 — Operating leases —related party**

 

During 2007, the Company amended one of the operating leases underwhich the Company leases manufacturing and office space for its Products andComponents segment from City Centre, LLC. In addition, the Company assumeda lease between RBA and City Centre, LLC upon its acquisition of RBA. CityCentre, LLC is a limited liability company owned in part by two formerdirectors of the Company, one of whom was also the Company’s former president,and each of whom were affiliates during 2007 and a portion of 2008. Neither ofthese individuals currently hold any position within the Company. The leasescall for monthly rents of $42 and $8, and expire on December 31, 2014 and July 31,2017, respectively. The lease ending December 31, 2014 grants the Companyfive options to renew, each for a five-year renewal term that begins at the endof the lease period just ended. The lease ending July 31, 2017 grants theCompany two options to renew, each for a five-year renewal term that begins atthe end of the lease period just ended.

 

In 2007, the Company entered into a 15-year lease with CityCentre, LLC for a third building utilized for its Tower Tech and RBAoperating facilities.  The lease period commencedin June 2008 with a monthly payment due of $19.

 

The Company’s Service, Transportation and Maintenance segment leasesits primary administrative offices, a machine shop, a residential property, andstorage facilities from a former member of EMS, who remains employed by theCompany as the president of EMS. The agreement contains a one year lease termexpiring on December 31, 2008 and requires a monthly payment of $10.

 

The president of EMS, through a separate entity, owns residential realestate for investment purposes, which is typically rented to third parties.Occasionally, the Company will enter into short-term lease agreements to rentapartments from this entity for use by Company personnel.  Rents approximate market rates and arerecorded as rent expense in the Company’s statements of operations.

 

In April 2008, EMS purchased its Howard West facility from theformer majority owner of EMS and its current president, and concurrentlyterminated its lease agreement, which required a monthly payment of $5. Thefuture minimum lease payments associated with this lease have been excludedfrom the following table due to this subsequent purchase.

 

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Following is a schedule of future minimum rental payments requiredunder the related-party leases as of June 30, 2008:

 

| ** **                            | ** ** | **Minimum payments on**         | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| **Period Ending:**                    | ** ** | **operating lease obligations** | ** ** |
| 2008 (remaining 6 months)             |       | $                               | 477        |   |
| 2009                                  |       | 831                             |       |
| 2010                                  |       | 831                             |       |
| 2011                                  |       | 831                             |       |
| 2012                                  |       | 831                             |       |
| 2013                                  |       | 831                             |       |
| Thereafter                            |       | 2,964                           |       |
| Total minimum required lease payments |       | $                               | 7,596      |   |

 

Related party rent expense for the three and six months ended June 30,2008 and 2007 was $196 and $100, respectively, versus $379 and $200,respectively, for the corresponding periods in 2007.

 

**Note 15 — Operating leases —third party**

 

The Company leases various property, equipment and buildings underlease agreements of varying terms extending to 2012. Rental expense attributedto third party operating leases for the three and six months ended June 30,2008 was $326 and $674, respectively.

 

Following is a schedule of future minimum rental payments requiredunder the leases as of June 30, 2008:

** **

| ** **                            | ** ** | **Minimum payments on**         | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| **Period Ending:**                    | ** ** | **operating lease obligations** | ** ** |
| 2008 (remaining 6 months)             |       | $                               | 660        |   |
| 2009                                  |       | 1,295                           |       |
| 2010                                  |       | 1,306                           |       |
| 2011                                  |       | 1,323                           |       |
| 2012                                  |       | 1,340                           |       |
| 2013                                  |       | 1,223                           |       |
| Thereafter                            |       | 4,493                           |       |
| Total minimum required lease payments |       | $                               | 11,640     |   |

 

**Note 16 — Other related party transactions**

 

Interestexpense of $592 and $754 was incurred and paid on stockholder and related partynotes during the three and six months ended June 30, 2008, respectively.

 

At June 30, 2008, and December 31, 2007, $282 and $282,respectively, relating to amounts due from stockholders is included withinother current assets on the consolidated balance sheets. These amounts werepaid by the Company on behalf of four stockholders in connection with the March 2007sale of stock by each of the stockholders.

 

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

 

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**Note 17 — Commitments and contingencies**

 

*Customerdisputes*

 

The Company is involved in a pricing dispute with one of its customerswith total disputed amounts approximating $1,760 as of June 30, 2008.  The Company has provided in its allowance foruncollectible accounts the portion of the disputed amounts due that managementestimates may be uncollectible.

 

*Purchase commitments*

 

The Company’s Brad Foote subsidiary has apurchase contract with a foreign vendor with total commitments outstanding of$19,367 with expected shipment through 2009. During the three and six months ended June 30, 2008, the Companyrecorded net foreign currency losses in the statement of operations of $127 and$317, respectively, due to the decline in the value of the U.S. Dollar relativeto the Euro.  This commitment price wasconverted from Euros to U.S. dollars during the quarter ended June 30, 2008,and no further foreign currency exposure exists with regard to thiscommitment.  Below is a summary of theestimated future amounts due on this commitment.

 
| **Period**                                      | ** ** | ** **        | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|------------|------------|
| For the remaining six months of the year ended: |       | 2008              |       | $          | 14,388     |   |
| For the year ended:                             |       | 2009              |       | 4,979      |       |
|                                            |       | Total  commitment |       | $          | 19,367     |   |

 

Tower Tech has issued commitments for land, buildings, raw steel, andequipment associated with the expansion of the subsidiary’s operations to SouthDakota and Texas.  As of June 30,2008, Tower Tech had issued $29,458 worth of purchase commitment to vendors.

 

 *Other*

 

The Company is also subject to legal proceedings in the normal courseof business. Management believes these proceedings will not have a materialadverse effect on the consolidated financial statements.

 

The Company does not have any contingent payments or commitments inrelation to the acquisition of EMS, with the exception of certain stock optionsthat were awarded as a result of the acquisition.  Stock options are a share-based compensationexpense and are subject to accounting treatment under SFAS No. 123(R).

 

In connection with the Badger acquisition, the Company was required tofund approximately $4,500 of equipment purchases that Badger had on order forexpansion.  The Company has funded $3,933of this commitment as of August 11, 2008.

 

**Note 18 — Segment information**

 

During the second quarter of 2008, management changed the Company’sreportable segments to reflect changes in the management reporting structure ofthe organization and the manner in which the chief operating decision makerregularly assesses information for decision-making purposes, including theallocation of resources. The revised reporting structure includes two segments:“Products and Components” and “Service, Transportation and Maintenance.” TheCompany’s segments and their product and service offerings are summarizedbelow:

 

*Products and Components*

 

This segment’s products include the manufacturing of components for thewind industry, including: tower support structures; mining and other heavyequipment; and gearing systems.  TheProducts and Components segment combines previously reported segments of Towersand Fabrication and Gearing Systems.

 

*Service, Transportation and Maintenance*

* *

The Service, Transportation and Maintenance segment was establishedupon acquisition of EMS in January 2008 and was supplemented by the Badgeracquisition during the second quarter of 2008. This segment includes construction, operations, support, maintenance,and component repairs for wind turbines and transportation services. 

 

*Other*

 

The Company applies the provisions of EITF 04-10 for segment reporting.Under the provisions of EITF 04-10, any operating segments that do notindividually meet the aggregation criteria or quantitative thresholds describedin SFAS 131 may be combined with other operating segments that do notindividually meet the aggregation criteria or quantitative thresholds to form aseparate reportable segment. The Company has combined all operating segmentsthat do not individually meet the aggregation criteria established in SFAS 131to form the “Other” segment for segment reporting. The Other segment iscomprised of activities of corporate and company administrationactivities.  

 

 

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Below is a summary of segment operations for the three and six monthsended June 30, 2008 and 2007. For the three and six months ended June,2007, the Company operated as a single segment as the Company’s only subsidiaryin existence as of June 30, 2007 was its Tower Tech subsidiary.

 
| ** **                                        | ** ** | ** **              | ** ** | **Service,**             | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|------------|------------|------------|------------|
| ** **                                        | ** ** | **Products &** | ** ** | **Transportation &** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | **Components**          | ** ** | **Maintenance**          | ** ** | **Other**  | ** ** | **Total**  | ** ** |
| **For the three months ended June 30, 2008** |       |                    |       |                     |       |       |       |       |       |
| Revenues from external customers                  |       | $                       | 34,042     |                     | $          | 6,788      |       | $          | —     |   | $ | 40,830 |   |
| Cost of sales                                     |       | 27,228                  |       | 3,511                    |       | —     |       | 30,739     |       |
| Gross profit                                      |       | 6,814                   |       | 3,277                    |       | —     |       | 10,091     |       |
| Net income (loss)                                 |       | 1,914                   |       | (508                     | )          | (3,379     | )          | (1,973     | )          |
|                                                   |            |                         |            |                          |            |            |            |            |            |  |  |  |  |

 
| ** **                                      | ** ** | ** **              | ** ** | **Service,**             | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|------------|------------|------------|------------|
| ** **                                      | ** ** | **Products &** | ** ** | **Transportation &** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Components**          | ** ** | **Maintenance**          | ** ** | **Other**  | ** ** | **Total**  | ** ** |
| **For the six months ended June 30, 2008** |       |                    |       |                     |       |       |       |       |       |
| Revenues from external customers                |       | $                       | 64,290     |                     | $          | 11,704     |       | $          | —     |   | $ | 75,994 |   |
| Cost of sales                                   |       | 51,748                  |       | 6,145                    |       | —     |       | 57,893     |       |
| Gross profit                                    |       | 12,542                  |       | 5,559                    |       | --         |       | 18,101     |       |
| Net income (loss)                               |       | 1,776                   |       | (824                     | )          | (6,368     | )          | (5,416     | )          |
|                                                 |            |                         |            |                          |            |            |            |            |            |  |  |  |  |

 

**Note 19 — Earnings per share**

 

The Company computes earnings per share inaccordance with FASB Statement of Financial Accounting Standards No. 128, *Earnings per Share*(“SFAS 128”).  SFAS 128 requires companies to computeearnings per share under two different methods, basic and diluted, and presentper share data for all periods in which statements of operations are presented.  Basic earnings per share is computed bydividing net income by the weighted average number of shares of common stockoutstanding.  Diluted earnings per shareis computed by dividing net income by the weighted average number of commonstock and common stock equivalents outstanding.

 

The following table provides a reconciliationof the numerators and denominators used in calculating basic and dilutedearnings per share for three and six months ended June 30, 2008 and 2007:

 
| ** **                                            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                            | ** ** | **2008**                             | ** ** | **2007**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Basic earnings per share calculation:**             |       |                                 |       |                               |       |   |   |   |   |
|                                                  |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss) to common stockholders              |       | $                                    | (1,973     | )                                  | $          | 479 |   | $ | (5,416 | ) | $ | 660 |   |
| Weighted average of common shares outstanding         |       | 86,821,984                           |       | 47,724,464                         |       | 83,255,004 |   | 43,584,476 |   |
| Basic net income (loss) per share                     |       | $                                    | (0.02      | )                                  | $          | 0.01 |   | $ | (0.07 | ) | $ | 0.02 |   |
|                                                  |       |                                 |       |                               |       |   |   |   |   |
| **Diluted earnings per share calculation:**           |       |                                 |       |                               |       |   |   |   |   |
| Net income (loss) to common stockholders              |       | $                                    | (1,973     | )                                  | $          | 479 |   | $ | (5,416 | ) | $ | 660 |   |
| Weighted average of common shares outstanding         |       | 86,821,984                           |       | 47,724,464                         |       | 83,255,004 |   | 43,584,476 |   |
| Stock options (1)                                     |       | —                               |       | —                             |       | — |   | — |   |
| Diluted weighted average of common shares outstanding |       | 86,821,984                           |       | 47,724,464                         |       | 83,255,004 |   | 43,584,476 |   |
| Diluted net income (loss) per share                   |       | $                                    | (0.02      | )                                  | $          | 0.01 |   | $ | (0.07 | ) | $ | 0.02 |   |

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(1)          The options granted and outstanding have not vested as of June 30,2008 and would be anti-dilutive given the Company’s net loss. The options havetherefore been excluded from diluted earnings per share.

 

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**Note 20— Disclosures about fair values of financial instruments**

 

The estimated fair values of the Company’s financial instruments are asfollows for the dates indicated:

 
| ** **                                              | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                              | ** ** | ** **             | ** ** | **Estimated Fair**         | ** ** | ** ** | ** ** | **Estimated Fair** | ** ** |
| ** **                                              | ** ** | **Carrying Value**     | ** ** | **Value**                  | ** ** | **Carrying Value** | ** ** | **Value** | ** ** |
| **ASSETS:**                                             |       |                   |       |                       |       |   |   |   |   |
| Cash and cash equivalents                               |       | $                      | 81,869     |                       | $          | 81,869 |   | $ | 5,782 |   | $ | 5,782 |   |
| Prepaid expenses and other current assets               |       | 533                    |       | 533                        |       | 1,946 |   | 1,946 |   |
|                                                    |       |                   |       |                       |       |   |   |   |   |
| **LIABILITIES:**                                        |       |                   |       |                       |       |   |   |   |   |
| Capital lease obligations, including current maturities |       | 2,460                  |       | 2,620                      |       | 986 |   | 1,028 |   |
| Long-term debt, including current maturities            |       | 46,025                 |       | 43,951                     |       | 55,754 |   | 56,731 |   |
| Interest rate swaps                                     |       | 377                    |       | 377                        |       | 388 |   | 388 |   |
|                                                         |            |                        |            |                            |            |  |  |  |  |  |  |  |  |

 

Trade receivables and payables have an estimated market value equal totheir carrying value. The fair value of long-term debt is estimated based onapproximate borrowing rates currently available to Broadwind Energy for debtequal to the existing debt maturities.

 

**Note 21 — Subsequent events**

 

On July 18, 2008,the Company executed an amendment (the “Amendment”) to its existingRegistration Rights Agreement with Tontine, pursuant to which the Company hasagreed to register Tontine’s shares of Broadwind common stock for resale. TheAmendment extends the deadline for the Company’s obligation to file aregistration statement to September 15, 2008.

 

OnAugust 8, 2008, EMS refinanced its Commercial Loan Agreement (the “CLA”) and asecured revolving demand note, each dated as of May 31, 2007, with DNB NationalBank (“DNB”).   The refinancing increasesthe amount available under the CLA from $1,500 to $2,000 and extends thematurity date to May 31, 2009.  Inconnection with the refinancing, DNB notified EMS that as of June 30, 2008, itwas in breach of the minimum Debt Coverage Ratio (as defined in the CLA) andprovided a one-time waiver of this breach. As of June 30, 2008, approximately $1,491 of principal was outstandingon the CLA.

 

On August 13, 2008,Tower Tech acquired real estate in the amount of $1,839 in connection with theexpansion of wind tower manufacturing operations in Sioux Falls, South Dakota.

 

# **Item 2.**    Management’s Discussion and Analysis of FinancialCondition and Results of Operations

# ** **

*The following discussion and analysis of our financialcondition and results of operations should be read in conjunction with ourcondensed consolidated financial statements and related notes thereto inItem 1. “Financial Statements” of this Quarterly Report and the auditedconsolidated financial statements and related notes and Management’s Discussionand Analysis of Financial Condition and Results of Operations contained in ourAnnual Report on Form 10-KSB for the fiscal year ended December 31,2007. The discussion below contains forward-looking statements that are basedupon our current expectations and are subject to uncertainty and changes incircumstances including, but not limited to, those identified in “CautionaryNote Regarding Forward-Looking Statements” at the end of this Item 2.  Actual results may differ materially fromthese expectations due to inaccurate assumptions and known or unknown risks anduncertainties.*

 

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

 

**Executive Overview**

 

The following discussionrelates to the financial condition and results of operations for BroadwindEnergy, Inc. (“Broadwind”) and its subsidiaries, (also referred to as “we,”“us,” “our,” or the “Company”).  Webecame a public company in February 2006, after a reverse shelltransaction with Blackfoot Enterprises, Inc. which was incorporated inNevada in 1996.  From the time followingthe reverse shell transaction through February 2008, we were known asTower Tech Holdings Inc.  On February 28,2008 we changed our name to Broadwind Energy, Inc. and on June 20,2008 we changed our state of incorporation from Nevada to Delaware.  Our principal executive office is located at47 East Chicago Avenue, Suite 332, Naperville, IL 60540. Our phone numberis (630) 637-0315 and our website address is www.broadwindenergy.com.

 

Our business is dedicatedto the production and servicing of components for energy andinfrastructure-related industries. We are primarily focused on the manufactureof components for the wind industry, including: tower support structuresthrough our Tower Tech Systems, Inc. (“Tower Tech”) subsidiary; mining andother heavy equipment through our R.B.A. Inc. (“RBA”) subsidiary; gearingsystems through our Brad Foote Gear Works, Inc. (“Brad Foote”) subsidiary;construction, operations support, maintenance, and component repairs for windturbines through our Energy Maintenance Service, LLC (“EMS”) subsidiary; andtransportation services through our Badger Transport, Inc. (“Badger”) subsidiary.

 

 

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Manitowoc, Wisconsinserves as the main location of the manufacturing facilities for our Tower Techand RBA subsidiaries.  RBA also operatesin a second facility located in Clintonville, Wisconsin which was establishedduring the second quarter of 2008.  OurBrad Foote subsidiary has manufacturing and administrative facilities inCicero, Illinois and Neville Island, Pennsylvania. Our EMS subsidiary isheadquartered in Gary, South Dakota and established a service hub facility inAbilene, Texas during the second quarter of 2008.  Badger is headquartered in Clintonville,Wisconsin with equipment frequently dispatched throughout the United States.

 

During the first quarter of 2008, we completedour acquisition of EMS, and on April 8, 2008, we announced the establishment of a comprehensive windenergy maintenance and service center in Abilene, Texas. The new center has thepotential to create more than 80 new jobs in the region and is intended tosupport EMS satellite operations across Texas and the surrounding states.  Additionally, we announced the expansion ofthe Tower Tech operations to Sioux Falls, South Dakota and Abilene, Texas.  These facilities are expected to be in fulloperation by first quarter of 2009.

 

OnApril 24, 2008, we entered into an agreement to acquire Badger, a heavyhaul specialized trucking company based in Clintonville, Wisconsin forapproximately $11,811.  The purchaseprice consisted of both cash and Broadwind common stock.  The cash portion of the purchase price wasapproximately $5,811 and was financed with cash on hand. The common stockportion of the purchase price consisted of 581,959 unregistered shares, whichwas calculated based on a price per share of $10.31, representing the averageclosing sale price of our common stock for the thirty trading days precedingthe execution of the acquisition agreement. We closed our acquisition of Badger on June 4, 2008.  Badger has been in the transportation industry as afull-load and less-than-truckload carrier for more than 20 years. Badgertransports oversized and overweight loads throughout the United States andCanada, including wind towers, wind turbine blades and other over-sizedequipment for large industrial applications. It also has expertise withshipments that require specialized equipment.

 

Management believes the following accounting policies to be critical toour financial condition, results of operations, and cash flow, and to requiremanagement’s most subjective and complex judgments in estimating the effect ofinherent uncertainties.

 

*Revenue Recognition*

 

We recognize revenue when persuasive evidence of an arrangement exists,transfer of title has occurred or services have been rendered, the sellingprice is fixed or determinable, collectability is reasonably assured, anddelivery has occurred per the contract terms. Customer deposits and otherreceipts are deferred and recognized when earned.

 

*Inventories*

 

Inventories are stated at the lower of cost or market by comparing thecost of each item in inventory to its most recent sales price or sales orderprice. Any excess of cost over the net realizable value of inventory componentsis included in the Company’s inventory allowance. Market value of inventory,and management’s judgment of the need for reserves, encompasses considerationof other business factors including physical condition, inventory holdingperiod, contract terms, and usefulness. Inventories are valued based on anaverage cost method that approximates the first-in, first-out (FIFO) basis.

 

*Goodwill and other intangible assets*

 

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

 

*Long-lived assets*

 

We account for long-lived assets in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*. The carrying values of long-lived assets,including, but not limited to, capital assets and intangible assets, are amortizedover their estimated useful lives, and are periodically evaluated forimpairment when events and circumstances warrant such a review. The carryingvalue of a long-lived asset is considered impaired when the expectedundiscounted future cash flows from such asset is less than its carrying value.In that event, a loss is recognized based on the amount by which the carryingvalue exceeds the fair value of the long-lived asset. Fair value is determinedprimarily using the anticipated cash flows discounted at a rate commensuratewith the risk involved. Losses on long-lived assets to be disposed of aredetermined

 

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in a similar manner, except that fair valuesare reduced for the cost to dispose. The Company performs impairment testing oflong-lived assets on annual basis.

 

**Recent Accounting Pronouncements Affecting this Report**

 

***SFAS 159***

 

In February 2007, the FASB issued Statement of FinancialAccounting Standards Statement No. 159, *TheFair Value Option for Financial Assets and Financial Liabilities—Including anAmendment of FASB Statement No. 115* (“SFAS 159”). Thisstandard permits an entity to choose to measure many financial instruments andcertain other items at fair value. This standard is effective for financialstatements issued for fiscal years beginning after November 15, 2007. Weadopted the provisions of SFAS 159 on January 1, 2008. We did not elect tomeasure any of our financial assets or liabilities using the fair value optionof SFAS 159. We will assess at each measurement date whether to use the fairvalue option on any future financial assets or liabilities as permittedpursuant to the provisions of SFAS 159.

 

**Accounting Pronouncements Not Yet Adopted in thisReport**

 

***SFAS 157***

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157, *Fair ValueMeasurements* (“SFAS 157”). This standard clarifies theprinciple that fair value should be based on the assumptions that marketparticipants would use when pricing an asset or liability. Additionally, itestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions.  Thisstatement became effective for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. We are currentlyevaluating the effect of adoption of SFAS 157.

 

In February 2008, the FASB issued FASB Staff Position No. 157-2(“FSP 157-2”), which delayed the effective date by which companies must adoptcertain provisions of SFAS 157. FSP 157-2 defers the effective date ofSFAS 157 for all nonfinancial assets and nonfinancial liabilities, exceptfor items that are recognized or disclosed at fair value in the financialstatements on a recurring basis, to fiscal years beginning after November 15,2008, and interim periods within those fiscal years. The adoption of thisstandard is not anticipated to have a material impact on our financialposition, results of operations, or cash flows.

 

***SFAS 141(R)***

 

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

 

***SFAS 160***

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 160, *NoncontrollingInterests in Consolidated Financial Statements—an amendment of ARB No. 51*(“SFAS 160”), which establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. It clarifies that a noncontrolling interest in a subsidiary is anownership interest in the consolidated entity that should be reported as equityin the consolidated financial statements. SFAS 160 is effective for fiscalyears beginning after December 15, 2008. We have evaluated the effect ofthe adoption of SFAS 160, but do not presently anticipate it will have amaterial effect on our consolidated financial position or results ofoperations, as all subsidiaries are 100% owned.

 

***SFAS 161***

 

In March 2008, the FASB issued Statement of Financial AccountingStandards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities* (“SFAS 161”).This statement is intended to enhance required disclosures regardingderivatives and hedging activities, including enhanced disclosures regardinghow: (a) an entity uses derivative instruments; (b) derivativeinstruments and related hedged items are accounted for under FASB Statement No. 133,*Accounting for Derivative Instruments andHedging Activities*; and (c) derivative instruments and relatedhedged items affect 

 

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anentity’s financial position, financial performance, and cash flows.SFAS 161 is effective for fiscal years and interim periods beginning afterNovember 15, 2008. We are currently evaluating the effect of adoption ofSFAS 161, but do not presently believe that it will have a material effecton our consolidated financial position or results of operations.

 

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***Consolidated Results of Operations - Threeand Six Months Ended June 30, 2008 Compared to Three and Six Months Ended June 30,2007***

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

 

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

 
| ** **                                    | ** ** | **Three Months Ended June 30,**       | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|------------|------------|
| ** **                                    | ** ** | **2008**                                   | ** ** | **%**      | ** ** | **2007 (1)** | ** ** | **%** | ** ** | **$** | ** ** |
| ** **                                    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales                                     |       | $                                          | 40,830     |       | 100        | % | $ | 2,643 |   | 100 | % | $ | 38,187 |   |
| Cost of sales                                 |       | 30,739                                     |       | 75         | %          | 1,527 |   | 58 | % | 29,212 |   |
| Gross profit                                  |       | 10,091                                     |       | 25         | %          | 1,116 |   | 42 | % | 8,975 |   |
|                                          |       |                                       |       |       |       |   |   |   |   |   |   |
| Operating expenses                            |       |                                       |       |       |       |   |   |   |   |   |   |
| Selling, general, and administrative expenses |       | 8,995                                      |       | 22         | %          | 751 |   | 28 | % | 8,244 |   |
| Amortization of intangible assets             |       | 2,738                                      |       | 7          | %          | — |   | 0 | % | 2,738 |   |
| Total operating expenses                      |       | 11,733                                     |       | 29         | %          | 751 |   | 28 | % | 10,982 |   |
|                                          |       |                                       |       |       |       |   |   |   |   |   |   |
| Operating income (loss)                       |       | (1,642                                     | )          | -4         | %          | 365 |   | 14 | % | (2,007 | ) |
|                                          |       |                                       |       |       |       |   |   |   |   |   |   |
| Other income (expense)                        |       |                                       |       |       |       |   |   |   |   |   |   |
| Interest expense, net                         |       | (794                                       | )          | -2         | %          | 114 |   | 4 | % | (908 | ) |
| Other, net                                    |       | 475                                        |       | 1          | %          | — |   | 0 | % | 475 |   |
| Other income (expense), net                   |       | (319                                       | )          | -1         | %          | 114 |   | 4 | % | (433 | ) |
| Net loss before provision for income taxes    |       | (1,961                                     | )          | -5         | %          | 479 |   | 18 | % | (2,440 | ) |
| Provision for income taxes                    |       | 12                                         |       | 0          | %          | — |   | 0 | % | 12 |   |
| Net income (loss)                             |       | $                                          | (1,973     | )          | -5         | % | $ | 479 |   | 18 | % | $ | (2,452 | ) |

 
| ** **                                    | ** ** | **Six  Months Ended June 30,**         | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                    | ** ** | **2008**                                    | ** ** | **%**      | ** ** | **2007 (1)** | ** ** | **%** | ** ** | **$** | ** ** |
| ** **                                    | ** ** | **(in  thousands, except for percentages)** | ** ** |
| Net sales                                     |       | $                                           | 75,994     |       | 100        | % | $ | 4,862 |   | 100 | % | $ | 71,132 |   |
| Cost of sales                                 |       | 57,893                                      |       | 76         | %          | 3,050 |   | 63 | % | 54,843 |   |
| Gross profit                                  |       | 18,101                                      |       | 24         | %          | 1,812 |   | 37 | % | 16,289 |   |
|                                          |       |                                        |       |       |       |   |   |   |   |   |   |
| Operating expenses                            |       |                                        |       |       |       |   |   |   |   |   |   |
| Selling, general, and administrative expenses |       | 16,365                                      |       | 22         | %          | 1,211 |   | 25 | % | 15,154 |   |
| Amortization of intangible assets             |       | 5,317                                       |       | 7          | %          | — |   | 0 | % | 5,317 |   |
| Total operating expenses                      |       | 21,682                                      |       | 29         | %          | 1,211 |   | 25 | % | 20,471 |   |
|                                          |       |                                        |       |       |       |   |   |   |   |   |   |
| Operating income (loss)                       |       | (3,581                                      | )          | -5         | %          | 601 |   | 12 | % | (4,182 | ) |
|                                          |       |                                        |       |       |       |   |   |   |   |   |   |
| Other income (expense)                        |       |                                        |       |       |       |   |   |   |   |   |   |
| Interest expense, net                         |       | (2,011                                      | )          | -3         | %          | 59 |   | 1 | % | (2,070 | ) |
| Other, net                                    |       | 376                                         |       | 0          | %          | — |   | 0 | % | 376 |   |
| Other income (expense), net                   |       | (1,635                                      | )          | -2         | %          | 59 |   | 1 | % | (1,694 | ) |
| Net loss before provision for income taxes    |       | (5,216                                      | )          | -7         | %          | 660 |   | 14 | % | (5,876 | ) |
| Provision for income taxes                    |       | 200                                         |       | 0          | %          | — |   | 0 | % | 200 |   |
| Net income (loss)                             |       | $                                           | (5,416     | )          | -7         | % | $ | 660 |   | 14 | % | $ | (6,076 | ) |

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(1)           The data for the three andsix months ended June 30, 2007 does not reflect the results of RBA, BradFoote, EMS or Badger, which were acquired on October 1, 2007, October 19,2007, January 16, 2008, and June 4, 2008, respectively.

 

Ourresults for the three and six months ended June 30, 2007 include our TowerTech subsidiary only. We believe the table below is helpful in analyzing theconsolidated results of operations for the three and six months ended June 30,2008. The table below presents 2008 results of operations by segment. Pleaserefer to the Results of Operations by Business Segment for further discussionon the financial performance of our business segments.

 

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| ** **    | ** ** | **Three Months Ended June 30, 2008** | ** ** |
|---------------|------------|-------------------------------------------|------------|
| ** **    | ** ** | ** **                                | ** ** | **Service,** | ** ** | ** ** | ** ** |
| ** **    | ** ** | **Products &**                   | ** ** | **Transportation****&** | ** ** | ** ** | ** ** |
| ** **    | ** ** | **Components**                            | ** ** | **Maintenance** | ** ** | **Total** | ** ** |
|          |       |                                      |       |   |   |   |   |
| Net sales     |       | $                                         | 34,042     |   | $ | 6,788 |   | $ | 40,830 |   |
| Cost of sales |       | 27,228                                    |       | 3,511 |   | 30,739 |   |
| Gross profit  |       | $                                         | 6,814      |   | $ | 3,277 |   | $ | 10,091 |   |

 

|          | ** ** | **Six  Months Ended June 30, 2008** |       |
|---------------|------------|------------------------------------------|------------|
|          | ** ** | ** **                               | ** ** | **Service,** | ** ** | ** ** | ** ** |
|          | ** ** | **Products &**                  | ** ** | **Transportation  &** | ** ** | ** ** | ** ** |
|          | ** ** | **Components**                           | ** ** | **Maintenance** | ** ** | **Total** | ** ** |
|          |       |                                     |       |   |   |   |   |
| Net sales     |       | $                                        | 64,290     |   | $ | 11,704 |   | $ | 75,994 |   |
| Cost of sales |       | 51,748                                   |       | 6,145 |   | 57,893 |   |
| Gross profit  |       | $                                        | 12,542     |   | $ | 5,559 |   | $ | 18,101 |   |

 

*Sales  and Costof Sales.*  For thethree and six-month periods ended June 30, 2008, consolidated net saleswere $40,830 and $75,994, respectively, with related cost of sales during thatperiod of $30,739 and $57,893 respectively, for a gross profit of $10,091 and$18,101, respectively. In comparison, during the three and six-month periodsended June 30, 2007, we generated sales of $2,643 and $4,862 respectively,with related cost of sales of $1,527 and $3,050, respectively, for a grossprofit of $1,116 and $1,813, respectively. The increase in consolidated salesof $38,187 and $71,132 for the 2008 three and six-month periods, respectively,as compared to the same periods in 2007, was primarily due to the acquisitionof Brad Foote and RBA during the fourth quarter of 2007 and the acquisition ofEMS during the first quarter of 2008.

 

*Selling, General and Administrative Expenses.*  Selling, general and administrative expenses(“SG&A”) increased to $8,995 and $16,365 for the three and six-month periodended June 30, 2008 from $751 and $1,211 for the same respective periodsin 2007. The overall increase to SG&A is largely due to inclusion of theSG&A expenses related to operating the companies acquired during the fourthquarter of 2007 and first six months of 2008, and is also attributable toincreased professional fees and expenses related to the costs associated withbeing a public company, including SEC and Sarbanes-Oxley Section 404compliance. We continued integrating new members of our management team andseveral other accounting and administrative professionals who joined Broadwindover the past several quarters. In the three and six-months ended June 30,2008, we incurred, respectively, $403 and $784 of stock-based compensationexpense in connection with stock option grants made under the Broadwind Energy, Inc.2007 Equity Incentive Plan, which was approved by our Board of Directors in August 2007and approved by our stockholders at our 2008 Annual Meeting. There was no suchplan or related expense during the three and six-month period ended June 30,2007. As a percentage of net sales, SG&A was 22.0% and 21.5% for the threeand six-months ended June 30, 2008, respectively, as compared to 28.4% and24.9% for the three and six-months ended June 30, 2007, respectively.

 

*Amortization of Intangible Assets.*  Amortization expense of $2,738 and $5,317 forthe three and six-months ended June 30, 2008, respectively is due entirelyto our acquisitions and the amortization of intangible assets related to thepurchases of RBA, Brad Foote, EMS, and Badger.

 

*Other Income (Expense), Net.*  Other income and expense consists primarilyof interest income and expense. Net interest expense was $794 and $2,011 forthe three and six-month periods ended June 30, 2008, respectively,compared to $6 and $103 for the same respective periods in 2007.  Other income (expense), net consists oflosses from foreign currency transactions and income from insurance refunds.These other components totaled a net expense of approximately $475 and $376 forthe three and six months ended June 30, 2008, respectively, and $0 and $0for the three and six months ended June 30, 2007, respectively.

 

The following provides a discussion of our operating results bybusiness segment for the three and six months ended June 30, 2008 and2007.

 

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***Results of Operations by Business Segment - Three and Six Months EndedJune 30, 2008 Compared to Three and Six Months Ended June 30, 2007***

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

 

At the close ofthe second quarter of 2008, we were managing and reporting operating resultsthrough two business segments:  Productsand Components; and Service, Transportation and Maintenance. As discussed inNote 18 to our condensed consolidated financial statements, “SegmentInformation,” our management uses revenue and gross margin to evaluate segment performance and allocate resources amongsegments. Operations data for the quarter and six months ended June 30, 2008 issummarized by segment below:

 

*Productsand Components Segment*

 

The table belowpresents the results of operations of our Products and Components segment forthe periods indicated.

 
| ** **    | ** ** | **Three Months Ended June 30,**             | ** ** | **Change** | ** ** |
|---------------|------------|---------------------------------------------|------------|------------|------------|
| ** **    | ** ** | **2008 (1)**                                | ** ** | **%**      | ** ** | **2007** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)**  | ** ** |
| Net sales     |       | $                                           | 34,042     |       | 100.0      | % | $ | 2,643 |   | 100.0 | % | $ | 31,399 |   | 1188.0 | % |
| Cost of sales |       | 27,228                                      |       | 80.0       | %          | 1,527 |   | 57.8 | % | 25,701 |   | 1683.1 | % |
| Gross profit  |       | $                                           | 6,814      |       | 20.0       | % | $ | 1,116 |   | 42.2 | % | $ | 5,698 |   | 510.6 | % |
|          |       |                                        |       |       |       |   |   |   |   |   |   |   |   |
|          | ** ** | **Six  Months Ended June 30,**              |       | **Change** |       |
|          | ** ** | **2008 (1)**                                | ** ** | **%**      | ** ** | **2007** | ** ** | **%** |   | **$** |   | **%** |   |
| ** **    | ** ** | **(in  thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                           | 64,290     |       | 100.0      | % | $ | 4,862 |   | 100.0 | % | $ | 59,428 |   | 1222.3 | % |
| Cost of sales |       | 51,748                                      |       | 80.5       | %          | 3,050 |   | 62.7 | % | 48,698 |   | 1596.6 | % |
| Gross profit  |       | $                                           | 12,542     |       | 19.5       | % | $ | 1,812 |   | 37.3 | % | $ | 10,730 |   | 592.2 | % |

----

(1)           The data for the three and six monthsended June 30, 2007 does not include the results of operations of RBA and BradFoote, each of which were acquired during the fourth quarter of 2007.

 

*Salesand Cost of Sales.*  For the three and six-month periods endedJune 30, 2008, net sales were $34,042 and $64,290, respectively, with relatedcost of sales during the periods of $27,228 and $51,748, respectively, for agross profit of $6,814 and $12,542 respectively, or 20.0% and 19.5%,respectively. During the comparable periods of 2007, we generated sales of$2,643 and $4,862, respectively, with related cost of sales of $1,527 and$3,050, respectively, for a gross profit of $1,116 and $1,812respectively or 42.2% and 37.3%, respectively.   The increases in profitability between 2007and 2008 generally relate to increased volumes and production efficiencies atTower Tech and the addition of Brad Foote.

 

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*Service, Transportation and Maintenance Segment*

 

The table below presents the results of operations of our Service,Transportation and Maintenance segment for the three and six-month periodsended June 30, 2008.

 

| ** **    | ** ** | **Three Months Ended June 30,**       | ** ** |
|---------------|------------|--------------------------------------------|------------|
| ** **    | ** ** | **2008 (1)**                          | ** ** | **%** | ** ** |
| ** **    | ** ** | **(in thousands, except for percentages)** | ** ** |
| Net sales     |       | $                                          | 6,788      |   | 100.0 | % |
| Cost of sales |       | 3,511                                      |       | 51.7 | % |
| Gross profit  |       | $                                          | 3,277      |   | 48.3 | % |

 

|          |   | **Six  Months Ended June 30,**         |   |
|---------------|--------|---------------------------------------------|--------|
|          |   | **2008 (1)**                           |   | **%** |   |
|          |   | **(in  thousands, except for percentages)** |   |
| Net sales     |   | $                                           | 11,704 |   | 100.0 | % |
| Cost of sales |   | 6,145                                       |   | 52.5 | % |
| Gross profit  |   | $                                           | 5,559  |   | 47.5 | % |

----

(1)       The results presented includeour Service, Transportation and Maintenance segment from the date of the EMSacquisition, January 16, 2008, through June 30, 2008, and Badger fromthe date of acquisition, June 4, 2008 through June 30, 2008.

 

*Sales and Cost of Sales.*  Net sales for the period from January 16,2008 through June 30, 2008 were $6,788. Related costs of sales were$3,511, which resulted in a gross profit of $3,277 or 48.3%.

 

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

 

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

 

Inaddition, during the 2007 fiscal year and the first two fiscal quarters of2008, we made significant investments in growing our business through theacquisitions of Brad Foote, RBA, EMS and Badger. The acquisitions requiredsignificant amounts of capital, which were provided by our existing cashbalance, private placements of our common stock, and borrowings from variousthird parties.

 

At June 30, 2008, we had cash of $81,869 and working capital of $72,510compared to cash of $5,782 and a working capital deficit of $27,697 at December 31,2007. The increase in cash was due primarily to the equity financing completedduring the second fiscal quarter of 2008, described below under the heading “FinancingCash Flows.”

 

*OperatingCash Flows*

 

Net cash used byoperations was $6,434 for the six months ended June 30, 2008 compared to$1,504 used during the six months ended June 30, 2007.  For the six months ended June 30, 2008,our net loss was $5,416 compared to net income of $660 for the comparableperiod in 2007. The increase in working capital needs driven by raw materialpurchases at our Tower Tech subsidiary contributed to the negative cash flowfrom operations for the period.  Theaccounts receivable allowance was reduced from $2,983 at March 31, 2008 to$1,275 at June 30, 2008 due to aged invoices written-off during thequarter and a resulting re-evaluation of the allowance requirements.

 

*InvestingCash Flows*

 

Cashused in investing activities totaled $45,920 for the six months ended June 30,2008 as compared to $2,312 for the six months ended June 30, 2007.Purchases of property and equipment related to the expansion of our Brad Footeand Tower Tech subsidiaries as well as our acquisition activity during theperiod were the primary factors for the cash used in investing activities.  The Company paid $5,811 for the acquisitionof Badger and $18,429 for the acquisition of EMS, excluding related acquisitioncosts, during the six month period ended June 30, 2008.

 

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*Financing Cash Flows*

 

For the six months ended June 30, 2008, net cash provided byfinancing activities was $128,441, which consisted primarily of the $100,000private placement, funded in April and June 2008, to Tontine CapitalPartners, L.P. (“TCP”), Tontine Partners, L.P. (“TP”), Tontine Overseas FundLtd., (“TOF”) and Tontine 25 Overseas Master Fund L.P. (“T25” and collectivelywith Tontine Capital Overseas Master Fund, L.P. (“TMF”), TCP, TP, TOF and theiraffiliates, “Tontine”).  In addition, ourshort- and long-term borrowings increased by $4,627 and $8,823, respectively,which was offset by related payments on long- and short-term borrowings andcapital leases in the amount of $1,365 and $1,488, respectively.  In addition, on January 16, 2008, tofinance the cash portion of the EMS acquisition, the Company sold an aggregateof 2,031,250 shares of unregistered common stock in a private placement to TPand T25 at $8.48 per share for a total purchase price of $17,225, pursuant to apreviously disclosed Amended and Restated Securities Purchase Agreement withTCP, TP and T25.

 

*Second Quarter Activity*

 

On April 22,2008, the Company entered into a Securities Purchase Agreement with certainTontine parties, which provided for the purchase of an aggregate of 12,562,814shares of Company common stock by Tontine at a price of $7.96 per share for atotal purchase price of approximately $100,000. We received the first trancheof proceeds in the amount of $40,000 on April 24, 2008. The second trancheof proceeds in the amount of $60,000 was received on June 5, 2008. Thomas WeiselPartners issued a fairness opinion in connection with the Tontine parties’investment.

 

On April 22,2008, the Company entered into a Securities Purchase Agreement with a member ofthe Company’s Board of Directors, which provided for the purchase of 62,814 sharesof Company common stock at a price of $7.96 per share for a total purchaseprice of approximately $500.  The fundingfor this investment was provided on April 24, 2008.

 

The Company expects touse the proceeds from the private placements for general working capitalrequirements, capital expansion projects and to undertake certain acquisitions.

 

*Previous Activity*

 

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

 

Inconnection with our acquisition of Brad Foote, we assumed approximately $25,500of outstanding senior debt, which is comprised of the following loans that BradFoote had obtained from Bank of America, formerly known as LaSalle BankNational Association (“BOA”) pursuant to a Loan and Security Agreement dated asof January 17, 1997, as amended (the “Loan Agreement”): (i) a $7,000revolving line of credit loan (the “Revolving Loan”); (ii) a consolidatedterm loan in the original principal sum of approximately $7,800 (the “Term Loan”);(iii) an $11,000 non-revolving equipment line of credit (the “EquipmentLoan”); and (iv) a $9,000 non-revolving equipment line of credit with aterm conversion feature (the “Equipment Loan No. 2”).

 

TheRevolving Loan, which was scheduled to mature on June 30, 2008, hadapproximately $5,700 outstanding at closing of the Brad Foote acquisition, with$8,500 outstanding at June 30, 2008. The revolving loan was extended on June 30, 2008 to a maturity dateof August 31, 2008.  Interest ispayable monthly and accrues on Revolving Loan advances at a variable rate ofPrime minus 1% (the “base rate”). The Term Loan, which matures on January 31,2011, had approximately 

 

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$5,300outstanding at closing of the Brad Foote acquisition, with $4,081 outstandingat June 30, 2008, and requires monthly principal and interest payments.The monthly amount of principal due is $132 and interest accrues on theoutstanding balance of the Term Loan at the Base Rate. The Equipment Loan hadapproximately $10,100 outstanding at closing of the Brad Foote acquisition with$8,433 outstanding at June 30, 2008. The equipment loan included an optionto convert the obligation to a term note on April 29, 2007. Thisconversion was effected, making the outstanding principal balance payable inmonthly principal installments of $183 commencing on May 31, 2007,maturing on April 30, 2012. Interest accrues on the outstanding balance ofthe converted term loan at the base rate. The Equipment Loan No. 2, which matures on June 30, 2013, hadapproximately $4,500 outstanding at closing of the Brad Foote acquisition with$8,877 outstanding at June 30, 2008. The Equipment Loan No. 2 includes an option to convert theobligation to a term note. Interest is payable monthly at the base rate until June 30,2008, at which point Brad Foote began making monthly principal payments of $150plus interest, which accrues at the Base Rate on the outstanding balance of theEquipment Loan No. 2.

 

TheLoan Agreement states that the Revolving Loan, Term Loan, Equipment Loan andEquipment Loan No. 2 are secured by all of the assets of Brad Foote andthat Brad Foote must maintain insurance on the collateral. The Loan Agreementrequires Brad Foote to comply with standard covenants, including financialcovenants relating to ratios of cash flow coverage and senior debt to EBITDA,and to submit our annual audited financial statements to BOA at the close ofeach fiscal year. In addition, Brad Foote must maintain a $1,000 key man lifeinsurance policy upon the life of J. Cameron Drecoll, who served as Brad Foote’spresident prior to the acquisition and became our chief executive officer whenthe acquisition was completed. Each of the Revolving Loan, Term Loan, EquipmentLoan and Equipment Loan No. 2 become immediately due and payable uponbreach of any covenants or representations made by Brad Foote in the LoanAgreement and upon other customary events of default.  As of December 31, 2007, the Company was inviolation of certain financial convenants with BOA.  We secured an amendement to the Loan Agreement,including waivers related to these loans through March 31, 2008. The Companywas in compliance with the financial covenants of the Loan Agreement onJune 30, 2008 and does not anticipate an inability to comply with these covenantsin the future. In addition, the covenants contained in the Loan Agreementinclude restrictions on Brad Foote’s ability to make distributions or dividendsand incur indebtedness, which could ultimately affect our ability to undertakeadditional debt or equity financing. If these covenants prevent us fromsecuring additional financing when necessary, we plan to evaluate alternatesources of funding.

 

OnOctober 4, 2007, our Tower Tech subsidiary obtained a secured line ofcredit from Investors Community Bank in the amount of $2,500, which wasincreased to $5,500 on March 21, 2008. All advances to Tower Tech underthe line of credit are guaranteed in full by Broadwind and RBA.

 

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

 

Duringthe remainder of 2008, we plan to finance operations, including equipmentpurchases and other capital expenditures with working capital and externalfinancing. We believe that we will need to raise additional funding in the nearterm to finance operations and meet revenue, profitability and strategic goalsfor the foreseeable future. In addition, we continue to evaluate and assess potentialstrategic acquisition targets. Cash requirements from any future acquisitionsmay be substantial; however, we cannot estimate the cash or other considerationthat may be required to finance such transactions. We expect to be able toprocure financing upon reasonable terms in order to finance operations andacquisition activity. However, if we are unable to do so, or if we do not meetour anticipated future revenue levels, management is committed to takingactions necessary to ensure the conservation of adequate cash to continue tofinance our operations.

 

**InterestRate Risk**

 

TheCompany hedges certain of its variable interest debt with fixed rate interestrate swaps. These swaps resulted in a benefit of $241and $11 for the three andsix months ended June 30, 2008, respectively, which is reported withininterest expense.

 

**Off-Balance Sheet Arrangements**

 

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

 

**Forward-Looking Statements**

 

The preceding discussion and analysis should be read in conjunctionwith our condensed consolidated financial statements and related notes includedin Item 1 of Part 1 of this Quarterly Report and the audited consolidatedfinancial statements and related notes and Management’s Discussion and Analysisor Plan of Operation contained in our Annual Report on Form 10-KSB for thefiscal year ended December 31, 2007.  Portions of this QuarterlyReport on Form 10-Q, including the discussion and analysis in this Item 2,contain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  Any statements contained herein 

 

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that are not historical fact, may be deemed forward-lookingstatements.  In some cases, forward-looking statements can beidentified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,”“continue,” “intend” or similar expressions.  Forward-looking statementsalso include the assumptions underlying or relating to any of the foregoingstatements.  Such forward-looking statements are based upon currentexpectations and beliefs and are subject to a number of factors anduncertainties that could cause actual results to differ materially from thosedescribed in the forward-looking statements.  Any forward-lookingstatements made herein are made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995.  Ourforward-looking statements include or relate to the following: (i) ourplans to continue to grow our business through acquisitions and integration ofprevious and future acquisitions; (ii) our beliefs with respect to thesufficiency of our working capital and our plans to evaluate alternate sourcesof funding if necessary; (iii) our ability to comply with loan covenants; (iv) ourexpectations relating to construction of new facilities and expansion ofexisting facilities; (v) our plans with respect to the use of proceedsfrom financing activities; and (vi) the anticipated benefits of ourremediation efforts on the strength of our internal control processes and ourplans with respect to future remediation efforts.  Forward-looking statements cannot beguaranteed and actual results may vary materially due to the uncertainties andrisks, known and unknown, associated with such statements. We caution investorsthat many important factors have affected, and in the future could affect ouractual results of operations and cause such results to differ materially fromthose anticipated in forward-looking statements made in this release andelsewhere by us or on our behalf. These factors include, but are not limitedto, our ability to successfully identify strategic acquisition targets andconsummate acquisitions on terms favorable to us; the successful integration ofacquired businesses; our need for and ability to obtain additional capital; thecontinued availability of capital and financing on terms favorable to us; ourability to hire and retain management and other employees; delays in completingfacility expansions; our ability to successfully remediate internal controldeficiencies; other general business and economic conditions; and those risksdescribed from time to time in our reports to the Securities and ExchangeCommission (including in our Annual Report on Form 10-KSB). It is notpossible to foresee or identify all factors that could cause actual results todiffer from expected or historic results. As such, investors should notconsider any list of such factors to be an exhaustive statement of all of therisks, uncertainties or potentially inaccurate assumptions that investorsshould take into account when making investment decisions. Stockholders andother readers are cautioned not to place undue reliance on forward-lookingstatements, which speak only as of the date on which they are made. We do notintend to update publicly or revise any forward-looking statements.

 

**Item 4T.     Controls and Procedures**

 

**Material Weaknesses Previously Disclosed**

 

As discussed in Item 8A of our 2007 AnnualReport on Form 10-KSB, as of December 31, 2007, we identified certainmaterial weaknesses relating to our accounting policies and procedures, ITenvironment, general ledger system, financial close and reporting, internalfinancial expertise, application access, segregation of duties, user developedapplications and process level controls. In addition, although we were notrequired to, and did not, perform a complete assessment of the internalcontrols of Brad Foote as of December 31, 2007, we identified certainmaterial weaknesses at Brad Foote relating to inventory, cost accounting,accounts receivable, billing and sales, capital expenditures, internalfinancial expertise and accounting policies and procedures. As also disclosedin our 2007 Annual Report, we are designing and implementing actions toremediate the identified material weaknesses.

 

**Evaluation of Disclosure Controls and Procedures**

 

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

 

Weanticipate the actions to be taken to remediate the material weaknesses and theresulting improvement in controls will generally strengthen our disclosurecontrols and procedures, as well as our internal control over financialreporting, and will, over time, address the material weaknesses that weidentified in our internal control over financial 

 

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reportingas of December 31, 2007. However, because many of the remediation actionswe have undertaken are recent and because some of our remediation actions willbe designed to improve our internal control over annual measures, managementwill not be able to conclude that the material weaknesses have been eliminateduntil such time as it is able to complete its assessment of the effectivenessof internal control over financial reporting. While management is exercising its best efforts to remediate materialweaknesses and significant deficiencies identified and described above, itcannot provide any assurance as to when such material weaknesses andsignificant deficiencies will be remediated.

 

**Changes in Internal Controls**

 

Weare undertaking efforts to remediate the material weaknesses identified in our2007 Annual Report.  During the secondquarter of fiscal 2008, we continued to use outside experts to supplement theexpertise in our internal staff and hired additional experienced and qualifiedfinancial professionals. In addition, we have relied on compensating measuresincluding: enhanced communication and involvement of outside legal counsel inreporting and disclosure matters, and the continued involvement of our AuditCommittee, the chair of which is a financial expert with extensive accountingand auditing experience.  Further tothese efforts, during the second quarter we hired an internal General Counseland a Director of Compliance to assist in leading efforts surrounding publicreporting and compliance with the Sarbanes-Oxley Act of 2002.

 

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

 

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

 

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

 

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

 

Wehave engaged outside consultants to help in the documentation of our policiesand procedures.  This, along with theaddition of sufficient qualified accounting personnel at the corporate andoperating levels to spearhead this effort, will help to mitigate the controldeficiency related to documentation.

 

**PART II.    OTHERINFORMATION**

 

**Item 1.        Legal Proceedings**

 

Occasionally, we are adefendant in litigation arising in the ordinary course of our business,including claims arising from personal injuries, contract claims, customerdisputes and employment-related claims. To date, none of these types oflitigation, most of which are typically covered by insurance, has had a materialeffect on us. We have insured and continue to insure against most of thesetypes of claims. A judgment significantly in excess of our insurance coverageor involving punitive damages, which may not be covered by insurance, couldmaterially adversely affect our financial condition or results of operations.

 

##### **Item 2.        UnregisteredSales of Equity Securities and Use of Proceeds**

##### ** **

All unregistered sales of equitysecurities during the quarter ended June 30, 2008 have been previouslydisclosed on Form 8-K.

 

##### **Item 3.        DefaultsUpon Senior Securities**

##### ** **

None.

 

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##### **Item 4.        Submissionof Matters to a Vote of Security Holders**

##### ** **

At the Annual Meeting of Stockholders held on June 20, 2008, wesubmitted to a vote of our stockholders the following matters, which receivedthe indicated votes.

 

1.             Election of Directors:

 
| ** **         | ** ** | **FOR**    | ** ** | **WITHHELD** | ** ** |
|--------------------|------------|------------|------------|--------------|------------|
| J. Cameron Drecoll |       | 66,822,144 |       | 16,870       |       |
| James M. Lindstrom |       | 66,821,750 |       | 17,264       |       |
| Charles H. Beynon  |       | 66,822,144 |       | 16,870       |       |
| Terence P. Fox     |       | 66,780,197 |       | 58,817       |       |
| William M. Barrett |       | 66,822,144 |       | 16,870       |       |
| David P. Reiland   |       | 66,821,750 |       | 17,264       |       |

 

2.             To approve the reincorporation ofthe Company to the State of Delaware:

 
| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** | **BROKER NON-VOTE** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------|------------|
| 66,821,271 |       | 6,524       |       | 219         |       | 0                   |       |

 

3.             To approve an amendment to theArticles of Incorporation  to increasethe authorized common shares from   100,000,000to 150,000,000:

 
| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** | **BROKER NON-VOTE** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------|------------|
| 66,799,723 |       | 39,283      |       | 8           |       | 0                   |       |

 

4.             To approve the Broadwind Energy, Inc.2007 Equity Incentive Plan:

 
| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** | **BROKER NON-VOTE** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------|------------|
| 66,569,919 |       | 261,272     |       | 7,823       |       | 0                   |       |

 

5.             To ratify the selection of GrantThornton LLP as the Company’s independent registered public accounting firm for      2008:

 
| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** | **BROKER NON-VOTE** | ** ** |
|------------|------------|-------------|------------|-------------|------------|---------------------|------------|
| 66,812,977 |       | 22,730      |       | 3,307       |       | 0                   |       |

 

##### **Item 5.        OtherInformation**

##### ** **

None.

 

##### **Item 6.        Exhibits**

##### ** **

Seethe Exhibit Index following the signature page to this report.

 

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###### **SIGNATURES**

###### ** **

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

 
|                  | BROADWIND  ENERGY, INC. |
|-----------------------|-------------------------|
|                  |                    |
|                  |                    |
| August 14,  2008 | By:                     | /s/  J. Cameron Drecoll |
|                  |                    | J.  Cameron Drecoll |
|                  |                    | Chief  Executive Officer |
|                  |                    |
|                  |                    |
| August 14,  2008 | By:                     | /s/  Matthew J. Gadow |
|                  |                    | Matthew  J. Gadow |
|                  |                    | Chief  Financial Officer |

 

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EXHIBIT INDEX

BROADWIND ENERGY, INC.

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

 
| **Exhibit  Number** | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                                                                                            |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                 |       | Stock Purchase Agreement  dated April 24, 2008 among Broadwind Energy, Inc., Badger  Transport, Inc. and the shareholders of Badger  Transport, Inc.—incorporated by reference to Exhibit 2.1 to the  Company’s Current Report on Form 8-K, filed April 30, 2008.                                                         |
| 3.1                 |       | Certificate of  Incorporation*                                                                                                                                                                                                                                                                                                                                         |
| 3.2                 |       | Bylaws*                                                                                                                                                                                                                                                                                                                                                                |
| 4.1                 |       | Form of Specimen  Stock Certificate*                                                                                                                                                                                                                                                                                                                              |
| 10.1                |       | Employment Agreement  between the Company and Lars Moller, dated effective as of October 22,  2007 — incorporated by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed April 1, 2008.                                                                                                                         |
| 10.2                |       | Employment Agreement  between the Company and Matt Gadow, dated effective as of October 22,  2007 — incorporated by reference to Exhibit 10.2 to the Company’s  Current Report on Form 8-K filed April 1, 2008.                                                                                                                          |
| 10.3                |       | Broadwind  Energy, Inc. 2007 Equity Incentive Plan, as amended*                                                                                                                                                                                                                                                                                                   |
| 10.4                |       | Securities Purchase  Agreement dated April 22, 2008 between Broadwind Energy, Inc.,  Tontine Capital Partners, L.P., Tontine Partners, L.P., Tontine Overseas  Fund, Ltd., and Tontine 25 Overseas Master Fun, L.P. — incorporated by  reference to Exhibit 10.2 to the Company’s Current Report on  Form 8-K filed April 28, 2008. |
| 10.5                |       | Securities Purchase  Agreement dated April 22, 2008 between Broadwind Energy, Inc. and  Charles H. Beynon—incorporated by reference to Exhibit 10.2 to the  Company’s Current Report on Form 8-K filed April 28, 2008.                                                                                                              |
| 10.6                |       | Registration Rights  Agreement dated April 24, 2008 between Broadwind Energy, Inc. and  Charles H. Beynon—incorporated by reference to Exhibit 10.3 to the  Company’s Current Report on Form 8-K filed April 28, 2008.                                                                                                              |
| 10.7                |       | Registration Rights  Agreement dated June 4, 2008 between Broadwind Energy, Inc. and the  shareholders of Badger Transport, Inc.—incorporated by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  June 10, 2008.                                                                                  |
| 31.1                |       | Rule 13a-14(a) Certification  of Chief Executive Officer*                                                                                                                                                                                                                                                                                                    |
| 31.2                |       | Rule 13a-14(a) Certification  of Chief Financial Officer*                                                                                                                                                                                                                                                                                                    |
| 32.1                |       | Certification Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer*                                                                                                                                                                                                         |
| 32.2                |       | Certification Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer*                                                                                                                                                                                                         |

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*                         Filed herewith.

 

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