Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

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

 

**For the quarterly period endedJune 30, 2010**

 

**OR**

 
| ** ****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**

 

 

**BROADWIND ENERGY, INC.**

 (Exactname of registrant as specified in its charter)

 

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

 

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

(Address of principal executive offices)

 

**(630) 637-0315**

(Registrant’s telephone number, including areacode)

 

**Not applicable**

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

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x  No o

 

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

 

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

 

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

 

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

 

Number of shares of registrant’s common stock, parvalue $0.001, outstanding as of August 6, 2010: 106,915,026.

 

 

 

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**BROADWIND ENERGY, INC.AND SUBSIDIARIES**

 

**INDEX**

 
| ** **                              | ** **                                                                                  | ** ** | **Page No.** |
|-----------------------------------------|---------------------------------------------------------------------------------------------|------------|-------------------|
|                                    |                                                                                        |       |              |
| **PART I.  FINANCIAL INFORMATION** |
|                                    |                                                                                        |       |              |
| Item 1.                                 | Financial  Statements                                                                       |       | 1                 |
|                                    | Condensed  Consolidated Balance Sheets                                                      |       | 1                 |
|                                    | Condensed  Consolidated Statements of Operations                                            |       | 2                 |
|                                    | Condensed  Consolidated Statements of Cash Flows                                            |       | 3                 |
|                                    | Notes to Condensed Consolidated Financial Statements                                        |       | 4                 |
|                                    |                                                                                        |       |              |
| Item 2.                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 19                |
| Item 3.                                 | Quantitative  and Qualitative Disclosures About Market Risk                                 |       | 30                |
| Item 4.                                 | Controls and  Procedures                                                                    |       | 30                |
|                                    |                                                                                        |       |              |
| **PART II. OTHER  INFORMATION**    |
|                                    |                                                                                        |       |              |
| Item 1.                                 | Legal Proceedings                                                                           |       | 31                |
| Item  1A.                               | Risk  Factors                                                                               |       | 31                |
| Item 2.                                 | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 31                |
| Item 3.                                 | Defaults  Upon Senior Securities                                                            |       | 31                |
| Item 4.                                 | Removed and Reserved                                                                        |       | 31                |
| Item 5.                                 | Other Information                                                                           |       | 31                |
| Item  6.                                | Exhibits                                                                                    |       | 31                |
| Signatures                              |                                                                                        | 32         |

 

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**PART I.    FINANCIAL INFORMATION**

 

**Item 1.    Financial Statements**

 

**BROADWIND ENERGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

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

 
| ** **                                                                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **2010**          | ** ** | **2009**              | ** ** |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **ASSETS**                                                                                                                                                                                 | ** ** | ** **        | ** ** |                  | ** ** |
| **CURRENT  ASSETS:**                                                                                                                                                                       |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                  |       | $                 | 11,579     |                  | $          | 4,829 |   |
| Short-term investments                                                                                                                                                                     |       | 1,683             |       | —                |       |
| Restricted cash                                                                                                                                                                            |       | —            |       | 2,010                 |       |
| Accounts receivable, net  of allowance for doubtful accounts of $196 and $1,641 as ofJune 30, 2010 and December 31, 2009, respectively                                           |       | 23,785            |       | 21,920                |       |
| Inventories, net                                                                                                                                                                           |       | 12,566            |       | 9,039                 |       |
| Prepaid expenses and other  current assets                                                                                                                                                 |       | 3,430             |       | 5,688                 |       |
| Total current assets                                                                                                                                                                       |       | 53,043            |       | 43,486                |       |
| Property and equipment,  net                                                                                                                                                               |       | 131,740           |       | 136,249               |       |
| Goodwill                                                                                                                                                                                   |       | 5,154             |       | 9,715                 |       |
| Intangible assets, net                                                                                                                                                                     |       | 35,098            |       | 37,248                |       |
| Other assets                                                                                                                                                                               |       | 2,075             |       | 3,338                 |       |
| **TOTAL  ASSETS**                                                                                                                                                                          |       | $                 | 227,110    |                  | $          | 230,036 |   |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                                             | ** ** | ** **        | ** ** |                  | ** ** |
| **CURRENT  LIABILITIES:**                                                                                                                                                                  |       |              |       |                  |       |
| Lines of credit and notes  payable                                                                                                                                                         |       | $                 | —     |                  | $          | 10,717 |   |
| Current maturities of  long-term debt                                                                                                                                                      |       | 2,676             |       | 9,021                 |       |
| Current portions of  capital lease obligations                                                                                                                                             |       | 1,154             |       | 1,130                 |       |
| Accounts payable                                                                                                                                                                           |       | 14,895            |       | 14,710                |       |
| Accrued liabilities                                                                                                                                                                        |       | 5,428             |       | 6,965                 |       |
| Deferred revenue                                                                                                                                                                           |       | 4,438             |       | 10,199                |       |
| Total current liabilities                                                                                                                                                                  |       | 28,591            |       | 52,742                |       |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **LONG-TERM  LIABILITIES:**                                                                                                                                                                |       |              |       |                  |       |
| Long-term debt, net of  current maturities                                                                                                                                                 |       | 11,655            |       | 15,778                |       |
| Long-term capital lease  obligations, net of current portions                                                                                                                              |       | 2,729             |       | 3,286                 |       |
| Interest rate swap  agreements                                                                                                                                                             |       | —            |       | 253                   |       |
| Deferred income tax  liabilities                                                                                                                                                           |       | 420               |       | 403                   |       |
| Other                                                                                                                                                                                      |       | 1,677             |       | 1,979                 |       |
| Total long-term  liabilities                                                                                                                                                               |       | 16,481            |       | 21,699                |       |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **COMMITMENTS  AND CONTINGENCIES**                                                                                                                                                         |       |              |       |                  |       |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **STOCKHOLDERS’  EQUITY:**                                                                                                                                                            |       |              |       |                  |       |
| Preferred stock, $0.001  par value; 10,000,000 shares authorized; no shares issuedor outstanding                                                                                           |       | —            |       | —                |       |
| Common stock, $0.001 par  value; 150,000,000 shares authorized; 106,841,085 and 96,701,127shares issued and outstanding as of June 30, 2010 and December 31,  2009, respectively |       | 107               |       | 97                    |       |
| Additional paid-in capital                                                                                                                                                                 |       | 355,519           |       | 300,779               |       |
| Accumulated other  comprehensive loss                                                                                                                                                      |       | (2                | )          | —                |       |
| Accumulated deficit                                                                                                                                                                        |       | (173,586          | )          | (145,281              | )          |
| Total stockholders’ equity                                                                                                                                                            |       | 182,038           |       | 155,595               |       |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                       |       | $                 | 227,110    |                  | $          | 230,036 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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**BROADWIND ENERGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(UNAUDITED)**

**(In thousands, except per share data)**

 
| ** **                                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                          | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                            |       | $                                                   | 36,629     |                                              | $          | 52,313 |   | $ | 58,799 |   | $ | 105,375 |   |
| Cost of sales                                                       |       | 37,025                                              |       | 49,162                                            |       | 63,679 |   | 97,539 |   |
| Gross (loss) profit                                                 |       | (396                                                | )          | 3,151                                             |       | (4,880 | ) | 7,836 |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| **OPERATING  EXPENSES:**                                            |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general and  administrative                                |       | 7,467                                               |       | 10,525                                            |       | 15,681 |   | 19,441 |   |
| Goodwill impairment                                                 |       | 4,561                                               |       | —                                            |       | 4,561 |   | — |   |
| Intangible amortization                                             |       | 1,074                                               |       | 2,906                                             |       | 2,149 |   | 5,812 |   |
| Total operating expenses                                            |       | 13,102                                              |       | 13,431                                            |       | 22,391 |   | 25,253 |   |
| Operating loss                                                      |       | (13,498                                             | )          | (10,280                                           | )          | (27,271 | ) | (17,417 | ) |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| **OTHER  (EXPENSE) INCOME, net:**                                   |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense, net                                               |       | (361                                                | )          | (557                                              | )          | (723 | ) | (1,099 | ) |
| Other, net                                                          |       | (394                                                | )          | 5,574                                             |       | (262 | ) | 5,667 |   |
| Total (expense) income,  net                                        |       | (755                                                | )          | 5,017                                             |       | (985 | ) | 4,568 |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Net loss before (benefit)  provision for income taxes               |       | (14,253                                             | )          | (5,263                                            | )          | (28,256 | ) | (12,849 | ) |
| **(BENEFIT)  PROVISION FOR INCOME TAXES**                           |       | (72                                                 | )          | 163                                               |       | 49 |   | (273 | ) |
| **NET LOSS**                                                        |       | $                                                   | (14,181    | )                                                 | $          | (5,426 | ) | $ | (28,305 | ) | $ | (12,576 | ) |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| **NET LOSS  PER COMMON SHARE - Basic and diluted**                  |       | $                                                   | (0.13      | )                                                 | $          | (0.06 | ) | $ | (0.27 | ) | $ | (0.13 | ) |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| **WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING - Basic and diluted** |       | 106,782                                             |       | 96,547                                            |       | 105,571 |   | 96,520 |   |

 

The accompanying notes are an integral part ofthese condensed consolidated financial statements.

 

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**BROADWIND ENERGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(UNAUDITED)(In thousands)**

 
| ** **                                                                                            | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2010**                                          | ** ** | **2009** | ** ** |
|                                                                                                  |       |                                              |       |   |   |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                            |       |                                              |       |   |   |
| Net loss                                                                                              |       | $                                                 | (28,305    | ) | $ | (12,576 | ) |
| **Adjustments  to reconcile net loss to net********cash (used in) provided by operating activities:** |       |                                              |       |   |   |
| Depreciation and  amortization expense                                                                |       | 9,682                                             |       | 13,433 |   |
| Goodwill impairment                                                                                   |       | 4,561                                             |       | — |   |
| Change in fair value of  interest rate swap agreements                                                |       | (253                                              | )          | (198 | ) |
| Deferred income taxes                                                                                 |       | 17                                                |       | (220 | ) |
| Stock-based compensation                                                                              |       | 606                                               |       | 979 |   |
| Allowance for doubtful  accounts                                                                      |       | (1,445                                            | )          | (798 | ) |
| Loss (gain) on disposal of  assets                                                                    |       | 68                                                |       | (46 | ) |
| Changes in operating  assets and liabilities:                                                         |       |                                              |       |   |   |
| Accounts receivable                                                                                   |       | (420                                              | )          | 10,792 |   |
| Inventories                                                                                           |       | (3,489                                            | )          | 6,621 |   |
| Prepaid expenses and other  current assets                                                            |       | 2,258                                             |       | 1,252 |   |
| Accounts payable                                                                                      |       | 1,114                                             |       | (8,650 | ) |
| Accrued liabilities                                                                                   |       | (1,836                                            | )          | (2,166 | ) |
| Deferred revenues                                                                                     |       | (5,761                                            | )          | (8,301 | ) |
| Other non-current assets  and liabilities                                                             |       | 1,029                                             |       | — |   |
| Net cash (used in)  provided by operating activities                                                  |       | (22,174                                           | )          | 122 |   |
|                                                                                                  |       |                                              |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                            |       |                                              |       |   |   |
| Purchases of property and  equipment                                                                  |       | (3,952                                            | )          | (9,064 | ) |
| Purchases of  available-for-sale investments                                                          |       | (1,683                                            | )          | — |   |
| Proceeds from disposals of  property and equipment                                                    |       | 9                                                 |       | 29 |   |
| Decrease (increase) in  restricted cash                                                               |       | 2,010                                             |       | (2,003 | ) |
| Net cash used in investing  activities                                                                |       | (3,616                                            | )          | (11,038 | ) |
|                                                                                                  |       |                                              |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                            |       |                                              |       |   |   |
| Net proceeds from issuance  of stock                                                                  |       | 53,341                                            |       | 445 |   |
| Common stock issued under  defined contribution 401(k) plan                                      |       | 341                                               |       | — |   |
| Payments on lines of  credit and notes payable                                                        |       | (21,070                                           | )          | (7,134 | ) |
| Proceeds from lines of  credit and notes payable                                                      |       | —                                            |       | 6,079 |   |
| Proceeds from  sale-leaseback transactions                                                            |       | —                                            |       | 3,641 |   |
| Proceeds from deposits on  equipment                                                                  |       | —                                            |       | 665 |   |
| Principal payments on  capital leases                                                                 |       | (533                                              | )          | (585 | ) |
| Issuance of restricted  stock grants                                                                  |       | 463                                               |       | 386 |   |
| Net cash provided by  financing activities                                                            |       | 32,542                                            |       | 3,497 |   |
|                                                                                                  |       |                                              |       |   |   |
| Effect of foreign exchange  rates                                                                     |       | (2                                                | )          | — |   |
|                                                                                                  |       |                                              |       |   |   |
| **NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**                                             |       | 6,750                                             |       | (7,419 | ) |
| **CASH AND  CASH EQUIVALENTS, beginning of the period**                                               |       | 4,829                                             |       | 15,253 |   |
| **CASH AND  CASH EQUIVALENTS, end of the period**                                                     |       | $                                                 | 11,579     |   | $ | 7,834 |   |
|                                                                                                  |       |                                              |       |   |   |
| **Supplemental  cash flow information:**                                                              |       |                                              |       |   |   |
| Interest paid, net of  capitalized interest                                                           |       | $                                                 | 649        |   | $ | 1,214 |   |
| Income taxes paid                                                                                     |       | $                                                 | 38         |   | $ | 535 |   |
|                                                                                                  |       |                                              |       |   |   |
| **Non-cash  financing activities:**                                                                   |       |                                              |       |   |   |
| Non-cash purchase  accounting allocation charges                                                      |       | $                                                 | —     |   | $ | 3,030 |   |
| Common stock issued under  defined contribution 401(k) plan                                      |       | $                                                 | 341        |   | $ | — |   |
| Issuance of restricted  stock grants                                                                  |       | $                                                 | 463        |   | $ | 386 |   |

 

The accompanying notes are an integral part ofthese condensed consolidated financial statements.

 

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**BROADWIND ENERGY, INC. ANDSUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

**(In thousands, except share andper share data)**

 

**NOTE 1 — BASIS OF PRESENTATION**

 

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States (“GAAP”)for interim financial information and in accordance with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, thefinancial statements do not include all of the information and notes requiredby GAAP for complete financial statements. In the opinion of management, alladjustments, including normal recurring accruals, considered necessary for afair presentation have been included. Operating results for the three and sixmonths ended June 30, 2010 are not necessarily indicative of the resultsthat may be expected for the twelve months ending December 31, 2010. TheDecember 31, 2009 consolidated balance sheet was derived from auditedfinancial statements, but does not include all disclosures required by GAAP.This financial information should be read in conjunction with the consolidated financialstatements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2009.

 

The unaudited condensed consolidated financialstatements presented herein include the accounts of Broadwind Energy, Inc.and its wholly owned subsidiaries. As of June 30, 2010, the Company had fouroperating subsidiaries, which consisted of Brad Foote Gear Works, Inc. (“BradFoote”), Tower Tech Systems Inc. (“Tower Tech”), Energy MaintenanceService, LLC (“EMS”) and Badger Transport, Inc. (“Badger”). All inter-company transactions and balances have been eliminated.Additionally, certain reclassifications have been made to prior periodfinancial statements to conform to the current period presentation.

 

**BusinessOverview**

 

As used in this Quarterly Report on Form 10-Q,the terms “we,”“us,”“our,”“Broadwind,” and the “Company,” refer to Broadwind Energy, Inc., a Delaware corporationheadquartered in Naperville, Illinois, and its wholly owned subsidiaries. The Company is an independent, horizontallyintegrated supplier of customized products and services to the U.S. wind energyindustry. The Company’s product and service portfolio provides its customers,including wind turbine manufacturers, wind farm developers and wind farmoperators, with access to a broad array of wind component and serviceofferings. The Company manufactures gearing systems and wind towers for thewind industry, and provides technical service, precision repair and engineeringand specialized logistics to the wind industry in the United States.

 

In December 2009, theCompany revised its reporting segment presentation into four reportableoperating segments: Towers, Gearing, Technical and Engineering Services, andLogistics. Accordingly, all prior period financial results have beenreclassified to reflect these changes. See Note 14, “Segment Reporting,”of the notes to these condensed consolidated financial statements for furtherdiscussion of the Company’s reportable segments.

 

*Towers*

 

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

 

*Gearing*

 

The Company manufacturesprecision gearing systems for the wind industry in North America and productsfor industrial markets including mining and oilfield equipment, with facilitiesin Illinois and Pennsylvania. The Company uses an integrated manufacturingprocess, which includes a machining process in Cicero, Illinois, a heattreatment process in Neville Island, Pennsylvania and a finishing process inthe Company’s Cicero factory.

 

*Technicaland Engineering Services*

 

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

 

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

 

*Logistics*

 

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

 

**Financing and Liquidity**

 

As of June 30, 2010, the Company had cash and cashequivalents totaling $11,579 and short-term investments of $1,683. The Company’smanagement anticipates that the Company will be able to satisfy the cashrequirements associated with, among other things, working capital needs,capital expenditures and debt and lease commitments through at least the next12 months primarily with current cash on hand, receipts of deposits fromcustomer to fund steel purchases and cash generated by operations or otherfinancing arrangements.

 

The Company’s ability to make scheduled payments ondebt and other financial obligations will depend on future financial andoperating performance. However, if sales and subsequent collections fromseveral of the Company’s large customers, as well as revenues generated fromnew customer orders, are not materially consistent with management’sexpectations, the Company may encounter cash flow and liquidity issues.Additional funding may not be available when needed or on terms acceptable tothe Company. Furthermore, if the Company is unable to obtain additionalcapital, the Company will likely be required to delay, reduce the scope of oreliminate the Company’s plans for expansion and growth, and this could affectthe Company’s overall operations. Any additional equity financing, if available,may be dilutive to stockholders, and additional debt financing, if available,will likely require financial covenants or other restrictions on the Company.

 

**NOTE 2 — EARNINGS PER SHARE**

 

The following tablepresents a reconciliation of basic and diluted earnings per share for the threeand six months ended June 30, 2010 and 2009 as follows:

 
| ** **                                             | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                             | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Basic  earnings per share calculation:**             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss to common stockholders                        |       | $                                                   | (14,181    | )                                                 | $          | (5,426 | ) | $ | (28,305 | ) | $ | (12,576 | ) |
| ** **                                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted average number of  common shares outstanding  |       | 106,782,014                                         |       | 96,547,386                                        |       | 105,571,347 |   | 96,520,211 |   |
| Basic net loss per share                               |       | $                                                   | (0.13      | )                                                 | $          | (0.06 | ) | $ | (0.27 | ) | $ | (0.13 | ) |
| ** **                                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Diluted  earnings per share calculation:**           | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss to common  stockholders                       |       | $                                                   | (14,181    | )                                                 | $          | (5,426 | ) | $ | (28,305 | ) | $ | (12,576 | ) |
| ** **                                             | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted average number of  common shares outstanding  |       | 106,782,014                                         |       | 96,547,386                                        |       | 105,571,347 |   | 96,520,211 |   |
| Common stock equivalents:                              |       |                                                |       |                                              |       |   |   |   |   |
| Stock options and unvested  restricted stock units (1) |       | —                                              |       | —                                            |       | — |   | — |   |
| Weighted average number of  common shares outstanding  |       | 106,782,014                                         |       | 96,547,386                                        |       | 105,571,347 |   | 96,520,211 |   |
| Diluted net loss per share                             |       | $                                                   | (0.13      | )                                                 | $          | (0.06 | ) | $ | (0.27 | ) | $ | (0.13 | ) |

 

----

| (1)  | Stock options and unvested restricted stock units  granted and outstanding of 1,694,136 and 1,886,245 as of June 30, 2010  and 2009, respectively, are excluded from the computation of diluted earnings  per share due to the anti-dilutive effect as a result of the Company’s net  loss for these respective periods. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**NOTE 3 — INVENTORIES**

 

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

 

The components ofinventories as of June 30, 2010 and December 31, 2009 are summarizedas follows:

 
| ** **                                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2010**          | ** ** | **2009**              | ** ** |
|                                             |       |              |       |                  |       |
| Raw materials                                    |       | $                 | 6,751      |                  | $          | 4,957 |   |
| Work-in-process                                  |       | 5,995             |       | 2,921                 |       |
| Finished goods                                   |       | 1,375             |       | 3,338                 |       |
|                                             |       | 14,121            |       | 11,216                |       |
| Less: Reserve for excess  and obsolete inventory |       | (1,555            | )          | (2,177                | )          |
| Net inventories                                  |       | $                 | 12,566     |                  | $          | 9,039 |   |

 

**NOTE 4 — GOODWILL AND INTANGIBLEASSETS**

 

Goodwill represents theexcess of cost over fair market value of identifiable net assets acquiredthrough business purchases. The Company performs an annual impairment testthrough the application of a fair-value based test as of October 31 ofeach year, or more frequently when events or circumstances indicate that thecarrying value of its assets may not be recoverable. The Company’s estimate offair value for each of the Company’s operating segments is based primarily onprojected future results, cash flows and other assumptions.

 

During the second quarterof 2010, the Company identified a triggering event associated with a continueddeterioration in financial performance within its Technical and EngineeringServices segment. This triggering event required a subsequent revision in theCompany’s projection of future operating results and cash flows for thissegment in light of the continued economic weakness in the wind energyindustry. The Company’s analysis indicated that the projected fair value of theTechnical and Engineering Services segment assets did not exceed the carryingvalue of these assets. The method in determining the fair value was based uponthe Company’s estimate of the projected future discounted cash flows of itsreporting unit. As a result, the Company recorded a goodwill impairment chargeof $4,561 during the second quarter and the impairment charge was recorded tooperating expenses in its consolidated statement of operations for the threeand six months ended June 30, 2010.

 

As of June 30, 2010, the carrying value ofgoodwill was as follows:

 
| ** **                                         | ** ** | **Towers** | ** ** | **Gearing** | ** ** | **Technical and  Engineering  Services** | ** ** | **Logistics** | ** ** | **Total**  | ** ** |
|----------------------------------------------------|------------|------------|------------|-------------|------------|-----------------------------------------------|------------|---------------|------------|------------|------------|
| ** **                                         | ** ** | ** ** | ** ** | ** **  | ** ** | ** **                                    | ** ** | ** **    | ** ** | ** ** | ** ** |
| **Goodwill  balance as of December 31, 2009** |       | $          | —     |        | $          | —                                        |       | $             | 4,561      |       | $          | 5,154 |   | $ | 9,715 |   |
|                                               |       |       |       |        |       |                                          |       |          |       |       |       |
| Impairment charge                                  |       | —     |       | —      |       | (4,561                                        | )          | —        |       | (4,561     | )          |
|                                               |       |       |       |        |       |                                          |       |          |       |       |       |
| **Goodwill  balance as of June 30, 2010**     |       | $          | —     |        | $          | —                                        |       | $             | —     |       | $          | 5,154 |   | $ | 5,154 |   |

 

Intangible assets represent the fair value assigned todefinite-lived assets such as trade names, customer relationships, andnoncompete agreements as part of acquisitions completed by the Company during2007 and 2008. Intangible assets are amortized on a straight-line basis overtheir estimated useful lives, which range from 3 to 20 years. The Companytests intangible assets for impairment when events or circumstances indicatethat the carrying value of these assets may not be recoverable. As a result ofthe reduction in the Company’s revenues during the second quarter of this yearcompared to original projections, the Company evaluated the recoverability ofcertain of its identifiable intangible assets. Based upon the Company’sassessment, no impairment to these assets was identified as of June 30,2010.

 

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As of June 30, 2010 and December 31, 2009,the cost basis, accumulated amortization and net book value of intangibleassets were as follows:

 
| ** **             | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **Adjusted**                | ** ** | ** **                      | ** ** | **Net** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **             | ** ** | **Cost**                    | ** ** | **Accumulated**                 | ** ** | **Book** | ** ** | **Cost** | ** ** | **Accumulated** | ** ** | **Impairment** | ** ** | **Book** | ** ** |
| ** **             | ** ** | **Basis**                   | ** ** | **Amortization**                | ** ** | **Value** | ** ** | **Basis** | ** ** | **Amortization** | ** ** | **Charge** | ** ** | **Value** | ** ** |
| Intangible assets:     |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Customer relationships |       | $                           | 33,059     |                            | $          | (7,235 | ) | $ | 25,824 |   | $ | 106,638 |   | $ | (21,332 | ) | $ | (57,835 | ) | $ | 27,471 |   |
| Trade names            |       | 10,159                      |       | (1,340                          | )          | 8,819 |   | 10,279 |   | (1,099 | ) | (107 | ) | 9,073 |   |
| Noncompete agreements  |       | 1,490                       |       | (1,035                          | )          | 455 |   | 1,490 |   | (786 | ) | — |   | 704 |   |
|                   |       |                        |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Intangible assets      |       | $                           | 44,708     |                            | $          | (9,610 | ) | $ | 35,098 |   | $ | 118,407 |   | $ | (23,217 | ) | $ | (57,942 | ) | $ | 37,248 |   |

 

Intangible investments associated with customerrelationships, trade names and noncompete agreements are amortized ratably overthe estimated life of the related intangible assets. Amortization expense was$1,074 and $2,149 for the three and six months ended June 30, 2010,respectively, compared to $2,906 and $5,812 for the three and six months ended June 30,2009, respectively.

 

**NOTE 5 — ACCRUED LIABILITIES**

 

Accrued liabilities as of June 30, 2010 andDecember 31, 2009 consisted of the following:

 
| ** **                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2010**          | ** ** | **2009**              | ** ** |
|                            |       |              |       |                  |       |
| Accrued operating  expenditures |       | $                 | 788        |                  | $          | 954 |   |
| Accrued payroll and  benefits   |       | 2,241             |       | 2,295                 |       |
| Accrued professional fees       |       | 89                |       | 1,067                 |       |
| Accrued warranty                |       | 659               |       | 918                   |       |
| Accrued other                   |       | 1,651             |       | 1,731                 |       |
| Total accrued liabilities       |       | $                 | 5,428      |                  | $          | 6,965 |   |

 

**NOTE 6 — DEBT AND CREDIT AGREEMENTS**

 

The Company’s outstandingdebt balances as of June 30, 2010 and December 31, 2009 consisted ofthe following:

 
| ** **                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2010**          | ** ** | **2009**              | ** ** |
|                                       |       |              |       |                  |       |
| Lines of credit                            |       | $                 | —     |                  | $          | 10,601 |   |
| Term loans and notes  payable              |       | 12,011            |       | 22,595                |       |
| Related party note                         |       | 2,320             |       | 2,320                 |       |
|                                       |       | 14,331            |       | 35,516                |       |
| Less - Current maturities                  |       | (2,676            | )          | (19,738               | )          |
| Long-term debt, net of  current maturities |       | $                 | 11,655     |                  | $          | 15,778 |   |

 

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**CreditFacilities**

 

***Brad Foote***

 

In connection with theCompany’s acquisition of Brad Foote in October 2007, the Company assumedoutstanding debt and available lines of credit totaling approximately $25,500under various secured debt facilities (the “BOA Debt Facilities”) with Bank ofAmerica.  On January 22, 2010, BradFoote repaid all of the outstanding principal and interest under the BOA DebtFacilities in the aggregate amount of $16,076, and the BOA Debt Facilities wereterminated.

 

***Tower Tech***

 

*ICB Line*

 

In October 2007, TowerTech obtained a secured line of credit (the “ICB Line”) from InvestorsCommunity Bank in the amount of $2,500, which was subsequently increased to$5,500 on March 21, 2008. On March 13, 2009, Investors CommunityBank agreed to extend the maturity date of the ICB Line to March 13, 2010.Pursuant to a Master Amendment dated as of December 30, 2009 amongInvestors Community Bank, Tower Tech and Broadwind (as guarantor), the amountof the ICB Line was increased to $6,500, subject to borrowing baseavailability. On January 26, 2010, Tower Tech repaid all of theoutstanding indebtedness under the ICB Line in the amount of $3,066 and allowedthe ICB Line to expire on March 13, 2010.

 

*ICB Notes*

 

On April 7, 2008, theCompany’s wholly owned subsidiary R.B.A., Inc. (“RBA”) executed four(4) promissory notes with Investors Community Bank (the “ICB Notes”), inthe aggregate principal amount of approximately $3,781, as follows: (i) aterm note in the maximum principal amount of approximately $421, bearinginterest at a per annum rate of 6.85%, with a maturity date of October 5,2012; (ii) a term note in the maximum principal amount of $700, bearinginterest at a per annum rate of 5.65%, with a maturity date of April 25,2013; (iii) a term note in the maximum principal amount of $928, bearinginterest at a per annum rate of 5.65%, with a maturity date of April 25,2013; and (iv) a line of credit note in the maximum principal amount of$1,732, bearing interest at a per annum rate of 4.48% until May 1, 2008and thereafter at the London Interbank Offered Rate (“LIBOR”) plus 1.75%, witha maturity date of April 5, 2009 (the “Line of Credit Note”). The Line ofCredit Note was subsequently modified on March 13, 2009 to extend thematurity date to March 13, 2010 and to change the interest rate to thegreater of (A) 5% or (B) prime. The ICB Notes provide for multipleadvances, and were secured by substantially all of the assets of RBA.

 

Pursuant to the merger ofRBA into Tower Tech on December 31, 2009, Tower Tech became the successorby merger to RBA’s interest in the loans from Investors Community Bank to RBAevidenced by the ICB Notes (other than the Line of Credit Note, which wasrepaid in full in January 2010). As of June 30, 2010, (i) thetotal amount of outstanding indebtedness under the remaining ICB Notes was$1,500, (ii) the effective per annum interest rate of the remaining ICBNotes was 5.84%, and (iii) Tower Tech was in compliance with allapplicable financial covenants related to the remaining ICB Notes.

 

*Great Western Loan*

 

On April 28, 2009, Tower Tech entered into aConstruction Loan Agreement with Great Western Bank, pursuant to which GreatWestern Bank agreed to provide up to $10,000 in financing (the “ConstructionLoan”) to fund construction of Tower Tech’s wind tower manufacturing facilityin Brandon, South Dakota (the “Facility”). Pursuant to a Change in Terms Agreement dated April 5, 2010 betweenGreat Western and Tower Tech, the Construction Loan was converted to a termloan (the “Great Western Term Loan”) providing for monthly payments of principalplus interest, extending the maturity date to November 5, 2016, reducingthe principal amount to $6,500, and changing the per annum interest rate to8.5%. Tower Tech was required to pay a 1.0% origination fee upon theconversion.

 

The Great Western Term Loan is secured by a firstmortgage on the Facility and all fixtures, accounts and proceeds relatingthereto, pursuant to a Mortgage and a Commercial Security Agreement, eachbetween Tower Tech and Great Western, and by a Commercial Guaranty from theCompany. In addition, the Company has agreed to subordinate all intercompanydebt with Tower Tech to the Great Western Term Loan. The Great Western TermLoan contains representations, warranties and covenants that are customary to aterm financing arrangement and contains no financial covenants. As of June 30,2010, the total outstanding indebtedness under the Great Western Term Loan was$6,250.

 

***Badger***

 

On March 13, 2009,Badger obtained a term loan (the “FNB Term Loan”) from First National Bank inthe principal amount of $1,538. A portion of the proceeds from the FNB TermLoan was used to pay off Badger’s existing term loan and revolving line ofcredit with First National Bank, with the remainder available for workingcapital. The FNB Term Loan is secured by the inventory, 

 

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accounts receivable andcertain equipment of Badger, and is guaranteed by the Company. The FNB TermLoan bears interest at a rate of 6.75% per annum, matures on March 13,2013, and requires monthly payments of principal and interest. The FNB TermLoan contains no financial covenants. As of June 30, 2010, the totalamount of outstanding indebtedness under the FNB Term Loan was $1,101.

 

On September 30, 2009,Badger obtained a term loan (the “GE Capital Term Loan”) from General ElectricCapital Corporation in the principal amount of approximately $1,000. The GECapital Term Loan is secured by certain equipment of Badger, and is guaranteedby the Company. The GE Capital Term Loan bears interest at a rate of 7.76% perannum, matures on September 30, 2014, and requires monthly payments ofprincipal and interest. The GE Capital Term Loan contains no financialcovenants. As of June 30, 2010, the total amount of outstandingindebtedness under the GE Capital Term Loan was $865.

 

**SellingShareholder Notes**

 

On May 26, 2009, theCompany entered into a settlement agreement (the “Settlement Agreement”) withthe former owners of Brad Foote (the “Selling Shareholders”), includingJ. Cameron Drecoll, the Company’s Chief Executive Officer and amember of its Board of Directors, related to the post-closing escrowestablished in connection with the Company’s acquisition of Brad Foote. Underthe terms of the Settlement Agreement, among other terms, the Company issuedthree promissory notes to the Selling Shareholders in the aggregate principalamount of $3,000 (the “Selling Shareholder Notes”). The Selling Shareholder Notesmature on May 28, 2012 and bear interest at a rate of 7% per annum, withinterest payments due quarterly. The Selling Shareholder Note issued toMr. Drecoll in the principal amount of $2,320 and pursuant to the terms ofthe Settlement Agreement is deemed by the Company to be a related partytransaction. As of June 30, 2010, principal of $3,000 and accrued interestof $52 were outstanding under the Selling Shareholder Notes. The Company hasaccounted for the Selling Shareholder Notes as long-term debt in its condensedconsolidated balance sheets.

 

**NOTE 7 — CASH AND CASH EQUIVALENTSAND SHORT-TERM INVESTMENTS**

 

Cash and cash equivalentscomprise cash balances and readily marketable investments with maturities ofthree months or less, such as money market funds, short-term government bonds,Treasury bills, marketable securities and commercial paper. The Company’streasury policy is to invest excess cash in money market funds or othershort-term investments, which are generally of a short-term duration based uponoperating requirements. Income earned on these investments is recorded tointerest income in the Company’s condensed consolidated statements ofoperations. As of June 30, 2010, cash and cash equivalents totaled $11,579and consisted of cash balances and investments in municipal bonds withmaturities of three months or less, compared to cash and cash equivalents of$4,829 which consisted of cash and money market funds at December 31,2009.

 

As of June 30, 2010,the Company had $1,683 in investments in municipal bonds with maturitiesgreater than three months, but less than one year. These financial instrumentsare categorized as available-for-sale securities and classified as short-terminvestments in the Company’s condensed consolidated balance sheet as of June 30,2010.

 

Cash and cash equivalents and short-term investmentsconsisted of the following as of June 30, 2010 and December 31, 2009:

 
| ** **                                                  | ** ** | **June 30, 2010** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                  | ** ** | ** **                  | ** ** | **Gross Unrealized** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Cost**                    | ** ** | **Gain** | ** ** | **(Loss)** | ** ** | **Fair Value** | ** ** |
| Cash and cash equivalents:                                  |       |                        |       |   |   |   |   |   |   |
| Cash                                                        |       | $                           | 3,253      |   | $ | — |   | $ | — |   | $ | 3,253 |   |
| Municipal bonds                                             |       | 8,326                       |       | — |   | — |   | 8,326 |   |
| Total cash and cash  equivalents                            |       | 11,579                      |       | — |   | — |   | 11,579 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |
| Short-term investments  (available-for-sale):               |       |                        |       |   |   |   |   |   |   |
| Municipal bonds                                             |       | 1,683                       |       | — |   | — |   | 1,683 |   |
|                                                        |       |                        |       |   |   |   |   |   |   |
| Total cash and cash  equivalents and short-term investments |       | $                           | 13,262     |   | $ | — |   | $ | — |   | $ | 13,262 |   |

 

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| ** **                       | ** ** | **December 31, 2009** | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | ** **                      | ** ** | **Gross Unrealized** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Cost**                        | ** ** | **Gain** | ** ** | **(Loss)** | ** ** | **Fair Value** | ** ** |
| Cash and cash equivalents:       |       |                            |       |   |   |   |   |   |   |
| Cash                             |       | $                               | 4,240      |   | $ | — |   | $ | — |   | $ | 4,240 |   |
| Money market funds               |       | 589                             |       | — |   | — |   | 589 |   |
|                             |       |                            |       |   |   |   |   |   |   |
| Total cash and cash  equivalents |       | $                               | 4,829      |   | $ | — |   | $ | — |   | $ | 4,829 |   |

 

**NOTE 8 — FAIR VALUE MEASUREMENTS**

 

The Company measures its financial assets andliabilities at fair value. Fair value is defined as the price that would bereceived to sell an asset or paid to transfer a liability (i.e., exit price) inan orderly transaction between market participants at the measurement date.Additionally, the Company is required to provide disclosure and categorizeassets and liabilities measured at fair value into one of three differentlevels depending on the assumptions (i.e., inputs) used in the valuation.Level 1 provides the most reliable measure of fair value whileLevel 3 generally requires significant management judgment. Financialassets and liabilities are classified in their entirety based on the lowestlevel of input significant to the fair value measurement. The fair valuehierarchy is defined as follows:

 

Level 1—Valuations are based on unadjusted quotedprices in active markets for identical assets or liabilities.

 

Level 2—Valuations are based on quoted prices forsimilar assets or liabilities in active markets, or quoted prices in marketsthat are not active for which significant inputs are observable, eitherdirectly or indirectly.

 

Level 3—Valuations are based on prices orvaluation techniques that require inputs that are both unobservable andsignificant to the overall fair value measurement. Inputs reflect management’sbest estimate of what market participants would use in valuing the asset orliability at the measurement date.

 

**Fair valueof financial instruments**

 

The carrying amounts of theCompany’s financial instruments, which include cash and cash equivalents,accounts receivable, prepaid expenses and other current assets, accountspayable, accrued liabilities and customer deposits approximate their respectivefair values due to the relatively short-term nature of these instruments. Basedupon interest rates currently available to the Company for debt with similarterms, the carrying value of the Company’s long-term debt is approximatelyequal to its fair value. As of June 30,2010, the Company held short-term investments in municipal bonds, which arerequired to be measured at fair value. The following table presents the Company’sfair value measurements valued on a recurring basis as of June 30, 2010:

 
| ** **      | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|-----------------|------------|-------------|------------|-------------|------------|-------------|------------|-----------|------------|
|            |       |        |       |        |       |        |       |      |       |
| Municipal bonds |       | $           | 1,683      |        | $          | —      |       | $         | —     |   | $ | 1,683 |   |
| Total           |       | $           | 1,683      |        | $          | —      |       | $         | —     |   | $ | 1,683 |   |

 

The following tablerepresents the fair values of the Company’s financial liabilities as ofDecember 31, 2009:

 
| ** **          | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|---------------------|------------|-------------|------------|-------------|------------|-------------|------------|-----------|------------|
|                |       |        |       |        |       |        |       |      |       |
| Interest rate swaps |       | $           | —     |        | $          | 253         |       | $         | —     |   | $ | 253 |   |
| Total               |       | $           | —     |        | $          | 253         |       | $         | —     |   | $ | 253 |   |

 

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**Assetsmeasured at fair value on a nonrecurring basis**

 

The Company reviews itsgoodwill balances for impairment on at least an annual basis based on thecarrying value of these assets as of October 31 or whenever events orchanges in circumstances indicate that its carrying value may not berecoverable. During the second quarter of 2010, the Company identified atriggering event associated with a continued deterioration in financialperformance within its Technical and Engineering Services segment. Thistriggering event required a subsequent revision in the Company’s projections offuture operating results and cash flows for this segment in light of thecontinued economic weakness in the wind energy industry. The Company’s analysisindicated that the projected fair value of the Technical and EngineeringServices segment assets did not exceed the carrying value of these net assets.The method in determining the fair value was based upon the Company’s estimateof the projected future discounted cash flows of its reporting unit. As aresult, the Company recorded a goodwill impairment charge of $4,561 during thesecond quarter of 2010 to properly reflect the carrying value of these assets.

 

The fair value measurementapproach utilizes a number of significant unobservable inputs or Level 3assumptions. These assumptions include, among others, projections of our futureoperating results, the implied fair value of these assets using an incomeapproach by preparing a discounted cash flow analysis and other subjectiveassumptions.

 

The following tablepresents the fair value measurements of the Company’s nonrecurring assets as ofJune 30, 2010:

 
| ** **      | ** ** | **Fair Value Measurments Using** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|
| **Description** | ** ** | **Six Months  Ended  6/30/10**             | ** ** | **Prices in  Active  Markets for  Identical  Assets (Level  1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** | **Impairment  Charge** | ** ** |
| Goodwill        |       | $                                               | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | 4,561 |   |
|                 |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**NOTE 9 — TOTAL COMPREHENSIVE LOSS**

 

The components oftotal comprehensive loss are net loss and the change in cumulative currencytranslation adjustments.  The following table sets forth the components oftotal comprehensive loss for the three and six months ended June 30, 2010and 2009:

 
| ** **                               | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                               | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                               | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                 |       | $                                                   | (14,181    | )                                                 | $          | (5,426 | ) | $ | (28,305 | ) | $ | (12,576 | ) |
| Other comprehensive loss:                |       |                                                |       |                                              |       |   |   |   |   |
| Foreign currency translation adjustments |       | (2                                                  | )          | —                                            |       | (2 | ) | — |   |
|                                     |       |                                                |       |                                              |       |   |   |   |   |
| Total comprehensive loss                 |       | $                                                   | (14,183    | )                                                 | $          | (5,426 | ) | $ | (28,307 | ) | $ | (12,576 | ) |

 

In May 2010,the Company opened a sales office in Hamburg, Germany. The Euro is thefunctional currency in Germany.  All relatedexpenses have been translated into U.S. dollars using an average exchange ratefor the period. The assets and liabilities for this location have beentranslated into U.S. dollars using the spot rate at the end of the period witha currency translation loss of $2 included in accumulated other comprehensiveloss for the period.

 

**NOTE 10 — STOCKHOLDERS’ EQUITY**

 

On January 21,2010, the Company completed a public offering of its common stock, par value$0.001 per share, at an offering price of $5.75 per share. In the offering, theCompany sold 10,000,000 newly issued shares of its common stock forapproximately $54,625 in proceeds after deducting underwriting discounts, butbefore deducting other offering related costs. In connection with the offering,the Company incurred $1,284 in costs associated with professional and otheroffering related expenses, which have been netted against the proceeds receivedin additional paid-in capital in the Company’s condensed consolidated balancesheets as of June 30, 2010.

 

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On March 26,2010, the Company issued 32,761 shares of its common stock for an aggregatefair value of $172 in connection with matching contributions made under itsdefined contribution 401(k) safe harbor plan.

 

On June 29,2010, the Company issued 72,218 shares of its common stock for an aggregatefair value of $169 in connection with matching contributions made under itsdefined contribution 401(k) safe harbor plan.

 

**NOTE 11 — INCOME TAXES**

 

The Company accounts for income taxes based upon anasset and liability approach. Deferred tax assets and liabilities represent thefuture tax consequences of the differences between the financial statementcarrying amounts of assets and liabilities versus the tax basis of assets andliabilities. Under this method, deferred tax assets are recognized fordeductible temporary differences, and operating loss and tax creditcarryforwards. Deferred tax 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 tax rate changeson deferred tax assets and liabilities is recognized in the year that thechange is enacted.

 

The Company recognizes interest and penalties relatedto uncertain tax positions in income tax expense. As of June 30, 2010 and December 31,2009, the Company had accrued interest or penalties related to uncertain taxpositions totaling $16 and $10, respectively.

 

The Company files income tax returns in U.S. federaland state jurisdictions. As of June 30, 2010, open tax years in federaland some state jurisdictions date back to 1996 due to the taxing authorities’ability to adjust operating loss carryforwards. No changes in settled tax yearshave occurred through June 30, 2010. The Company does not anticipate therewill be a material change in the total amount of unrecognized tax benefitswithin the next 12 months.

 

The following table presents the income tax (benefit)provision for the three and six months ended June 30, 2010 and 2009 asfollows:

 
| ** **                                            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                            | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Net loss before (benefit) provision for income  taxes |       | $                                                   | (14,253    | )                                                 | $          | (5,263 | ) | $ | (28,256 | ) | $ | (12,849 | ) |
| (Benefit) provision for income taxes                  |       | (72                                                 | )          | 163                                               |       | 49 |   | (273 | ) |
| Net loss                                              |       | $                                                   | (14,181    | )                                                 | $          | (5,426 | ) | $ | (28,305 | ) | $ | (12,576 | ) |

 

Effective tax rates differ from federal statutoryincome tax rates primarily due to changes in the Company’s valuation allowance,permanent differences and provisions for state and local income taxes. As of June 30,2010, the Company had a net deferred income tax liability of $420 primarilyrelated to temporary differences in indefinite-lived assets. Theseindefinite-lived assets consist of tax deductible goodwill from businessacquisitions completed during 2007 and 2008. During the three months ended June 30,2010, the Company recorded a benefit for income taxes of $72, compared to aprovision for income taxes of $163 during the three months ended June 30,2009. The decrease in income taxes during the three months ended June 30,2010 was primarily attributable to the increase in the estimated full yearprojected net loss for the current year. During the six months ended June 30,2010, the Company recorded a provision for income taxes of $49, compared to abenefit for income taxes of $273 during the six months ended June 30,2009. The increase in income taxes during the six months ended June 30,2010 related to a benefit recorded during the prior year associated with areduction in state income taxes and deferred state income tax liabilities as aresult of a favorable change in the state of Wisconsin’s method of calculatingstate income taxes.

 

**NOTE 12 — SHARE-BASED COMPENSATION**

 

**Overviewof Share-Based Compensation Plan**

 

The Company grantsincentive stock options and other equity awards pursuant to the BroadwindEnergy, Inc. 2007 Equity Incentive Plan (the “EIP”), which was approved bythe Company’s Board of Directors in October 2007 and by the Company’sstockholders in June 2008. The EIP was subsequently amended in August 2008by the Company’s Board of Directors to include certain non-material amendmentsto clarify the terms and conditions of restricted stock awards and to providethat the administrator of the EIP has the authority to authorize futureamendments to the EIP. The EIP was further amended by the Company’sstockholders in June 2009 to increase the number of shares of common stockauthorized for issuance under the EIP. As amended, the EIP reserves

 

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5,500,000 shares of commonstock for grants to officers, directors, employees, consultants and advisorsupon whose efforts the success of the Company and its affiliates will depend toa large degree. As of June 30, 2010, the Company had reserved 1,322,110shares for the exercise of stock options outstanding, 372,026 shares forrestricted stock unit awards outstanding and 3,474,161 additional shares forfuture stock awards under the EIP. As of June 30, 2010, 331,703 shares ofcommon stock reserved for stock options and restricted stock unit awards underthe EIP have been issued in the form of common stock.

 

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

 

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

 

The following tablesummarizes stock option activity during the six months ended June 30, 2010under the EIP as follows:

 
| ** **                               | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|------------------------------------------|------------|-------------|------------|------------------------------------------------|------------|
| Outstanding as of December 31, 2009 |       | 1,402,163   |       | $                                              | 11.08      |   |
| Granted                                  |       | 244,828     |       | $                                              | 5.34       |   |
| Exercised                                |       | —      |       | $                                              | —     |   |
| Forfeited                                |       | (257,421    | )          | $                                              | 11.90      |   |
| Expired                                  |       | (67,460     | )          | $                                              | 15.67      |   |
| Outstanding as of June 30, 2010     |       | 1,322,110   |       | $                                              | 9.62       |   |
|                                     |       |        |       |                                           |       |
| Exercisable as of June 30, 2010     |       | 383,287     |       | $                                              | 10.03      |   |

 

The following tablesummarizes restricted stock unit activity during the six months ended June 30,2010 under the EIP as follows:

 
| ** **                               | ** ** | **Number of Units** | ** ** | **Weighted Average  Grant-Date Fair Value  Per Unit** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------------------------------|------------|
| Outstanding as of December 31, 2009 |       | 279,151                       |       | $                                                                         | 8.76       |   |
| Granted                                  |       | 280,741                       |       | $                                                                         | 4.42       |   |
| Vested                                   |       | (113,735                      | )          | $                                                                         | 4.69       |   |
| Forfeited                                |       | (74,131                       | )          | $                                                                         | 7.75       |   |
| Outstanding as of June 30, 2010     |       | 372,026                       |       | $                                                                         | 6.93       |   |

 

The fair value of eachstock option award is estimated on the date of grant using the Black-Scholesoption pricing model. The determination of the fair value of each stock optionis affected by the Company’s stock price on the date of grant, as well asassumptions regarding a number of highly complex and subjective variables.These variables include, but are not limited to, the Company’s expected stockprice volatility over the expected life of the awards and actual and projectedstock option exercise behavior. The weighted average fair value per share ofstock option awards granted during the six months ended June 30, 2010 and

 

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2009, and assumptions usedto value stock options, are as follows:

 
| ** **                                                           | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                           | ** ** | **2010**                                          | ** ** | **2009** | ** ** |
| Dividend yield                                                       |       | —                                            |       | — |   |
| Risk-free interest rate                                              |       | 3.1                                               | %          | 2.6 | % |
| Weighted average volatility                                          |       | 85.0                                              | %          | 85.0 | % |
| Expected life (in years)                                             |       | 6.5                                               |       | 6.5 |   |
| Weighted average grant date fair value per share  of options granted |       | $                                                 | 3.96       |   | $ | 5.31 |   |
|                                                                      |            |                                                   |            |  |  |  |  |

 

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

 

Risk-free rate is based onthe implied yield currently available on U.S. Treasury zero coupon issues witha remaining term equal to the expected life of the award.

 

During the six months endedJune 30, 2010 and 2009, the Company utilized a standard volatilityassumption of 85% for estimating the fair value of stock options awarded basedon comparable volatility averages for the energy related sector.

 

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

 

During the six months endedJune 30, 2010 and 2009, the Company utilized a forfeiture rate of 25% and10%, respectively, for estimating the forfeitures of stock options granted.During the second quarter of 2010, the Company revised its forfeiture rate to25% based upon the Company’s historical forfeiture rates. The revision to theCompany’s forfeiture was applied to stock options and restricted stock unitsoutstanding as of June 30, 2010.

 

The following tablesummarizes share-based compensation expense included in the Company’s condensedconsolidated statements of operations for the six months June 30, 2010 and2009, as follows:

 
| ** **                                                  | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                  | ** ** | **2010**                                          | ** ** | **2009** | ** ** |
| **Share-based compensation expense:**                       | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Selling, general and administrative                         |       | $                                                 | 1,069      |   | $ | 1,365 |   |
| Income tax benefit (1)                                      |       | —                                            |       | — |   |
| Net effect of share-based compensation expense on  net loss |       | $                                                 | 1,069      |   | $ | 1,365 |   |
|                                                        |       |                                              |       |   |   |
| **Reduction in earnings per share:**                        | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Basic and diluted earnings per share (2)                    |       | $                                                 | 0.01       |   | $ | 0.01 |   |

 

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(1) Income tax benefit is not illustrated because the Company is currentlyoperating at a loss and an actual income tax benefit was not realized for thesix months ended June 30, 2010 and 2009. The result of the loss situationcreates a timing difference, resulting in a deferred tax asset, which is fullyreserved for in the Company’s valuation allowance.

 

(2) Diluted earnings per share for the six months ended June 30, 2010and 2009 does not include common stock equivalents due to their anti-dilutivenature as a result of the Company’s net losses for these respective periods.Accordingly, basic earnings per share and diluted earnings per share areidentical for all periods presented.

 

As of June 30, 2010,the Company estimates that pre-tax compensation expense for all unvestedshare-based awards, including both stock options and restricted stock units, inthe amount of approximately $5,268 will be recognized through the year 2014.The Company expects to satisfy the exercise of stock options and futuredistribution of shares of restricted stock by issuing new shares of commonstock.

 

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**NOTE 13 — RECENT ACCOUNTINGPRONOUNCEMENTS**

 

The following is a listing of recent accountingstandards issued by the Financial Accounting Standards Board (“FASB”) and theireffect on the Company.

 

In January 2010, the FASB issued ASU 2010-06, *Fair Value Measurements and Disclosures* (Topic820).  ASU 2010-06 provides additional disclosure requirementsrelated to fair value measurements. ASU 2010-06 is effective for interimand annual reporting periods beginning after December 15, 2009, except forthe disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements.  Disclosurerequirements applicable to Level 3 transactions are effective for fiscal yearsbeginning after December 15, 2010 and for interim periods within thosefiscal years, with early adoption permitted.  The portion of ASU2010-06 that was effective beginning after December 15, 2009 did not havea material effect on the financial position, results of operations or cashflows of the Company. Additionally, the Company does not anticipate thatthe disclosure requirements applicable to Level 3 transactions that areeffective for fiscal years beginning after December 15, 2010 will have amaterial effect on the financial position, results of operations or cash flowsof the Company.

 

In October 2009, the FASB issued ASU 2009-13, *Revenue Recognition* (Topic 605). ASU 2009-13 providesadditional guidance related to the accounting for multiple-deliverablearrangements to account for products or services (deliverables) separatelyrather than as a combined unit and eliminates the residual method ofallocation.  ASU 2009-13 is effective prospectively for revenuearrangements entered into or materially modified in fiscal years beginning onor after June 15, 2010, with early adoption permitted. The Company doesnot anticipate that the provisions of ASU 2009-13 will have a material effecton the financial position, results of operations or cash flows of the Company.

 

**NOTE 14 — SEGMENT REPORTING**

 

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

 

The Company’s segments andtheir product and service offerings are summarized below:

 

***Towers***

 

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

 

***Gearing***

 

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

 

***Technical andEngineering Services***

 

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

 

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***Logistics***

 

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

 

***Corporate and Other***

 

“Corporate and Other” iscomprised of selling, general and administrative expenses for the Company’scorporate office and European sales office and adjustments to reconcile segmentresults to consolidated results, which primarily include intercompanyeliminations.

 

Summary financialinformation by reportable segment for the three and six months ended June 30,2010 and 2009 was as follows:

 
| ** **                         | ** ** | **Revenues**                                                          | ** ** | **Operating (Loss) Profit**                                 | ** ** |
|------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                         | ** ** | **For the Three Months Ended June 30,** | ** ** | **For the Three Months Ended June 30,** | ** ** |
| ** **                         | ** ** | **2010**                                                              | ** ** | **2009**                                                              | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segments:**                      | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Towers                             |       | $                                                                     | 16,514     |                                                                  | $          | 22,364 |   | $ | (595 | ) | $ | (690 | ) |
| Gearing                            |       | 14,277                                                                |       | 17,528                                                                |       | (2,822 | ) | (5,035 | ) |
| Technical and Engineering Services |       | 2,893                                                                 |       | 7,901                                                                 |       | (6,474 | ) | 575 |   |
| Logistics                          |       | 3,059                                                                 |       | 4,585                                                                 |       | (1,301 | ) | (432 | ) |
| Corporate and Other (1)            |       | (114                                                                  | )          | (65                                                                   | )          | (2,306 | ) | (4,698 | ) |
|                               |       | $                                                                     | 36,629     |                                                                  | $          | 52,313 |   | $ | (13,498 | ) | $ | (10,280 | ) |

 
| ** **                         | ** ** | **Depreciation and Amortization**                           | ** ** | **Capital Expenditures**                                         | ** ** |
|------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                         | ** ** | **For the Three Months Ended June 30,** | ** ** | **For the Three Months Ended June 30,** | ** ** |
| ** **                         | ** ** | **2010**                                                              | ** ** | **2009**                                                              | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segments:**                      | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Towers                             |       | $                                                                     | 844        |                                                                  | $          | 921 |   | $ | 596 |   | $ | 1,463 |   |
| Gearing                            |       | 2,477                                                                 |       | 4,277                                                                 |       | 132 |   | 459 |   |
| Technical and Engineering Services |       | 836                                                                   |       | 794                                                                   |       | 590 |   | 78 |   |
| Logistics                          |       | 649                                                                   |       | 827                                                                   |       | 25 |   | 206 |   |
| Corporate and Other (1)            |       | 42                                                                    |       | 7                                                                     |       | 13 |   | 115 |   |
|                               |       | $                                                                     | 4,848      |                                                                  | $          | 6,826 |   | $ | 1,356 |   | $ | 2,321 |   |

 

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| ** **                         | ** ** | **Revenues**                                                        | ** ** | **Operating (Loss) Profit**                               | ** ** |
|------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                         | ** ** | **For the Six Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
| ** **                         | ** ** | **2010**                                                            | ** ** | **2009**                                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segments:**                      | ** ** | ** **                                                          | ** ** | ** **                                                          | ** ** | ** ** | ** ** |   | ** ** |
|                               |       |                                                                |       |                                                                |       |   |   |   |   |
| Towers                             |       | $                                                                   | 28,560     |                                                                | $          | 42,468 |   | $ | (1,873 | ) | $ | (757 | ) |
| Gearing                            |       | 21,993                                                              |       | 40,559                                                              |       | (7,949 | ) | (8,901 | ) |
| Technical and Engineering Services |       | 4,915                                                               |       | 15,311                                                              |       | (8,924 | ) | 598 |   |
| Logistics                          |       | 3,519                                                               |       | 7,403                                                               |       | (3,008 | ) | (1,383 | ) |
| Corporate and Other (1)            |       | (188                                                                | )          | (366                                                                | )          | (5,517 | ) | (6,974 | ) |
|                               |       | $                                                                   | 58,799     |                                                                | $          | 105,375 |   | $ | (27,271 | ) | $ | (17,417 | ) |

 
| ** **                         | ** ** | **Depreciation and Amortization**                         | ** ** | **Capital Expenditures**                                       | ** ** |
|------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                         | ** ** | **For the Six Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
| ** **                         | ** ** | **2010**                                                            | ** ** | **2009**                                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segments:**                      | ** ** | ** **                                                          | ** ** | ** **                                                          | ** ** | ** ** | ** ** |   | ** ** |
|                               |       |                                                                |       |                                                                |       |   |   |   |   |
| Towers                             |       | $                                                                   | 1,698      |                                                                | $          | 1,669 |   | $ | 1,848 |   | $ | 8,388 |   |
| Gearing (2)                        |       | 4,925                                                               |       | 8,522                                                               |       | 1,238 |   | (175 | ) |
| Technical and Engineering Services |       | 1,653                                                               |       | 1,535                                                               |       | 818 |   | 160 |   |
| Logistics                          |       | 1,323                                                               |       | 1,666                                                               |       | 31 |   | 574 |   |
| Corporate and Other (1)            |       | 83                                                                  |       | 41                                                                  |       | 17 |   | 117 |   |
|                               |       | $                                                                   | 9,682      |                                                                | $          | 13,433 |   | $ | 3,952 |   | $ | 9,064 |   |

 
| ** **                         | ** ** | **Total Assets as of** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|
| ** **                         | ** ** | **June 30,**                     | ** ** | **December 31,** | ** ** |
| ** **                         | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| **Segments:**                      | ** ** | ** **                            | ** ** |   | ** ** |
|                               |       |                                  |       |   |   |
| Towers                             |       | $                                     | 81,900     |   | $ | 80,146 |   |
| Gearing                            |       | 86,334                                |       | 92,665 |   |
| Technical and Engineering Services |       | 28,967                                |       | 36,417 |   |
| Logistics                          |       | 21,327                                |       | 21,259 |   |
| Corporate and Other (3)            |       | 8,582                                 |       | (451 | ) |
|                               |       | $                                     | 227,110    |   | $ | 230,036 |   |

 

----

(1) “Corporate andOther” includes selling, general and administrative expenses of the Company’scorporate office and European sales office in addition to intercompanyeliminations.

 

(2) Gearing segmentcapital expenditures during the six months ended June 30, 2009 reflectscash amounts received in connection with the return of certain capitalequipment expenditures made during 2008.

 

(3) “Corporate andOther” includes assets of the Company’s corporate office and European salesoffice in addition to intercompany eliminations.

 

**NOTE 15 — COMMITMENTS AND CONTINGENCIES**

 

*PurchaseCommitments*

 

During 2010, the Companyissued purchase orders in connection with equipment purchases for the Company’sMW gearbox refurbishment center. As of June 30, 2010, total outstandingpurchase orders totaled approximately $3,159.

 

During 2009 and 2010, theCompany issued purchase orders in connection with equipment purchases for theCompany’s wind tower manufacturing facility located in Brandon, South Dakota.As of June 30, 2010, outstanding purchase orders totaled approximately$1,269.

 

During 2008, the Companyissued purchase orders to two equipment manufacturers in connection withequipment purchases totaling $4,888. Under the terms of the purchase orders,the Company was required to make deposits totaling $1,324. During the 

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second quarter of 2010, theCompany informed one of the manufacturers of the Company’s election to cancelone of the equipment purchase orders, which resulted in the forfeiture of anon-refundable deposit in the amount of $650. As of June 30, 2010,outstanding purchase orders totaled $1,600.

 

*LegalProceedings*

 

From time to time, theCompany is subject to legal proceedings or claims arising from its normalcourse of operations. The Company accrues for costs related to losscontingencies when such costs are probable and reasonably estimable. As of June 30,2010, the Company is not aware of any material pending legal proceedings orthreatened litigation that would have a material adverse effect on the Company’sfinancial condition or results of operations, although no assurance can begiven with respect to the ultimate outcome of pending actions.

 

*CustomerDisputes*

 

From time to time, theCompany may be involved in disputes with its customers regarding matters suchas warranty liability, pricing and contract performance. During the thirdquarter of 2009, the Company became involved in a contract dispute with acustomer, pursuant to which it reserved a total of $1,900 related to thesettlement of this matter. The Company and the customer are currently innegotiations to resolve this dispute. During the second quarter of 2010, theCompany wrote off $2,100 in accounts receivable balances which were previouslyreserved for and which are related to this dispute.

 

*EnvironmentalCompliance and Remediation Liabilities*

 

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

 

*WarrantyLiability*

 

The Company provideswarranty terms that range from two to seven years for various products relatingto workmanship and materials supplied by the Company. From time to time,customers may submit warranty claims against the Company. In certain contracts,the Company has recourse provisions for items that would enable recovery fromthird parties for amounts paid to customers under warranty provisions. As of June 30,2010 and December 31, 2009, estimated product warranty liability was $659and $918, respectively, and is recorded within accrued liabilities in theCompany’s condensed consolidated balance sheets.

 

The changes in the carryingamount of the Company’s total product warranty liability as of and for the sixmonths ended June 30, 2010 and 2009 were as follows:

 

 
| ** **                   | ** ** | **As of**         | ** ** |
|------------------------------|------------|-------------------|------------|
| ** **                   | ** ** | **June 30,** | ** ** |
| ** **                   | ** ** | **2010**          | ** ** | **2009** | ** ** |
| ** **                   | ** ** | ** **        | ** ** | ** ** | ** ** |
| Balance, beginning of period |       | $                 | 918        |   | $ | 890 |   |
| Warranty expense             |       | 250               |       | 952 |   |
| Warranty claims              |       | (509              | )          | (577 | ) |
| Balance, end of period       |       | $                 | 659        |   | $ | 1,265 |   |

 

*Sale-LeasebackTransactions*

 

During 2009, the Companyentered into sale-leaseback agreements whereby certain owned equipment was soldto a third party financing company in exchange for cash and subsequentlyentered into an equipment lease agreement with the purchaser. The primarypurpose of these arrangements was to provide additional liquidity to meetworking capital requirements. Depending on the terms of the lease agreement,the lease may be classified as an operating or capital lease. In addition, thesale of the assets may result in a gain or loss, which must be amortized toother income or loss in the Company’s statement of operations over the life ofthe operating lease. As of June 30, 2010, the minimum monthly payments dueunder these lease agreements totaled $98.

 

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*Other*

 

As of June 30, 2010,approximately 26% of the Company’s employees were covered by two collectivebargaining agreements with local unions in Cicero, Illinois and NevilleIsland, Pennsylvania. Collective bargaining agreements with the Company’sCicero and Neville Island unions were ratified by the local unions in thefourth quarter of 2009 and the first quarter of 2010, respectively, and arescheduled to remain in effect through October 2012 and February 2014,respectively.

 

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

 

*The following discussion andanalysis of our financial condition and results of operations should be read inconjunction with our condensed consolidated financial statements and relatednotes thereto in Item 1, “Financial Statements,” of this Quarterly Report andthe audited consolidated financial statements and related notes and Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained in our Annual Report on Form 10-K for the year endedDecember 31, 2009. The discussion below contains forward-lookingstatements that are based upon our current expectations and are subject touncertainty and changes in circumstances including, but not limited to, thoseidentified in “Cautionary Note Regarding Forward-Looking Statements” at the endof Item 2.  Actual results may differmaterially from these expectations due to inaccurate assumptions and known orunknown risks and uncertainties.*

 

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

 

**OUR BUSINESS**

 

***SecondQuarter Overview***

 

During the second quarter of 2010, the Companycontinued to be affected by the ongoing economic slowdown in the wind energyindustry. Although our financial results for the second quarter were consistentwith our expectations and represented a gradual improvement in our resultsrelative to the prior quarter of this year, capital investment in new wind farmdevelopment projects continued to trend downward in comparison to prior years.According to a report published by the American Wind Energy Association (“AWEA”)for the first half of 2010, there was a decline of approximately 71% in newwind farm installation projects completed compared to the prior year. Althoughwe anticipate that our revenues and operating profits will improve during thesecond half of the year based upon an increase in our quoting activity, therelatively high number of wind farm installation projects currently underwayand fulfillment of our backlog, we cannot provide reasonable assurance thatimproved market conditions within the wind energy industry will occur or thatwe will be able to capitalize on these opportunities.

 

On a consolidated basis, revenues for the three monthsended June 30, 2010 decreased 30% compared to revenues during thecomparable period in the prior year. The reduction in revenues was attributableto fewer blade service, maintenance and transportation contracts as compared tothe prior year, a 25% reduction in wind tower production, lower average sellingprice of wind turbine towers as a result of commodity prices, a continuation inthe delay and curtailment of gearing production orders and a reduction innon-wind gearing related revenues. These factors continued to create productionand volume inefficiencies within our operations, which negatively affected ourgross margins and operating profits.

 

Due to the continued economic slowdown in the windenergy industry, which has negatively affected our financial results incomparison to our original projections, we evaluated the recoverability ofcertain identifiable intangible assets and evaluated our goodwill balancesusing a fair-value based test. Based upon our assessment, we determined thatthere was no impairment related to our intangible assets, but goodwillassociated with our Technical and Engineering Services segment was impaired asa result of a subsequentrevision in our projections of future operating results and cash flows for this segment. Accordingly, we recorded a goodwill impairment chargeof $4,561 during the second quarter of 2010 to properly reflect the carryingvalue of these assets. While we anticipate a gradual recovery of economicconditions within the wind energy industry during the second half of 2010, acontinued or prolonged economic slowdown in the wind energy industry or otherunfavorable market factors could result in further revisions to ourexpectations with respect to future financial results and cash flows. Thesefactors may require management to reassess its estimates of the fair value ofour reportable segments and could result in further review of our goodwill andintangible assets, which could indicate additional impairment to the carryingvalue of our assets.

 

**RESULTS OF OPERATIONS**

 

**Three Months Ended June 30,2010 Compared to Three Months Ended June 30, 2009**

 

The summary of selected financial data tablebelow should be referenced in connection with a review of the followingdiscussion of our results of operations for the three months ended June 30,2010 compared to the three months ended June 30, 2009.

 

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| ** **                                            | ** ** | **Three Months Ended June 30,** | ** ** | **2010 vs. 2009**       | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                            | ** ** | **2010**                                            | ** ** | **% of Total  Revenue** | ** ** | **2009** | ** ** | **% of Total  Revenue** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|                                                  |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Revenues                                              |       | $                                                   | 36,629     |                              | 100.0      | % | $ | 52,313 |   | 100.0 | % | $ | (15,684 | ) | -30.0 | % |
| Cost of sales                                         |       | 37,025                                              |       | 101.1                             | %          | 49,162 |   | 94.0 | % | (12,137 | ) | -24.7 | % |
|                                                  |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Gross (loss) profit                                   |       | (396                                                | )          | -1.1                              | %          | 3,151 |   | 6.0 | % | (3,547 | ) | -112.6 | % |
|                                                  |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Operating expenses                                    |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses          |       | 7,467                                               |       | 20.4                              | %          | 10,525 |   | 20.1 | % | (3,058 | ) | -29.1 | % |
| Goodwill impairment                                   |       | 4,561                                               |       | 12.5                              | %          | — |   | 0.0 | % | 4,561 |   | 100.0 | % |
| Intangible amortization                               |       | 1,074                                               |       | 2.9                               | %          | 2,906 |   | 5.6 | % | (1,832 | ) | -63.0 | % |
| Total operating expenses                              |       | 13,102                                              |       | 35.8                              | %          | 13,431 |   | 25.7 | % | (329 | ) | -2.4 | % |
|                                                  |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Operating loss                                        |       | (13,498                                             | )          | -36.9                             | %          | (10,280 | ) | -19.7 | % | (3,218 | ) | 31.3 | % |
|                                                  |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Other income (expense)                                |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Interest expense, net                                 |       | (361                                                | )          | -1.0                              | %          | (557 | ) | -1.0 | % | 196 |   | -35.2 | % |
| Other, net                                            |       | (394                                                | )          | -1.1                              | %          | 5,574 |   | 10.6 | % | (5,968 | ) | -107.1 | % |
| Other (expense) income, net                           |       | (755                                                | )          | -2.1                              | %          | 5,017 |   | 9.6 | % | (5,772 | ) | -115.0 | % |
|                                                  |       |                                                |       |                              |       |   |   |   |   |   |   |   |   |
| Net loss before (benefit) provision for income  taxes |       | (14,253                                             | )          | -39.0                             | %          | (5,263 | ) | -10.1 | % | (8,990 | ) | 170.8 | % |
| (Benefit) provision for income taxes                  |       | (72                                                 | )          | -0.2                              | %          | 163 |   | 0.3 | % | (235 | ) | 144.2 | % |
| Net loss                                              |       | $                                                   | (14,181    | )                                 | -38.8      | %  | $ | (5,426 | ) | -10.4 | %  | $ | (8,755 | ) | 161.4 | % |

 

***Consolidated***

 

Revenues decreased $15,684or 30%, from $52,313 during the three months ended June 30, 2009, to$36,629 during the three months ended June 30, 2010. The decrease inrevenues was primarily attributable to a decline in wind farm installationprojects during the current quarter, which resulted in fewer technical andservice technicians deployed as well as a reduction in wind towers manufacturedand gearing sets shipped. Additionally, the reduction in revenues was theresult of a lower average selling price of wind towers manufactured due tolower steel prices and due to a general decline in non-wind gearing relatedrevenues.

 

Gross profit decreased$3,547, from $3,151 during the three months ended June 30, 2009, to agross loss of $396 during the three months ended June 30, 2010. Thedecrease in gross profit was primarily attributable to the overall reduction inrevenues, which created production and volume inefficiencies. The reduction inwind tower and gearing orders led to the under absorption of overhead costs,and the reduction in maintenance and repair services and transportationcontracts negatively affected our utilization. As a result, our gross margindeclined from 6.0% during the three months ended June 30, 2009, to (1.1%)during the three months ended June 30, 2010.

 

Selling, general andadministrative expenses decreased from $10,525 during the three months ended June 30,2009, to $7,467 during the three months ended June 30, 2010. The decreasewas primarily attributable to the realization of cost savings associated withcost reduction initiatives to mitigate the effects of the overall decline inproduction volumes. Additionally, lower professional and audit related fees associatedwith certain regulatory reporting requirements and other compliance activitiescontributed to the reduction in selling, general and administrative expenses inthe current period.

 

During the three monthsended June 30, 2010, we recorded a goodwill impairment charge of $4,561associated with our Technical and Engineering Services segment. During thesecond quarter, we identified a triggering event due to the continueddeterioration in financial performance of this segment, which required us to reassessour projections of future operating results and cash flows and test theseassets for impairment. Accordingly, our analysis indicated that the projectedfair value of the Technical and Engineering Services segment assets did notexceed the carrying value of these net assets. As a result, the Companyrecorded a goodwill impairment charge of $4,561 during the second quarter.

 

Intangible amortizationexpense decreased from $2,906 during the three months ended June 30, 2009,to $1,074 during the three months ended June 30, 2010. The decrease inamortization expense was due to an intangible asset impairment charge takenduring the fourth quarter of 2009, which reduced amortization expense byapproximately 63% and will continue to provide a favorable reduction toamortization expense on a prospective basis.

 

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Total other income, net,decreased from $5,017 during the three months ended June 30, 2009, toother expense, net, of $755 during the three months ended June 30, 2010.The decrease was primarily attributableto the recognition of $5,082 in income during the prior year related to anescrow settlement agreement with the former owners of Brad Foote. The decreasein other income waspartially offset by a favorable reduction in interest expense associated withthe repayment of outstanding debt under our Bank of America and InvestorsCommunity Bank debt agreements in January 2010.

 

During the three monthsended June 30, 2009, we reported a provision for income taxes of $163,compared to a benefit for income taxes of $72 during the three months ended June 30,2010. The reduction in income taxes was primarily attributable to a revision inour income tax provision based upon an increase in the estimated full year netoperating losses.

 

Net loss increased from$5,426 during the three months ended June 30, 2009, to $14,181 during thethree months ended June 30, 2010, primarily as a result of the factorsdescribed above.

 

**TowersSegment**

 

The following tablesummarizes the Towers segment operating results for the three months ended June 30,2010 and 2009:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **June 30,**                | ** ** |
| ** **       | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Revenues         |       | $                                | 16,514     |   | $ | 22,364 |   |
| Operating loss   |       | (595                             | )          | (690 | ) |
| Operating margin |       | -3.6                             | %          | -3.1 | % |
|                  |            |                                  |            |  |  |  |  |

 

Towers segment revenuesdecreased $5,850, from $22,364 during the three months ended June 30,2009, to $16,514 during the three months ended June 30, 2010.  The reduction in revenues was attributable toan approximate decline of 31% in the average selling price of wind towersmanufactured and due to a 25% decline in production volume of wind turbinetowers manufactured. The decline in the average selling price was primarilyattributable to lower steel prices, which are included in the selling price ofwind towers manufactured under the majority of our customer agreements.

 

Towers segment operatingloss decreased $95, from $690 during the three months ended June 30, 2009,to $595 during the three months ended June 30, 2010. The decrease inoperating loss was attributable to the absence of start-up costs incurred atour wind tower manufacturing facility in Abilene, Texas during the prior yearin addition to operating efficiency improvements at our wind towermanufacturing facility in Manitowoc, Wisconsin. Operating margin decreased from(3.1%) during the three months ended June 30, 2009, to (3.6%) during thethree months ended June 30, 2010.

 

**GearingSegment**

 

The following table summarizesthe Gearing segment operating results for the three months ended June 30,2010 and 2009:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **June 30,**                | ** ** |
| ** **       | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Revenues         |       | $                                | 14,277     |   | $ | 17,528 |   |
| Operating loss   |       | (2,822                           | )          | (5,035 | ) |
| Operating margin |       | -19.8                            | %          | -28.7 | % |
|                  |            |                                  |            |  |  |  |  |

 

Gearing segment revenuesdecreased $3,251, from $17,528 during the three months ended June 30,2009, to $14,277 during the three months ended June 30, 2010.  The decrease in revenues was attributable toan approximate reduction of 16% and 24% in our wind gearing and industrialsales, respectively. Lower wind gearing revenues continued to reflect reducedcustomer demand and the delay in production fulfillment of our backlog orders.The decrease in industrial revenues reflected a softening in demand from our industrialcustomers in the oil and mining industries.

 

Gearing segment operatingloss decreased $2,213, from $5,035 during the three months ended June 30,2009, to $2,822 during the three months ended June 30, 2010. The decreasein operating loss was primarily due to a reduction in intangible amortizationexpense as a result of an impairment charge recorded during the fourth quarterof 2009, which subsequently reduced our amortization expense on a prospectivebasis, and improvements in costs associated with reduced product scrap andother 

 

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manufacturing processefficiencies. As a result of the factors described above, operating marginimproved from (28.7%) during the three months ended June 30, 2009, to(19.8%) during the three months ended June 30, 2010.

 

**Technicaland Engineering Services Segment**

 

The following tablesummarizes the Technical and Engineering Services segment operating results forthe three months ended June 30, 2010 and 2009:

 
| ** **              | ** ** | **Three Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **June 30,**                | ** ** |
| ** **              | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| ** **              | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Revenues                |       | $                                | 2,893      |   | $ | 7,901 |   |
| Operating (loss) income |       | (6,474                           | )          | 575 |   |
| Operating margin        |       | -223.8                           | %          | 7.3 | % |
|                         |            |                                  |            |  |  |  |  |

 

Technical and EngineeringServices segment revenues decreased $5,008, from $7,901 during the three monthsended June 30, 2009, to $2,893 during the three months ended June 30,2010.  The decrease in revenues wasprimarily attributable to reductions of approximately 79% and 11% in technicaland engineering service revenues, respectively. The reduction in technicalservice revenues related to a decline in the number of maintenance and servicetechnicians deployed as several of our key customers have chosen to reduce outsourcingof their maintenance activities. The reduction in engineering service revenueswas primarily due to the absence of a large blade refurbishment contract ascompared to the prior year.

 

Technical and EngineeringServices segment operating income decreased $7,049, from $575 during the threemonths ended June 30, 2009, to an operating loss of $6,474 during thethree months ended June 30, 2010. The operating loss incurred during thesecond quarter was primarily attributable to a goodwill impairment charge of$4,561 recorded during the current quarter and a reduction in maintenance andservice technicians deployed. As a result, operating margin decreased from 7.3%during the three months ended June 30, 2009, to (223.8%) during the threemonths ended June 30, 2010.

 

**LogisticsSegment**

 

The following tablesummarizes the Logistics segment operating results for the three months ended June 30,2010 and 2009:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **June 30,**                | ** ** |
| ** **       | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Revenues         |       | $                                | 3,059      |   | $ | 4,585 |   |
| Operating loss   |       | (1,301                           | )          | (432 | ) |
| Operating margin |       | -42.5                            | %          | -9.4 | % |
|                  |            |                                  |            |  |  |  |  |

 

Logistics segment revenuesdecreased $1,526, from $4,585 during the three months ended June 30, 2009,to $3,059 during the three months ended June 30, 2010.  The decrease in revenues was attributable toa reduction of approximately 30% in transportation hauls due to fewer largewind farm transportation contracts as compared to the prior year.

 

Logistics segment operatingloss increased $869, from $432 during the three months ended June 30,2009, to $1,301 during the three months ended June 30, 2010. The increasein operating loss was largely attributable to a lower volume of activity,partially offset by expense curtailments and employee furloughs as a result ofreduced demand.  As a result of the factorsdescribed above, operating margin decreased from (9.4%) during the three monthsended June 30, 2009, to (42.5%) during the three months ended June 30,2010.

 

**Corporateand Other**

 

Corporate and Other expensedecreased $2,392, from $4,698 during the three months ended June 30, 2009,to $2,306 during the three months ended June 30, 2010. The reduction inexpense was attributable to lower professional fees as a result of insourcingcertain corporate and administrative functions in addition to a significantreduction in professional and audit related fees related to the completion ofcertain compliance and public reporting activities in the prior year.Professional fees were higher in the prior year as a result of expensesassociated with the filing of our registrationstatement with the Securities and Exchange Commission (“SEC”),  

 

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professional and due diligence expenses related to apotential acquisition that the Company did not complete and the finalization ofaudits in connection with acquisitions completed in prior years.

 

**Six Months Ended June 30,2010 Compared to Six Months Ended June 30, 2009**

 

The summary of selected financial data tablebelow should be referenced in connection with a review of the followingdiscussion of our results of operations for the six months ended June 30,2010 compared to the six months ended June 30, 2009.

 
| ** **                                            | ** ** | **Six Months Ended June 30,** | ** ** | **2010 vs. 2009**       | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                            | ** ** | **2010**                                          | ** ** | **% of Total  Revenue** | ** ** | **2009** | ** ** | **% of Total  Revenue** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|                                                  |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Revenues                                              |       | $                                                 | 58,799     |                              | 100.0      | % | $ | 105,375 |   | 100.0 | % | $ | (46,576 | ) | -44.2 | % |
| Cost of sales                                         |       | 63,679                                            |       | 108.3                             | %          | 97,539 |   | 92.6 | % | (33,860 | ) | -34.7 | % |
|                                                  |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Gross (loss) profit                                   |       | (4,880                                            | )          | -8.3                              | %          | 7,836 |   | 7.4 | % | (12,716 | ) | -162.3 | % |
|                                                  |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Operating expenses                                    |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses          |       | 15,681                                            |       | 26.6                              | %          | 19,441 |   | 18.4 | % | (3,760 | ) | -19.3 | % |
| Goodwill impairment                                   |       | 4,561                                             |       | 7.8                               | %          | — |   | 0.0 | % | 4,561 |   | 100.0 | % |
| Intangible amortization                               |       | 2,149                                             |       | 3.7                               | %          | 5,812 |   | 5.5 | % | (3,663 | ) | -63.0 | % |
| Total operating expenses                              |       | 22,391                                            |       | 38.1                              | %          | 25,253 |   | 23.9 | % | (2,862 | ) | -11.3 | % |
|                                                  |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Operating loss                                        |       | (27,271                                           | )          | -46.4                             | %          | (17,417 | ) | -16.5 | % | (9,854 | ) | 56.6 | % |
|                                                  |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Other income (expense)                                |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Interest expense, net                                 |       | (723                                              | )          | -1.2                              | %          | (1,099 | ) | -1.0 | % | 376 |   | -34.2 | % |
| Other, net                                            |       | (262                                              | )          | -0.4                              | %          | 5,667 |   | 5.3 | % | (5,929 | ) | -104.6 | % |
| Other (expense) income, net                           |       | (985                                              | )          | -1.6                              | %          | 4,568 |   | 4.3 | % | (5,553 | ) | -121.6 | % |
|                                                  |       |                                              |       |                              |       |   |   |   |   |   |   |   |   |
| Net loss before provision (benefit) for income  taxes |       | (28,256                                           | )          | -48.0                             | %          | (12,849 | ) | -12.2 | % | (15,407 | ) | 119.9 | % |
| Provision (benefit) for income taxes                  |       | 49                                                |       | 0.1                               | %          | (273 | ) | -0.3 | % | 322 |   | 117.9 | % |
| Net loss                                              |       | $                                                 | (28,305    | )                                 | -48.1      | %  | $ | (12,576 | ) | -11.9 | %  | $ | (15,729 | ) | 125.1 | % |

 

***Consolidated***

 

Revenues decreased $46,576or 44%, from $105,375 during the six months ended June 30, 2009, to$58,799 during the six months ended June 30, 2010. The decrease in revenues reflected the low level of new wind farmscommissioned during the first half of this year. According to AWEA, there was adecline of approximately 71% in MW’s commissioned during the first half of 2010in comparison to the comparable period of 2009. Despite improvements in ourresults compared to the prior quarter of this year, purchases of wind turbinetowers and gearing sets by our customers were fewer in number relative to prioryear totals.

 

Gross profit decreased$12,716, from $7,836 during the six months ended June 30, 2009, to a grossloss of $4,880 during the six months ended June 30, 2010. The decrease ingross profit was primarily attributable to the overall reduction in revenues,wind tower customer mix and deployment of maintenance and service technicians.These factors negatively affected our overhead cost structures within ourservice businesses and resulted in the under absorption of overhead costswithin our manufacturing businesses. As a result, our gross margin declinedfrom 7.4% during the six months ended June 30, 2009, to (8.3%) during thesix months ended June 30, 2010.

 

Selling, general andadministrative expenses decreased from $19,441 during the six months ended June 30,2009, to $15,681 during the six months ended June 30, 2010. The decreasewas primarily attributable to cost reduction initiatives implemented during2009 to mitigate the effects of the overall decline in production volumes, theabsence of one-time start-up costs related to the commencement of operations atour Abilene, Texas wind tower manufacturing facility in the prior year andlower professional fees associated with the completion of certain regulatoryand compliance activities in the prior year.

 

During the six months endedJune 30, 2010, we recorded a goodwill impairment charge of $4,561associated with our Technical and Engineering Services segment. The impairmentcharge was attributable to a continued deterioration in financial performanceof this segment during the first half of this year, which**requiredus to reassess our projections of future operating results 

 

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and cash flows. Theserevised projections indicated that the projected fair value of this segment didnot exceed the carrying value of these net assets. As a result, the Companyrecorded a goodwill impairment charge of $4,561 during the second quarter of2010.

 

Intangible amortizationexpense decreased from $5,812 during the six months ended June 30, 2009,to $2,149 during the six months ended June 30, 2010. The decrease inamortization expense was due to a reduction in amortization expense associatedwith an intangible impairment charge taken during the fourth quarter of 2009,which subsequently reduced our intangible amortization expense by approximately63% on a prospective basis.

 

Total other income, net,decreased from $4,568 during the six months ended June 30, 2009, to otherexpense, net, of $985 during the six months ended June 30, 2010. Thedecrease was primarily attributable to the recognitionof $5,082 in income in the prior year related to an escrow settlement agreementwith the former owners of Brad Foote, which was partially offset by a reduction in interest expense resulting fromthe repayment of outstanding debt under our Bank of America and InvestorsCommunity Bank debt agreements in January 2010.

 

During the six months endedJune 30, 2009, we reported a benefit for income taxes of $273, compared toa provision for income taxes of $49 during the six months ended June 30,2010. The increase in income taxes was attributable to a favorable tax benefitrecorded in the prior year related to a change in the State of Wisconsin’smethod of calculating state income tax on a prospective basis.

 

Net loss increased from$12,576 during the six months ended June 30, 2009, to $28,305 during thesix months ended June 30, 2010, primarily as a result of the factorsdescribed above.

 

**TowersSegment**

 

The following tablesummarizes the Towers segment operating results for the six months ended June 30,2010 and 2009:

 
| ** **       | ** ** | **Six Months Ended** | ** ** |
|------------------|------------|--------------------------------|------------|
| ** **       | ** ** | **June 30,**              | ** ** |
| ** **       | ** ** | **2010**                       | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Revenues         |       | $                              | 28,560     |   | $ | 42,468 |   |
| Operating loss   |       | (1,873                         | )          | (757 | ) |
| Operating margin |       | -6.6                           | %          | -1.8 | % |
|                  |            |                                |            |  |  |  |  |

 

Towers segment revenuesdecreased $13,908, from $42,468 during the six months ended June 30, 2009,to $28,560 during the six months ended June 30, 2010.  The decrease in revenues was attributable toa decline of approximately 28% in the average selling price of wind towersmanufactured and a 21% decline in production volume of wind towersmanufactured. The decline in the average selling price was primarilyattributable to lower steel prices, which are included in the selling price ofwind towers manufactured under the majority of our customer agreements.Additionally, specialty weldment revenues decreased by $1,981 compared to theprior year.

 

Towers segment operatingloss increased $1,116, from $757 during the six months ended June 30,2009, to $1,873 during the six months ended June 30, 2010. The increase inoperating loss was attributable to the under absorption of overhead costs as aresult of lower production volumes of wind towers, particularly during thefirst quarter of 2010, which was partially offset by the absence of start-upcosts incurred at our wind tower manufacturing facility in Abilene, Texas inthe prior year. As a result of the factors described above, operating margindecreased from (1.8%) during the six months ended June 30, 2009, to (6.6%)during the six months ended June 30, 2010.

 

**GearingSegment**

 

The following table summarizesthe Gearing segment operating results for the six months ended June 30,2010 and 2009:

 

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| ** **       | ** ** | **Six Months Ended** | ** ** |
|------------------|------------|----------------------|------------|
| ** **       | ** ** | **June 30,**    | ** ** |
| ** **       | ** ** | **2010**             | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **           | ** ** | ** ** | ** ** |
| Revenues         |       | $                    | 21,993     |   | $ | 40,559 |   |
| Operating loss   |       | (7,949               | )          | (8,901 | ) |
| Operating margin |       | -36.1                | %          | -21.9 | % |
|                  |            |                      |            |  |  |  |  |

 

Gearing segment revenuesdecreased $18,566, from $40,559 during the six months ended June 30, 2009,to $21,993 during the six months ended June 30, 2010.  The decrease in revenues was attributable toan approximate reduction of 43% and 49% in our wind gearing and industrialsales, respectively. Lower wind gearing revenues reflected reduced demand and adelay in fulfilling our backlog from our key wind gearing customers. Thedecrease in industrial gearing revenues represented an overall decline inproduction orders from several of our key customers as compared to the prioryear.

 

Gearing segment operatingloss decreased $952, from $8,901 during the six months ended June 30,2009, to $7,949 during the six months ended June 30, 2010. The decrease inoperating loss was due to a reduction in intangible amortization expense as aresult of an impairment charge recorded during the fourth quarter of 2009,operational improvements associated with the reduction of product scrap andproduct warranty rework and lower professional fees related to the absence ofdebt covenant amendments. As a result of the factors described above, operatingmargin decreased from (21.9%) during the six months ended June 30, 2009,to (36.1%) during the six months ended June 30, 2010.

 

**Technicaland Engineering Services Segment**

 

The following tablesummarizes the Technical and Engineering Services segment operating results forthe six months ended June 30, 2010 and 2009:

 
| ** **              | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **June 30,**              | ** ** |
| ** **              | ** ** | **2010**                       | ** ** | **2009** | ** ** |
| ** **              | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Revenues                |       | $                              | 4,915      |   | $ | 15,311 |   |
| Operating (loss) income |       | (8,924                         | )          | 598 |   |
| Operating margin        |       | -181.6                         | %          | 3.9 | % |
|                         |            |                                |            |  |  |  |  |

 

Technical and EngineeringServices segment revenues decreased $10,396, from $15,311 during the six monthsended June 30, 2009, to $4,915 during the six months ended June 30,2010.  The decrease in revenues wasprimarily attributable to declines of approximately 73% and 59% in technicaland engineering service revenues, respectively. The decrease in technicalservice revenues related to a decline in the number of maintenance and servicetechnicians deployed due to the absence of large service contract as comparedto the prior year and as a result of the decision by several of our keycustomers to reduce outsourcing of their maintenance activities. The decreasein engineering service revenues was primarily due to lower blade refurbishmentactivity compared to the prior year.

 

Technical and EngineeringServices segment operating income decreased $9,522, from $598 during the sixmonths ended June 30, 2009, to an operating loss of $8,924 during the sixmonths ended June 30, 2010. The operating loss incurred during the sixmonths ended June 30, 2010 was primarily attributable to the goodwillimpairment charge of $4,561 recorded during the second quarter of this year andas a result of a reduction in our service technicians deployed due to a declinein wind installation and maintenance projects, competitive pricing associatedwith fewer service contract opportunities and the current preference ofcustomers to insource their maintenance activities. As a result of the factorsdescribed above, operating margin decreased from 3.9% during the six monthsended June 30, 2009, to (181.6%) during the six months ended June 30,2010.

 

**LogisticsSegment**

 

The following tablesummarizes the Logistics segment operating results for the six months ended June 30,2010 and 2009:

 

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| ** **       | ** ** | **Six Months Ended** | ** ** |
|------------------|------------|--------------------------------|------------|
| ** **       | ** ** | **June 30,**              | ** ** |
| ** **       | ** ** | **2010**                       | ** ** | **2009** | ** ** |
| ** **       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Revenues         |       | $                              | 3,519      |   | $ | 7,403 |   |
| Operating loss   |       | (3,008                         | )          | (1,383 | ) |
| Operating margin |       | -85.5                          | %          | -18.7 | % |
|                  |            |                                |            |  |  |  |  |

 

Logistics segment revenuesdecreased $3,884, from $7,403 during the six months ended June 30, 2009,to $3,519 during the six months ended June 30, 2010.  The decrease in revenues was primarilyattributable to a decline of approximately 45% in transportation hauls as aresult of fewer large wind farm installation projects in the current year anddue to competitive pricing pressure, which reduced average revenue per haul byapproximately 7%.

 

Logistics segment operatingloss increased $1,625, from $1,383 during the six months ended June 30,2009, to $3,008 during the six months ended June 30, 2010. The increase inoperating loss was attributable to a decline in contracts awarded during thecurrent period, which was partially offset by cost reduction initiatives as aresult of reduced demand. As a result of the factors described above, operatingmargin decreased from (18.7%) during the six months ended June 30, 2009,to (85.5%) during the six months ended June 30, 2010.

 

**Corporateand Other**

 

Corporate and Other expensedecreased $1,457, from $6,974 during the six months ended June 30, 2009,to $5,517 during the six months ended June 30, 2010. The decrease inexpense was primarily related to higher professional fees in the prior year inconnection with certain regulatory reporting and compliance activities.Professional fees were higher in the prior year as a result of the filing of our registration statement with the SEC during the secondquarter of 2009, professional fees and due diligence expenses associated with apotential acquisition that the Company did not complete and the finalization ofaudits in connection with acquisitions completed in prior years. The reductionin expenses during the current period was partially offset by an increase in salaries andbenefits expense related to an increase in employee headcount, as certain keyfunctions were in-sourced to reduce costs.

 

**SELECTED FINANCIAL DATA**

 

The following non-GAAP financial measure presentedbelow relates to earnings before interest, taxes, depreciation, amortizationand share-based payments (“Adjusted EBITDA”) and is presentedfor illustrative purposes as an accompaniment to our unaudited financialresults of operations for the three and six months ended June 30, 2010 and2009. Adjusted EBITDA should not be considered an alternative to, nor is thereany implication that it is more meaningful than, any measure of performance orliquidity promulgated under GAAP. We believe that Adjusted EBITDA isparticularly meaningful due principally to the role acquisitions have played inthe development of the Company. Historically, our growth through acquisitionshas resulted in significant non-cash depreciation and amortization expense,which was primarily attributable to a significant portion of the purchase priceof our acquired businesses being allocated to depreciable fixed assets anddefinite-lived intangible assets. The following Adjusted EBITDA calculation isderived from our unaudited condensed consolidated financial results for thethree and six months ended June 30, 2010 and 2009, as follows:

 
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                           | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                           | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                | ** ** |
| Net loss                             |       | $                                | (14,181    | )                              | $          | (5,426 | ) | $ | (28,305 | ) | $ | (12,576 | ) |
| (Benefit) provision for income taxes |       | (72                              | )          | 163                            |       | 49 |   | (273 | ) |
| Interest expense, net                |       | 361                              |       | 557                            |       | 723 |   | 1,099 |   |
| Goodwill impairment                  |       | 4,561                            |       | —                         |       | 4,561 |   | — |   |
| Depreciation and amortization        |       | 4,848                            |       | 6,826                          |       | 9,682 |   | 13,433 |   |
| Share-based compensation             |       | 476                              |       | 443                            |       | 1,069 |   | 1,365 |   |
| Adjusted EBITDA                      |       | $                                | (4,007     | )                              | $          | 2,563 |   | $ | (12,221 | ) | $ | 3,048 |   |

 

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**SUMMARY OF CRITICAL ACCOUNTINGPOLICIES**

 

The methods, estimates and judgments that we use inapplying our critical accounting policies have a significant impact on theresults that we report in our financial statements. Some of our accountingpolicies require us to make difficult and subjective judgments, often as aresult of the need to make estimates regarding matters that are inherentlyuncertain.

 

We have identified the accounting policies andestimates listed below as those that we believe require management’s mostsubjective and complex judgments in estimating the effect of inherentuncertainties. This section should also be read in conjunction withNote 1, “Description of Business and Summary of Significant AccountingPolicies,” of the notes to our consolidated financial statements in Part II, Item8 of our Annual Report on Form 10-K for the year ended December 31,2009, which includes a discussion of these and other significant accountingpolicies.

 

**Revenue Recognition**

 

We recognize revenue when the earnings process iscomplete and when persuasive evidence of an arrangement exists, transfer oftitle has occurred or services have been rendered, the selling price is fixedor determinable, collectability is reasonably assured, and delivery hasoccurred per the terms of the contract. Customer deposits and other receiptsare deferred and recognized when the revenue is realized and earned.

 

In some instances, products are sold under termsincluded in bill and hold sales arrangements that result in different timingfor revenue recognition. Assuming the required revenue recognition criteria aremet, revenue is recognized upon completion of product manufacture and customeracceptance.

 

**Warranty Liability**

 

We provide a warranty, with terms up to seven years,for various products and services relating to workmanship and materialssupplied by us. From time to time, customers may submit warranty claims to us.In certain contracts, we have recourse provisions for items that would enablerecovery from third parties for amounts paid to customers under warrantyprovisions. As of June 30, 2010 and December 31, 2009, our estimatedproduct warranty liability was $659 and $918, respectively, and is recordedwithin accrued liabilities in our consolidated balance sheets.

 

**Inventories**

 

Inventories are stated at the lower of cost or market.We have recorded a reserve for excess of cost over market value in ourinventory allowance. Market value of inventory, and management’s judgment ofthe need for reserves, encompasses consideration of other business factorsincluding physical condition, inventory holding period, contract terms, andusefulness. Inventories are valued based on an average cost method thatapproximates the first-in, first-out (FIFO) basis.

 

Inventories consist of raw materials, work-in-process,and finished goods. Raw materials consist of components and parts for generalproduction use. Work-in-process consists of labor and overhead, processingcosts, purchased subcomponents, and materials purchased for specific customerorders. Finished goods consist of components purchased from third parties aswell as components manufactured by us that will be used to produce finalcustomer products.

 

**Goodwill and Intangible Assets**

 

Goodwill represents the excess of cost over fairmarket value of identifiable net assets acquired through business purchases. Weperform our annual goodwill impairment test during the fourth quarter of eachyear, or more frequently when events or circumstances indicate that thecarrying value of our assets may not be recovered. We test intangible assetsfor impairment when events or circumstances indicate that the carrying value ofour assets may not be recovered. In evaluating the recoverability of thecarrying value of goodwill and other intangible assets, we must makeassumptions regarding the fair value of our reporting units. Our method ofdetermining the fair value is based upon our estimate of the projected futurediscounted cash flows of our reporting units.

 

If our fair value estimates or related assumptionschange in the future, we may be required to record additional impairmentcharges related to goodwill and intangible assets.

 

**Long-Lived Assets**

 

We review property and equipment and other long-livedassets for impairment whenever events or circumstances indicate that carryingamounts may not be recoverable. If such events or changes in circumstancesoccur, we will recognize an impairment loss if the undiscounted future cashflows expected to be generated by the asset are less than the carrying value ofthe related asset. The impairment loss would adjust the asset to its fairvalue.

 

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In evaluating the recoverability of long-lived assets,we must make assumptions regarding estimated future cash flows and otherfactors to determine the fair value of such assets. If our fair value estimatesor related assumptions change in the future, we may be required to recordimpairment charges related to property and equipment and long-lived assets.

 

**Income Taxes**

 

We account for income taxes based upon an asset andliability approach. Deferred tax assets and liabilities represent the futuretax consequences of the differences between the financial statement carryingamounts of assets and liabilities versus the tax basis of assets andliabilities. Under this method, deferred tax assets are recognized fordeductible temporary differences, and operating loss and tax creditcarryforwards. Deferred tax 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 tax rate changeson deferred tax assets and liabilities is recognized in the year that thechange is enacted.

 

In connection with the preparation of our consolidatedfinancial statements, we are required to estimate our income tax liability foreach of the tax jurisdictions in which we operate. This process involvesestimating our actual current income tax expense and assessing temporarydifferences resulting from differing treatment of certain income or expenseitems for income tax reporting and financial reporting purposes. We alsorecognize the expected future income tax benefits of net operating losscarryforwards as deferred income tax assets. In evaluating the realizability ofdeferred income tax assets associated with net operating loss carryforwards, weconsider, among other things, expected future taxable income, the expectedtiming of the reversals of existing temporary reporting differences, and theexpected impact of tax planning strategies that may be implemented to preventthe potential loss of future income tax benefits. Changes in, among otherthings, income tax legislation, statutory income tax rates, or future taxableincome levels could materially impact our valuation of income tax assets andliabilities and could cause our income tax provision to vary significantlyamong financial reporting periods.

 

We also account for the uncertainty in income taxesrelated to the recognition and measurement of a tax position taken or expectedto be taken in an income tax return. We follow the applicable pronouncementguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition related to the uncertainty inthese income tax positions.

 

**Recent Accounting Pronouncements**

 

The following is a listing of recent accountingstandards issued by the FASB and their effect on the Company.

 

In January 2010, the FASB issued ASU 2010-06, *Fair Value Measurements and Disclosures*(Topic 820).  ASU 2010-06 provides additional disclosure requirementsrelated to fair value measurements. ASU 2010-06 is effective for interimand annual reporting periods beginning after December 15, 2009, except forthe disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements.  Disclosurerequirements applicable to Level 3 transactions are effective for fiscal yearsbeginning after December 15, 2010 and for interim periods within thosefiscal years, with early adoption permitted.  The portion of ASU2010-06 that was effective beginning after December 15, 2009 did not havea material effect on our financial position, results of operations or cashflows. Additionally, we do not anticipate that the disclosure requirementsapplicable to Level 3 transactions that are effective for fiscal yearsbeginning after December 15, 2010 will have a material effect on ourfinancial position, results of operations or cash flows.

 

In October 2009, the FASB issued ASU 2009-13, *Revenue Recognition* (Topic 605). ASU2009-13 provides additional guidance related to the accounting formultiple-deliverable arrangements to account for products or services (deliverables)separately rather than as a combined unit and eliminates the residual method ofallocation.  ASU 2009-13 is effective prospectively for revenuearrangements entered into or materially modified in fiscal years beginning onor after June 15, 2010, with early adoption permitted. We do notanticipate that the provisions of ASU 2009-13 will have a material effect onour financial position, results of operations or cash flows.

 

**LIQUIDITY, FINANCIAL POSITIONAND CAPITAL RESOURCES**

 

As of June 30, 2010, cash and cash equivalentstotaled $11,579 and short-term investments totaled $1,683. We anticipate thatwe will be able to satisfy the cash requirements associated with, among otherthings, our working capital needs, capital expenditures, debt and lease commitmentsthrough at least the next 12 months primarily with our current cash onhand, receipts of deposits from customers to fund steel purchases and cashgenerated by operations. Additionally, we are in the process of finalizingnegotiations to obtain a senior credit facility. The addition of this creditfacility will further enhance our liquidity and financial resources.

 

Our ability to make scheduled payments on our debt andother financial obligations will depend on our future financial and operatingperformance. However, if sales and subsequent collections from several of ourlarge customers, as well as revenues 

 

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generated from new customer orders, are not materiallyconsistent with management’s expectations, we may encounter cash flow andliquidity issues. Additional funding may not be available when needed or onterms acceptable to us. Furthermore, if we are unable to obtain additionalcapital, we will likely be required to delay, reduce the scope of or eliminateour plans for expansion and growth, and this could affect our overalloperations. Any additional equity financing, if available, may be dilutive tostockholders, and additional debt financing, if available, will likely requirefinancial covenants or other restrictions on us.

 

While we believe that we will continue to havesufficient cash flows to operate our businesses, there can be no assurancesthat our operations will generate sufficient cash or that credit facilitieswill be available to us in an amount sufficient to enable us to pay ourindebtedness or to fund our other liquidity needs.

 

**Sources and Uses of Cash**

 

***OperatingCash Flows***

 

During the six months ended June 30, 2010,net cash used in operating activities totaled $22,174 compared to net cashprovided by operating activities of $122 during the six months ended June 30,2009. The decrease in net cash provided by operating activities was primarilyattributable to increased operating losses in the current year, a reduction incollections on accounts receivable balances as a result of the decline in ourrevenues and an increase in cash outlays reflecting a restocking of our currentwind turbine tower inventory levels. Partially offsetting the reduction inoperating cash flows was a reduction in accounts payable as a result of lowerproduction levels.

 

***InvestingCash Flows***

 

During the six months ended June 30, 2010 and2009, net cash flows used in investing activities totaled $3,616 and $11,038,respectively. The decrease in net cash used in investing activities as comparedto the prior period was primarily attributable to a reduction in capitalexpenditures due to the wind-down of certain capital projects initiated inprior years. During the six months ended June 30, 2009, we made capitalexpenditures totaling $9,064, which primarily related to the construction of anew wind tower facility in Abilene, Texas. During the six months ended June 30,2010, we made capital expenditures totaling $3,952, primarily related toequipment purchases for our newly constructed wind tower manufacturing facilityin Brandon, South Dakota and gearing equipment purchases. Cash flows frominvesting activities increased $2,010 during the six months ended June 30,2010, due to the release of a security interest as part of the conversion ofthe Construction Loan into the Great Western Term Loan. Additionally, weinvested excess cash and made purchases of short-term investments in municipalbonds totaling $1,683.

 

***Financing CashFlows***

 

During the six months ended June 30, 2010and 2009, net cash flows provided by financing activities totaled $32,542 and$3,497, respectively. The increase in net cash provided by financing activitiesas compared to the prior period was attributable to the equity offering wecompleted in January 2010, in which we sold 10,000,000 newly issued sharesof our common stock for approximately $54,625, net of underwriting discounts.Partially offsetting the increase in net cash provided by financing activitieswas higher payments on lines of credit and notes payable. The decrease in linesof credit and notes payable was primarily due to the repayment of outstandingindebtedness due to Bank of America and Investors Community Bank in theaggregate amount of $19,142 in January 2010.

 

**Contractual Obligations**

 

As of June 30, 2010, there have been nosignificant changes to our contractual obligations as previously disclosed in Part I, Item2 of our Quarterly Report on Form 10-Q for the period ended March 31,2010.

 

**Off-Balance Sheet Arrangements**

 

During 2009, Tower Tech and Badger each entered intosale-leaseback agreements whereby they sold certain equipment to third partyfinancing companies in exchange for aggregate proceeds of $3,505 and agreed tolease the equipment back for a stated period of time. The primary purpose ofthese arrangements was to provide additional liquidity for meeting workingcapital requirements. The lease terms under these agreements range from threeto four years and require aggregate monthly lease payments of $98. In addition,the sale of the assets resulted in an aggregate gain on disposition of $78,which is being amortized over the lives of the operating leases to other incomein our condensed consolidated statements of operations.

 

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**Cautionary Note RegardingForward-Looking Statements**

 

The preceding discussion andanalysis should be read in conjunction with our condensed consolidatedfinancial statements and related notes included in Item 1 of Part I ofthis Quarterly Report on Form 10-Q and the audited consolidated financialstatements and related notes and Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contained in our Annual Report onForm 10-K for the year ended December 31, 2009. Portions of thisQuarterly Report on Form 10-Q, including the discussion and analysis inthis Item 2, contain “forward-lookingstatements”—that is, statements related to future, not past, events—within themeaning of Section 27A of the Securities Act of 1933, as amended, and inSection 21E of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), that reflect our current expectations regarding our future growth,results of operations, cash flows, performance and business prospects, andopportunities, as well as assumptions made by, and information currentlyavailable to, our management. Forward-looking statements include any statementthat does not directly relate to a current or historical fact. We have tried toidentify forward-looking statements by using words such as “anticipate,” “believe,”“expect,” “intend,” “will,” “should,” “may,” “plan” and similar expressions,but these words are not the exclusive means of identifying forward-lookingstatements. These statements are based on information currently available to usand are subject to various risks, uncertainties, and other factors, including,but not limited to, those discussed in Item 1A “Risk Factors” inPart I in our Annual Report on Form 10-K for the year ended December 31,2009, that could cause our actual growth, results of operations, financialcondition, cash flows, performance and business prospects and opportunities todiffer materially from those expressed in, or implied by, these statements. Ourforward-looking statements may include or relate to the following: (i) ourplans to continue to grow our business through organic growth and integrationof previous and future acquisitions; (ii) our beliefs with respect to thesufficiency of our liquidity and our plans to evaluate alternate sources offunding if necessary; (iii) our expectations relating to the extension,continuation or renewal of federal tax incentives and grants and staterenewable portfolio standards; (iv) our expectations relating toconstruction of new facilities, expansion of existing facilities andsufficiency of our existing capacity to meet the demands of our customers andsupport expectations regarding our growth; (v) our plans with respect tothe use of proceeds from financing activities; (vi) our beliefs andexpectations relating to the economic downturn and the potential impact it mayhave on our business, including our customers; (vii) the anticipatedbenefits of our remediation efforts on the strength of our internal controlprocesses and our plans with respect to future remediation efforts; and(viii) our beliefs regarding the state of the wind energy marketgenerally. You should not consider any list of such factors to be an exhaustivestatement of all of the risks, uncertainties, or potentially inaccurateassumptions that could cause our current expectations or beliefs to change. Exceptas expressly required by the federal securities laws, we undertake noobligation to update such factors or to publicly announce the results of any ofthe forward-looking statements contained herein to reflect future events,developments, or changed circumstances or for any other reason.

 

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

 

There has been no significant change in our exposureto market risk during the first six months of 2010. For a discussion of ourexposure to market risk, refer to “Quantitative and Qualitative DisclosuresAbout Market Risk,” contained in Part II, Item 7A, of our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**Item 4.        Controlsand Procedures**

 

**Material Weakness**

 

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

 

***RemediationActivities and Changes in Internal Control Over Financial Reporting***

 

Management has continued its remediation efforts toreduce the risk presented by the existing material weakness. Since year-end, wehave made key personnel changes, enhanced our internal controls and implementedadditional internal control procedures to detect, monitor and reviewtransactions that are deemed by the Company to be non-routine revenuetransactions. During the second quarter, we began testing these internalcontrol procedures to assess their effectiveness in remediating this materialweakness. Management anticipates the testing of these internal controlprocedures will be completed during the third quarter and that management willreassess the impact of its remediation efforts. The impact of remediationefforts initiated by management will not be fully known until our assessment ofinternal control over financial reporting is completed as of December 31,2010.

 

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During the second quarter of 2010, we enhanced ourinternal control over financial reporting related to information technologythrough upgrading our enterprise resource planning (“ERP”) software and serverdatabases at Brad Foote. The upgraded ERP software and server databases willprovide better visibility into product costing and inventory productionplanning, in addition to enhancements to data security and user accesscontrols.

 

**Evaluation of Disclosure Controls andProcedures**

 

Our Chief Executive Officer and Chief FinancialOfficer evaluated the effectiveness of the Company’s disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))as of the end of the period covered in this report. In light of the materialweakness associated with the controls over non-routine revenue transactions,which has not been completely remediated as of the end of the period covered bythis Quarterly 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 SEC’s rules and forms and did not ensure that information requiredto be disclosed in the reports that we file or submit under the Exchange Actwas accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

We anticipate the actions to be taken to remediatethis material weakness and the resulting improvement in controls will generallystrengthen our disclosure controls and procedures, as well as our internalcontrol over financial reporting, and will, over time, address the materialweakness that we identified in our internal control over financial reporting asof December 31, 2009. However, because many of the remediation actions wehave undertaken are recent and because some of our remediation actions will bedesigned to improve our internal control over annual measures, management willnot be able to conclude that the material weakness has been eliminated untilsuch time as it is able to complete its assessment of the effectiveness ofinternal control over financial reporting.  While management is exercisingits best efforts to remediate the material weakness identified and describedabove, we cannot provide any assurance as to when such material weakness willbe remediated.

 

**PART II.    OTHER INFORMATION**

 

**Item 1.        LegalProceedings**

 

From time to time, Broadwind and its subsidiaries areinvolved in litigation relating to claims arising out of our operations in thenormal course of business. As of June 30, 2010, we are not aware ofmaterial pending legal proceedings or threatened litigation that would have amaterial adverse effect on our financial condition or results of operations,although no assurance can be given with respect to the ultimate outcome ofpending actions.

 

**Item 1A:    Risk Factors**

 

There were no material changes to our risk factors aspreviously disclosed in Item 1A of our Annual Report on Form 10-K for theyear ended December 31, 2009.

 

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

 

None

 

**Item 3.        DefaultsUpon Senior Securities**

 

None

 

**Item 4.        Removedand Reserved**

 

**Item 5.        OtherInformation**

 

None

 

**Item 6.        Exhibits**

 

The exhibits listed on the Exhibit Indexfollowing the signature page are filed as part of this Quarterly Report.

 

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**SIGNATURES**

 

In accordance with the requirements of the SecuritiesExchange Act of 1934, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|                | BROADWIND ENERGY, INC. |
|---------------------|-----------------------------|
|                |                        |   |
|                |                        |   |
| August 9, 2010 | By:                         | /s/ J. Cameron Drecoll |
|                |                        | J. Cameron Drecoll |
|                |                        | Chief Executive Officer |
|                |                        |   |
|                |                        |   |
| August 9, 2010 | By:                         | /s/ Stephanie K. Kushner |
|                |                        | Stephanie K. Kushner |
|                |                        | Chief Financial Officer |

 

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EXHIBIT INDEX

BROADWIND ENERGY, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30,2010

 
| **Exhibit  Number** | ** ** | **Exhibit**                                                                                                                                                    |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Form of Executive Incentive Stock Option  Agreement*                                                                                                      |
| 10.2                |       | Form of Incentive Stock Option Agreement*                                                                                                                 |
| 10.3                |       | Form of Nonqualified Stock Option Agreement*                                                                                                              |
| 10.4                |       | Form of Restricted Stock Award Agreement*                                                                                                                 |
| 10.5                |       | Form of Restricted Stock Unit Award Agreement*                                                                                                            |
| 10.6                |       | Form of Performance Award Agreement*                                                                                                                      |
| 10.7                |       | Form of Stock Appreciation Rights Agreement*                                                                                                              |
| 31.1                |       | Rule 13a-14(a) Certification of Chief  Executive Officer*                                                                                            |
| 31.2                |       | Rule 13a-14(a) Certification of Chief  Financial Officer*                                                                                            |
| 32.1                |       | Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Executive Officer* |
| 32.2                |       | Certification Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of Chief Financial Officer* |

 

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*                                         Filed herewith.

 

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