10-K 1 bwen-20181231x10k.htm 10-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One) |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Or
☐ | 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 001- 34278

BROADWIND ENERGY, INC.

(Exact name of Registrant as specified in its charter)

Delaware (State of or other jurisdiction of incorporation or organization) | 88-0409160 (I.R.S. Employer Identification No.)
3240 S. Central Avenue Cicero, Illinois (Address of principal executive offices) | 60804 (Zip code)
Registrant’s telephone number, including area code: (708) 780-4800
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Class |  | Name of Exchange on which Registered
Preferred Stock Purchase Rights |  | The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class |  | Name of Exchange on which Registered
Common Stock, $0.001 par value |  | The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period to comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b‑2 of the Exchange Act. Yes ☐ No ☒

As of June 30, 2018 the aggregate market value of the Registrant’s voting common stock held by non‑affiliates of the Registrant was approximately $28,651,000, based upon the $2.36 per share closing sale price of the Registrant’s common stock as reported on the NASDAQ Capital Market. For purposes of this calculation, the Registrant’s directors and executive officers and holders of 5% or more of the Registrant’s outstanding shares of voting common stock have been assumed to be affiliates, with such affiliates holding an aggregate of 3,330,000 shares of the Registrant’s voting common stock on June 30, 2018.

The number of shares of the Registrant’s common stock, par value $0.001, outstanding as of February 22, 2019, was 15,708,685.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Registrant’s 2019 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

Table of Contents

BROADWIND ENERGY, INC.

FORM 10‑K

TABLE OF CONTENTS

|  | Page
PART I |  |
ITEM 1. | BUSINESS | 3
ITEM 1A. | RISK FACTORS | 9
ITEM 1B. | UNRESOLVED STAFF COMMENTS | 18
ITEM 2. | PROPERTIES | 19
ITEM 3. | LEGAL PROCEEDINGS | 19
ITEM 4. | MINE SAFETY DISCLOSURES | 19
PART II |  |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 19
ITEM 6. | SELECTED FINANCIAL DATA | 20
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 28
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 28
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 28
ITEM 9A. | CONTROLS AND PROCEDURES | 28
ITEM 9B. | OTHER INFORMATION | 30
PART III |  |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 31
ITEM 11. | EXECUTIVE COMPENSATION | 31
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 31
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 31
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 32
PART IV |  |
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 33
ITEM 16. | FORM 10-K SUMMARY | 33

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PART I

Cautionary Note Regarding Forward‑Looking Statements

This Annual Report on Form 10 K (“Annual Report”) contains “forward looking statements”— that is, statements related to future, not past, events—as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect our current expectations regarding our future growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities, as well as assumptions made by, and information currently available to, our management. We have tried to identify 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 looking statements. Forward looking statements include any statement that does not directly relate to a current or historical fact. Our forward-looking statements may include or relate to our beliefs, expectations, plans and/or assumptions with respect to the following: (i) state, local and federal regulatory frameworks affecting the industries in which we compete, including the wind energy industry, and the related extension, continuation or renewal of federal tax incentives and grants and state renewable portfolio standards; (ii) our customer relationships and our substantial dependency on a few significant customers and our efforts to diversify our customer base and sector focus and leverage relationships across business units; (iii) our ability to continue to grow our business organically and through acquisitions; (iv) the production, sales, collections, customer deposits and revenues generated by new customer orders and our ability to realize the resulting cash flows; (v) the sufficiency of our liquidity and alternate sources of funding, if necessary; (vi) our ability to realize revenue from customer orders and backlog; (vii) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; (viii) the economy and the potential impact it may have on our business, including our customers; (ix) the state of the wind energy market and other energy and industrial markets generally and the impact of competition and economic volatility in those markets; (x) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; (xi) the effects of the change of administrations in the U.S. federal government; (xii) our ability to successfully integrate and operate companies and to identify, negotiate and execute future acquisitions; (xiii) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”; (xiv) the limited trading market for our securities and the volatility of market price for our securities; and (xv) the impact of future sales of our common stock or securities convertible into our common stock on our stock price. These statements are based on information currently available to us and are subject to various risks, uncertainties and other factors that could cause our actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. We are under no duty to update any of these statements. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or other factors that could cause our current beliefs, expectations, plans and/or assumptions to change. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results.

(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)

ITEM 1. BUSINESS

As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind” and the “Company” refer to Broadwind Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its wholly‑owned subsidiaries (the “Subsidiaries”). Dollars are presented in thousands unless otherwise stated.

Business Overview

We provide technologically advanced high‑value products to energy, mining and infrastructure sector customers, primarily in the United States of America (the “U.S.”). Our most significant presence is within the U.S. wind energy industry, although we have diversified into other industrial markets in order to improve our capacity utilization, reduce our customer concentrations, and reduce our exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. The December 2015 multi-year extension of the federal Production Tax Credit (the “PTC”) and the Investment Tax Credit (“ITC”) for new wind energy development projects have helped stabilize wind energy markets for the medium term. Within the U.S. wind energy industry, we provide products primarily to wind turbine manufacturers. We also provide precision gearing and heavy fabrications to a broad range of industrial customers for oil and gas (“O&G”), mining, steel and other industrial applications.

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On February 1, 2017, we acquired Red Wolf Company, LLC (“Red Wolf”), a Sanford, North Carolina-based, privately held fabricator, kitter and assembler of industrial systems primarily supporting the global natural gas turbine market, for approximately $18,983. Red Wolf is being operated as a wholly-owned subsidiary, as more fully described in Note 21, “Business Combinations” in the notes to our consolidated financial statements. The Red Wolf acquisition enables us to expand our market reach, competencies, capabilities and customer relationships. The Red Wolf acquisition aligns with our growth strategy focused on expanding and diversifying our business through organic growth and strategic bolt-on acquisitions. Red Wolf’s operations are reported in the “Process Systems” segment.

In December of 2015, we substantially completed the divestiture of our Services segment. Consequently, this segment has been reported as a discontinued operation. All current and prior period financial results have been revised to reflect these changes. As a result of the 2017 Red Wolf acquisition and the divestiture of the Services segment, we revised our segment presentation to include three reportable operating segments: Towers and Weldments, Gearing, and Process Systems. See Note 16 “Segment Reporting” in the notes to our consolidated financial statements for further discussion of our segments. In the fourth quarter 2017, the Towers and Heavy Fabrications segment changed its name from “Towers and Weldments” to “Towers and Heavy Fabrications” to more accurately reflect the nature of the segment’s activities.

In 2018, 49% of our sales were linked to new wind energy installations, representing a reduction in concentration from 72% in 2017, as we diversified our sales across end markets and experienced lower demand for towers. The market for new U.S. wind energy installations is affected by a number of factors, including: (i) economic growth and the associated demand for new electricity generation; (ii) the cost of competing energy sources, primarily natural gas and solar power; (iii) federal and state‑level renewable energy development incentives; (iv) available transmission infrastructure and the proliferation of smart grid technology; (v) improvements in wind energy cost competitiveness resulting from the maturation of technologies and services within the wind energy industry; and (vi) state and federal government actions relating to regulation of carbon emissions.

The highest impact development incentive has been the PTC for new wind energy projects. Legislative support for the PTC has been intermittent since its introduction in 1992, which has caused volatility in the demand for new wind energy projects. The PTC extension in 2015 for a five-year period phases-out the amount of the credit allowed over time based on the year when construction of the wind project is started. The phase-out schedule provides for: 100% extension of the credit for projects commenced before the end of 2016, 80% for projects commenced in 2017, 60% in 2018 and 40% in 2019. Qualifying projects must either be completed within three years from their commencement or the developer must demonstrate that they are in continuous construction between commencement and completion.

The market for wind towers is closely correlated to the demand for new wind turbines. However, demand for our towers is also reflective of the level of market competition, the strength of our customer relationships and the proximity of our plants to wind farm development sites, the economics and availability of imported towers, as well as other factors. In 2016, orders for our wind towers were strong, driven by a multi-year baseload order received in response to the PTC extension. Our orders have declined since, and in 2017, were impacted by the consolidation of our two largest customers, and their decision to reduce inventories of towers and other turbine components globally. In 2018, we were also adversely impacted by steel plate availability and pricing issues primarily attributable to steel tariffs introduced in early 2018.

Outside of the market for wind energy installations, we serve a number of other industrial markets, including O&G development and extraction, mining, gas-fired turbines, and steel production. The market for O&G equipment and mining equipment rebounded early in 2017 as prices recovered significantly in response to changes in the supply and demand balance. Due to the rebound in the market conditions, we have raised production in order to meet our customers’ demand. Outside of towers manufactured to support the wind energy market, our products include gearboxes (both new and rebuilt), loose gearing, heavy fabrications and components for gas turbines. The following table details the percentage of our revenue generated in each sector for the past two years:

|  | Annual |
|  | Revenue |
|  | 2018 |  | 2017 |
Wind |  | 49 | % | 72 | %
Industrial |  | 51 | % | 28 | %
Total |  | 100 | % | 100 | %

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Business and Operating Strategy

We intend to capitalize on the markets for wind energy, gas turbines, O&G, mining, and other industrial verticals in North America by leveraging our core competencies in welding, manufacturing, assembling and kitting. Our strategic objectives include the following:

| · |  | Improve our commercial efforts and expand and diversify our customer base. In 2018, sales derived from our top five customers represented 78% of total sales, a modest improvement in customer diversification as compared to 85% in 2017. To reduce the concentration of sales and our wind energy industry concentration, we have focused our market research activities and our sales force on expanding and diversifying our customer base. The Red Wolf acquisition in early 2017 further improved our customer and end market diversification.

| · |  | Improve capacity utilization and profitability. We are working to improve our capacity utilization and financial results by leveraging our existing manufacturing capacity and adjusting capacity where we can, in response to changing market conditions. Tower and gear manufacturing each require significant capital investments. We have manufacturing capacity available that could support a significant increase in our annual revenues, particularly for gearing and heavy fabrications. In 2018, we completed a multi-year rationalization of our operational footprint, which significantly reduced our cumulative square footage through the sale or exit of several operational locations.

| · |  | Reduce fixed manufacturing costs and operating expenses to improve profitability. In response to decreased tower demand from our customers in 2017, we reduced our cost structure by $2.3 million in 2017 and an additional $2.3 million in 2018. In our Towers and Heavy Fabrications segment, we are expanding production capabilities and leveraging our fabrication competencies to support growth in mining, construction, and other industrial markets. In our Gearing segment, after several years of reducing workforce and selling excess gear cutting and grinding equipment, we are modestly increasing our production capabilities in response to improving market conditions. Outside of Gearing, we have focused on reducing professional fees and expenses, lowering our administrative costs and eliminating non-critical overhead positions.

| · |  | Improve production technology and operational efficiency. We believe that the proper coordination and integration of the supply chain, consistent use of systems to manage our production activities and “Continuous Improvement” initiatives are key factors that enable high operating efficiencies, increased reliability, better delivery and lower costs. We have introduced robust Advanced Product Quality Processes (APQP) to support the introduction of new products. We have developed better supply chain expertise, worked with lean enterprise resources, upgraded and improved systems utilization and invested capital to help enhance our operational efficiency and flexibility. We have staffed our operations with Continuous Improvement experts in order to optimize our production processes to increase output, leverage our scale and lower our costs while maintaining product quality.

COMPANY HISTORY

We were incorporated in 1996 in Nevada as Blackfoot Enterprises, Inc., and through a series of subsequent transactions, became Broadwind Energy, Inc., a Delaware corporation, in 2008. Through acquisitions in 2007 and 2008, we focused on expanding upon our core platform as a wind tower component manufacturer, established our Gearing segment, and developed our Heavy Fabrications capabilities. In early 2017, we acquired Red Wolf, a kitter and assembler of industrial components primarily supporting the global gas turbine market.

SALES AND MARKETING

We market our towers, gearing, kitting and heavy fabrications products through a direct sales force and independent sales agents. Our sales and marketing strategy is to develop and maintain long‑term relationships with our energy and infrastructure sector customers. Within the wind energy industry, our customer base consists primarily of wind turbine manufacturers who supply end‑users and wind farm operators with wind turbines and wind farm operators who use our replacement gears in their installed turbines. Within the O&G and mining industries, our customer base consists of manufacturers of hydraulic fracturing and mud pumps, drilling and production equipment, mining equipment, and off‑highway vehicles. Within the gas turbine industry, our customers supply end-users with natural gas turbines and after-market replacement and efficiency upgrade packages. To support the efforts of our sales force, we utilize a number of

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marketing tactics to build our brand and position and promote our products. Our efforts include participation in industry conferences, media relations, use of social media and other channels and use of our website to connect with customers.

COMPETITION

Each of our businesses faces competition from both domestic and international companies. The December 2015 extension of the PTC attracted additional investment and competition for wind towers. The industrial gearing industry has experienced consolidation of producers and acquisitions by strategic buyers in response to strong international competition, although recent tariff and trade uncertainties have caused buyers to shift more of their purchases to domestic gear manufacturers.

For our Towers and Heavy Fabrications segment, the largest North American based competitor is Arcosa Inc., which was formerly a Trinity Industries company. Other competitors include Vestas Wind Systems, which has periodically produced towers for third party customers in addition to meeting its own captive tower requirements, and Marmen Industries, a Canadian company that also has a production facility in the U.S. We also face competition from imported towers, although imports from China and Vietnam have substantially ceased following a determination by the U.S. International Trade Commission (“USITC”) in 2013 that wind towers from those countries were being sold in the U.S. at less than fair value. As a result of the determination, the U.S. Department of Commerce (“USDOC”) issued antidumping and countervailing duty orders on imports of wind towers from China and an antidumping duty order on imports of towers from Vietnam, which are currently under review for a five-year extension. In May 2018, the U.S. Court of Appeals affirmed the decision from the U.S. Court of International Trade resulting in CS Wind Vietnam being excluded from the antidumping order. U.S. tariffs have been imposed on imported steel, but have not been applied to fabricated wind towers, which has increased competition from other international competitors. We continue to monitor wind tower imports.

In our Gearing segment, which is focused on the O&G, wind energy, mining and steel markets, our key competitors in a fragmented market include Overton Chicago Gear, Cincinnati Gearing Systems, Merit Gear, Milwaukee Gear and Horsburgh & Scott. In addition, we compete with the internal gear manufacturing capacity of relevant equipment manufacturers and face competition from foreign competitors.

In our Process Systems segment, which is primarily focused on the gas turbine market, our key competitors include Gexpro and other small independent companies.

ENVIRONMENTAL REGULATION AND COMPLIANCE

Our operations are subject to numerous federal, state and local environmental laws and regulations. Although it is our objective to maintain compliance with these laws and regulations, it may not be possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in the future. Several of our facilities have a history of industrial operations, and contaminants have been detected at some of our facilities.

BACKLOG

We sell our towers under either supply agreements or individual purchase orders (“POs”), depending on the size and duration of the purchase commitment. Under the supply agreements, we typically receive a purchase commitment for towers to be delivered in future fiscal quarters, then receive POs on a periodic basis depending upon the customer’s forecast of production volume requirements within the contract terms. For our Gearing and Process Systems segments, sales are generally based on individual POs. As of December 31, 2018, the dollar amount of our backlog believed to be firm under our supply agreements and POs awarded was approximately $96 million. This represents a 30% decrease from the backlog at December 31, 2017, which is due in part to the run-off of a three-year tower framework agreement in mid-2016, against which we are still delivering. The reduction in tower backlog has been partially offset by higher gearing orders due to strong demand from mining and wind customers, and an increase in heavy fabrication orders due to strong mining and industrial demand.

SEASONALITY

The majority of our business is not affected by seasonality.

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EMPLOYEES

We had 425 employees at December 31, 2018, of which 378 were in manufacturing related functions and 47 were in administrative functions. As of December 31, 2018, approximately 23% of our employees were covered by collective bargaining agreements with local unions in our Cicero, Illinois and Neville Island, Pennsylvania locations. The five-year collective bargaining agreement with the Neville Island union was renegotiated in November 2017, and is expected to remain in effect through October 2022. A new four-year collective bargaining agreement with the Cicero union was negotiated in the third quarter of 2018 and is expected to remain in effect through February 2022. We believe that our relationship with our employees is generally positive.

RAW MATERIALS

The primary raw material used in the construction of wind towers and gearing products is steel in the form of plate, bar stock, forgings or castings. The market for tower steel has become increasingly globalized. Although we are generally responsible for procurement of the raw materials, our global tower customers often negotiate the prices and terms for steel purchases, and, through a “directed buy”, we purchase under these agreements. We then pass the steel cost through to our end customer plus a conversion margin.

Outside of these directed buys, we operate a multiple supplier sourcing strategy and source our raw materials through various suppliers located throughout the U.S. and abroad. We generally do not have long‑term supply agreements with our raw materials suppliers, and closely match terms with those of our customers to limit our exposure to commodity price fluctuations. We believe that we will be able to obtain an adequate supply of steel and other raw materials in 2019 to meet our manufacturing requirements, although from time to time we have faced shortages of specific grades of steel. Our business has been impacted by steel plate availability and pricing issues primarily attributable to steel tariffs introduced in early 2018. We have made modifications to our supply chain management practices to deal more effectively with potential disruptions arising from these purchasing practices.

QUALITY CONTROL

We have a long‑standing focus on processes for ensuring the manufacture of high‑quality products. To achieve high standards of production and operational quality, we implement strict and extensive quality control and inspections throughout our production processes. We maintain internal quality controls over all core manufacturing processes and carry out quality assurance inspections at the completion of each major manufacturing step to ensure the quality of our products. The manufacturing process at our Gearing segment, for example, involves transforming forged steel into precision gears through cutting, heat treating, testing and finishing. We inspect and test raw materials before they enter the assembly process, re‑test the raw materials after rough machining, test the functioning of gear teeth and cores after thermal treatment and accuracy test final outputs for compliance with product specifications. We believe our investment in industry‑leading heat treatment, high precision machining, specialized grinding technologies and cutting‑edge welding has contributed to our high product reliability and the consistent performance of our products under varying operating conditions. All of our core operating facilities are ISO 9001:2015 certified.

CUSTOMERS

We manufacture products for a variety of customers in the wind energy, O&G, mining and other infrastructure industries. The majority of our wind energy industry customer base consists of wind turbine manufacturers who supply wind farm operators and wind farm developers with completed wind turbines. In the other industrial sectors, we sell our products through our trained sales force or through manufacturers’ representatives to a wide variety of customers. The wind turbine market is very concentrated. According to Wood Mackenzie Power & Renewables 2018 industry data, the top four wind turbine manufacturers constituted approximately 98% of the U.S. market. As a result, although we have historically produced towers for most of these global wind turbine manufacturers, in any given year a limited number of customers have accounted for the majority of our revenues. Sales to Siemens Gamesa Renewable Energy (“SGRE”) and Gardner Denver represented greater than 10% of our consolidated revenues for the year ended December 31, 2018. Sales to SGRE represented greater than 10% of our consolidated revenues for the year ended December 31, 2017. The loss of one of these customers could have a material adverse effect on our business, results of operation or financial condition. As a result, we are seeking to diversify our customer base.

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WORKING CAPITAL

Our primary customers are wind turbine manufacturers and various other industrial customers. In general, we produce to order rather than to stock. For wind towers, the industry has historically used customized contracts with varying terms and conditions between suppliers and customers, depending on the specific objectives of each party. Our practices mirror this historical industry practice of negotiating agreements on a case‑by‑case basis. As a result, working capital needs, including levels of accounts receivable (“A/R”), customer deposits and inventory, can vary significantly from quarter to quarter based on the contractual terms associated with each quarter’s sales, such as whether and when we are required to purchase and supply steel pursuant to such sales.

In analyzing our liquidity, an important short-term factor is our use of operating working capital (“OWC”) in relationship to revenue. OWC is comprised of A/R and inventories, net of accounts payable (“A/P”) and customer deposits. Our OWC at December 31, 2018 was $5,000 or 5% of trailing three months of sales annualized. This is a decrease of $6,376 from December 31, 2017, when OWC was $11,376, or 16% of trailing three months of sales annualized. The decrease in total OWC was driven by increased customer deposits received in late 2018, due to higher scheduled production levels in our Towers and Heavy Fabrications segment for 2019.

CORPORATE INFORMATION

Our principal executive office is located at 3240 South Central Avenue, Cicero, IL 60804. Our phone number is (708) 780‑4800 and our website address is www.bwen.com.

OTHER INFORMATION

On our website at www.bwen.com, we make available under the “Investors” menu selection, free of charge, our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Also, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

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ITEM 1A. RISK FACTORS

Our financial and operating performance is subject to certain factors out of our control, including the state of the wind energy market in North America.

As a supplier of products to wind turbine manufacturers, our results of operations (like those of our customers) are subject to general economic conditions, and specifically to the state of the wind energy market. In addition to the state and federal government policies supporting renewable energy described above, the growth and development of the larger wind energy market in North America is subject to a number of factors, including, among other things:

| · |  | the availability and cost of financing for the estimated pipeline of wind energy development projects;

| · |  | the cost of electricity, which may be affected by a number of factors, including government regulation, power transmission, seasonality, fluctuations in demand, and the cost and availability of fuel and particularly natural gas;

| · |  | the general demand for electricity or “load growth”;

| · |  | the costs of competing power sources, including natural gas, nuclear power, solar power and other power sources;

| · |  | the development of new power generating technology or advances in existing technology or discovery of power generating natural resources;

| · |  | the development of electrical transmission infrastructure;

| · |  | state and federal laws and regulations regarding avian protection plans and noise or turbine setback requirements;

| · |  | state and federal laws and regulations, particularly those favoring low carbon energy generation alternatives;

| · |  | administrative and legal challenges to proposed wind energy development projects;

| · |  | the improvement in efficiency and cost of wind energy, as influenced by advances in turbine design and operating efficiencies; and

| · |  | public perception and localized community responses to wind energy projects.

In addition, while some of the factors listed above may only affect individual wind energy project developments or portions of the market, in the aggregate they may have a significant effect on the successful development of the wind energy market as a whole, and thus affect our operating and financial results.

We may have difficulty maintaining our current financing arrangements or obtaining additional financing when needed or on acceptable terms, and there can be no assurance that our operations will generate cash flows in an amount sufficient to enable us to pay our indebtedness.

We rely on banks and capital markets as a source of liquidity for capital requirements not satisfied by cash flows from operations or asset sales. We have experienced operating losses for most periods during which we have operated, and our committed sources of liquidity may be inadequate to satisfy our operational needs. There can be no assurances that even if we were to achieve in part any or all of our strategic objectives that we would be successful in obtaining and improving profitability. If we are not able to access capital at competitive rates, the ability to implement our business plans may be adversely affected. In the absence of access to capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations at times when the prices for such assets or operations are depressed. In such event, we may not be able to consummate those dispositions. Furthermore, the proceeds of any such dispositions may not be adequate to meet our debt service obligations when due.

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Our ability to comply with the restrictive covenants contained in our debt instruments, to make scheduled payments on our existing or future debt obligations, and to fund our operations will depend on our future financial and operating performance. Such performance is, to a significant extent, subject to general economic, financial, competitive and other factors that are beyond our control. If assumptions regarding our production, sales and subsequent collections from certain of our large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with actual results, or any future restructuring efforts are not successful, we may encounter cash flow and liquidity issues. Additionally, new or existing customers may request acceleration of production or we may accept new orders or modify existing orders to purchase steel opportunistically or to build products with deposits, which will reduce our liquidity. There can be no assurances that our operations will generate sufficient cash flows to enable us to maintain compliance with the restrictive covenants contained in our debt instruments, pay our remaining indebtedness or to fund our other liquidity needs. If we cannot make scheduled payments on our debt, we will be in default and, as a result, among other things, our debt holders could declare all outstanding principal and interest to be due and payable which could force us to liquidate certain assets or alter our business operations or debt obligations, and we could be forced into a restructuring, bankruptcy or liquidation. We cannot assure you that we will be able to do any of the foregoing on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders. In addition, raising capital in the equity capital markets could result in limitations on our ability to use our net operating loss carryforwards.

Borrowings under our Credit Facility and other variable rate indebtedness may use the London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the applicable interest rate. LIBOR is the subject of recent regulatory guidance and proposals for reform, which may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments with respect to LIBOR cannot be entirely predicted, but could result in an increase in the cost of our variable rate indebtedness causing a negative impact on our financial position and operating results.

We are substantially dependent on a few significant customers.

Historically, the majority of our revenues are highly concentrated with a limited number of customers. In 2018, two customers, Siemens Gamesa Renewable Energy (“SGRE”) and Gardner Denver, accounted for more than 10% of our consolidated revenues, and our five largest customers accounted for 78% of our consolidated revenues. Certain of our customers periodically have expressed their intent to scale back, delay or restructure existing customer agreements, which has led to reduced revenues from these customers. It is possible that this may occur again in the future. As a result, our operating profits and gross margins have historically been negatively affected by significant variability in production levels, which has created production volume inefficiencies in our operations and cost structures.

The U.S. wind energy industry is significantly impacted by tax and other economic incentives and political and governmental policies. A significant change in these incentives and policies could significantly impact our results of operations and growth.

We sell towers to wind turbine manufacturers who supply wind energy generation facilities. The U.S. wind energy industry is significantly impacted by federal tax incentives and state Renewable Portfolio Standards (“RPS’s”). Despite recent reductions in the cost of wind energy, due to variability in wind quality and consistency, and other regional differences, wind energy may not be economically viable in certain parts of the country absent such incentives. These programs have provided material incentives to develop wind energy generation facilities and thereby impact the demand for our products. The increased demand for our products that generally results from the credits and incentives could be impacted by the expiration or curtailment of these programs.

One such federal government program, the PTC, provides economic incentives to the owners of wind energy facilities in the form of a tax credit. The PTC has been extended several times since its initial introduction in 1992. The FY16 Omnibus Appropriations Bill, passed on December 18, 2015, included a five-year extension and phase-down of the PTC, as well as providing the option to elect the ITC for wind energy projects. As a result, the PTC has been extended at full value for projects commenced by the end of 2016, was reduced to 80% of full value for projects commenced in 2017, 60% for projects commended in 2018, and 40% for projects commenced in 2019. Similarly, for the ITC election, projects that started construction in 2015 and 2016 are eligible for a full 30% ITC, and projects that start construction in 2017, 2018 and 2019 are eligible for an ITC of 24%, 18% and 12%, respectively. As before, the rules allow wind energy projects to qualify so long as construction is started before the end of the respective period and either completed within three years, or under continuous construction between the start date and completion. The PTC tax benefits are available for the first ten years of operation of a wind energy facility, and also applies to significant redevelopment of existing wind energy facilities.

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RPSs generally require or encourage state regulated electric utilities to supply a certain proportion of electricity from renewable energy sources or to devote a certain portion of their plant capacity to renewable energy generation. Typically, utilities comply with such standards by qualifying for renewable energy credits evidencing the share of electricity that was produced from renewable sources. Under many state standards, these renewable energy credits can be unbundled from their associated energy and traded in a market system, allowing generators with insufficient credits to meet their applicable state mandate. These standards have spurred significant growth in the wind energy industry and a corresponding increase in the demand for our products. Currently, the majority of states have RPS’s in place and certain states have voluntary utility commitments to supply a specific percentage of their electricity from renewable sources. The enactment of RPS’s in additional states or any changes to existing RPS’s (including changes due to the failure to extend or renew the federal incentives described above), or the enactment of a federal RPS or imposition of other greenhouse gas regulations, may impact the demand for our products. We cannot assure that government support for renewable energy will continue. The elimination of, or reduction in, state or federal government policies that support renewable energy could have a material adverse impact on our business, results of operations, financial performance and future development efforts.

New tariffs have resulted in increased prices and could adversely affect our consolidated results of operations, financial position and cash flows. The Trump Administration imposed Section 232 tariffs on certain steel products imported into the U.S. which have increased the prices of these inputs. Increased prices for imported steel products have lead domestic sellers to respond with market-based increases to prices for such inputs as well. Additional tariffs have been announced that may be imposed on goods imported from China in the future. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or other countries, could result in further increased prices and a decreased available supply of steel as well as additional imported components and inputs. We may not be able to pass price increases on to our customers and may not be able to secure adequate alternative sources of steel on a timely basis. While retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, we cannot predict further developments.

U.S. tariffs have been imposed on imported steel, but have not been applied to fabricated wind towers, which has adversely impacted our cost structure and competitiveness relative to imported towers. This has contributed to a general decrease in tower margins, which has reduced the profitability of our business.

The existence of government subsidies available to our competitors in certain countries may affect our ability to compete on a price basis.

In 2013, the U.S. International Trade Commission (“USITC”) determined that wind towers from China and Vietnam were being sold in the U.S. at less than fair value. As a result of that determination, the U.S. Department of Commerce (“USDOC”) issued antidumping and countervailing duty orders on imports of wind towers from China and an antidumping duty order on imports of towers from Vietnam. Since that time, imports of wind towers from those countries have substantially ceased. Those orders expired in 2018 and are currently under review for a five-year extension. There can be no assurance that they will be renewed or extended. Additionally, producers in other countries not subject to those orders may benefit from government subsidies (particularly with respect to the price of steel, the primary raw material used in the production of wind towers) which could lead to increased competition from those producers in the U.S. market, causing us to lose market share and/or reducing our margins.

Our customers may be significantly affected by disruptions and volatility in the economy and in the wind energy market.

Market disruptions and regular market volatility, including decreases in oil and commodity prices, may adversely impact our customers’ ability to pay amounts due to us and could cause related increases in our working capital or borrowing needs. In addition, our customers have in the past attempted and may attempt in the future to renegotiate the terms of contracts or reduce the size of orders with us as a result of disruptions and volatility in the markets. We cannot predict with certainty the amount of our backlog that we will ultimately ship to our customers.

Market disruptions and regular market volatility may also result in an increased likelihood of our customers asserting warranty or remediation claims in connection with our products that they would not ordinarily assert in a more stable economic environment. In the event of such a claim, we may incur costs if we decide to compensate the affected customer or to engage in litigation with the affected customer regarding the claim. We maintain product liability insurance, but there can be no guarantee that such insurance will be available or adequate to protect against such claims. A successful claim against us could have a material adverse effect on our business.

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Consolidation among wind turbine manufacturers could increase our customer concentration and/or disrupt our supply chain relationships.

Wind turbine manufacturers are among our primary customers. There has been consolidation among these manufacturers, and more consolidation may occur in the future. For example, both Siemens and Gamesa were customers for our tower business until their business combination in early 2017, at which time SGRE became our largest customer. Customer consolidation may result in pricing pressures, to which we are subject, leading to downward pressure on our margins and profits, and may also disrupt our supply chain relationships.

We face competition from industry participants who may have greater resources than we do.

Our businesses are subject to risks associated with competition from new or existing industry participants who may have more resources and better access to capital. Certain of our competitors and potential competitors may have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we do. Among other things, these industry participants compete with us based upon price, quality, location and available capacity. We cannot be sure that we will have the resources or expertise to compete successfully in the future. We also cannot be sure that we will be able to match cost reductions by our competitors or that we will be able to succeed in the face of current or future competition.

We face significant risks associated with uncertainties resulting from changes to policies and laws with the periodic changes in the U.S. administration as well as risks associated with changes in our relationship with our significant customers.

Changes of administration in the U.S. federal government may affect our business in a manner that currently cannot be reliably predicted, especially given the potentially significant changes to various laws and regulations that affect us. These uncertainties may include changes in laws and policies in areas such as corporate taxation, taxation on imports of internationally-sourced products, international trade including trade treaties such as the North American Free Trade Agreement, environmental protection and workplace safety laws, labor and employment law, immigration and health care, which individually or in the aggregate could materially and adversely affect our business, results of operations or financial condition.

Additionally, if our relationships with significant customers should change materially, it could be difficult for us to immediately and profitably replace lost sales in a market with such concentration, which could have a material adverse effect on our operating and financial results. We could be adversely impacted by decreased customer demand for our products due to (i) the impact of current or future economic conditions on our customers, (ii) our customers’ loss of market share to their competitors that do not use our products, and (iii) our loss of market share with our customers. We could lose market share with our customers to our competitors or to our customers themselves, should they decide to become more vertically integrated and produce the products that we currently provide.

In addition, even if our customers continue to do business with us, we could be adversely affected by a number of other potential developments with our customers. For example:

| · |  | The inability or failure of our customers to meet their contractual obligations could have a material adverse effect on our business, financial position and results of operations.

| · |  | Certain customer contracts provide the customer with the opportunity to cancel a substantial portion of its volume obligation by providing us with notice of such election prior to commencement of production. Such contracts generally require the customer to pay a sliding cancelation fee based on how far in advance of commencement of production such notice is provided.

| · |  | If we are unable to deliver products to our customers in accordance with an agreed upon schedule we may become subject to liquidated damages provisions in certain supply agreements for the period of time we are unable to deliver finished products. Although the liquidated damages provisions are generally capped, they can become significant and may have a negative impact on our profit margins and financial results.

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| · |  | A material change in payment terms with a significant customer could have a material adverse effect on our short term cash flows.

Our plans for growth, diversification, and restructuring may not be successful, and could result in poor financial performance.

The Company continues to strategically diversify, restructure and grow the business to improve operational efficiency and meet customer demand. Our diversification efforts further into the natural gas turbine (“NGT”) power generation, O&G, mining and other industries, particularly within our gearing and Heavy Fabrications businesses and through our 2017 acquisition of Red Wolf, may require additional investments in personnel, equipment and operational infrastructure. Moreover, although we have historically participated in most of these lines of business, there is no assurance that we will be able to grow our presence in these markets at a rate sufficient to compensate for a potentially weaker wind energy market. If we are unable to further penetrate these markets, our plans to diversify our operations may not be successful and our anticipated future growth may be adversely affected.

Our restructuring efforts, including the 2018 restructuring plan, may involve occasionally opening or closing facilities to rationalize facility capacity and management structure, and consolidating and increasing efficiencies in certain operations. If the Company is unable to generate anticipated costs savings or successfully implement its strategies, the Company’s financial results could suffer. These efforts and strategies could also have a negative impact on the Company’s relationships, including those with its employees or customers, which could also adversely affect the Company’s financial results.

Our growth efforts through increased production levels at existing facilities, acquisitions and continuous improvement activities such as the proper coordination and integration of the supply chain, the consistent use of systems with respect to production activities, the Advanced Product Quality Processes (APQP) to support the introduction of new products, and the hiring of continuous improvement experts to optimize our production processes, will require coordinated efforts across the Company and continued enhancements to our current operating infrastructure. If the cost of making these changes increases or if our efforts are unsuccessful, the Company may not realize anticipated benefits and our future earnings may be adversely affected.

If our projections regarding the future market demand for our products are inaccurate, our operating results and our overall business may be adversely affected.

We have previously made significant capital investments in anticipation of rapid growth in the U.S. wind energy market. However, the growth in the U.S. wind energy market has not kept pace with our expectations when some of these capital investments were made, and there can be no assurance that the U.S. wind energy market will grow and develop in a manner consistent with our expectations, or that we will be able to fill our capacity through the further diversification of our operations. Our internal manufacturing capabilities have required significant upfront fixed costs. If market demand for our products does not increase at the pace we have anticipated and align with our manufacturing capacity, we may be unable to offset these costs and achieve economies of scale, and our operating results may continue to be adversely affected by high fixed costs, reduced margins and underutilization of capacity which may cause us to continue to incur significant losses and may prevent us from achieving or maintaining profitability. In light of these considerations, we may be forced to reduce our labor force and production to minimum levels, as was done at certain operating locations in both 2017 and 2018, temporarily idle existing capacity or sell to third parties manufacturing capacity that we cannot utilize in the near term, in addition to the steps that we have already taken to adjust our capacity more closely to demand. Alternatively, if we experience rapid increased demand for our products in excess of our estimates, or we reduce our manufacturing capacity, our installed capital equipment and existing workforce may be insufficient to support higher production volumes, which could adversely affect our customer relationships and overall reputation. In addition, we may not be able to expand our workforce and operations in a timely manner, procure adequate resources or locate suitable third party suppliers to respond effectively to changes in demand for our existing products or to the demand for new products requested by our customers, and our business could be adversely affected. Our ability to meet such excess customer demand could also depend on our ability to raise additional capital and effectively scale our manufacturing operations.

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Our growth strategies could be ineffective due to the risks of acquisitions and risks relating to integration.

Our growth strategy has included acquiring complementary businesses, such as Red Wolf, as more fully described in Note 21, “Business Combinations” in the notes to our consolidated financial statements. In regards to Red Wolf, or any other future acquisitions, we could fail to identify, finance or complete suitable acquisitions on acceptable terms and prices. Acquisitions and the related integration processes could increase a number of risks, including diversion of operations personnel, financial personnel and management’s attention, difficulties in integrating systems and operations, potential loss of key employees and customers of the acquired companies and exposure to unanticipated liabilities. The price we pay for a business may exceed the value realized and we cannot provide any assurance that we will realize the expected synergies and benefits of any acquisition, including Red Wolf. Our discovery of, or failure to discover, material issues during due diligence investigations of acquisition targets, either before closing with regard to potential risks of the acquired operations, or after closing with regard to the timely discovery of breaches of representations or warranties, could materially harm our business. Our failure to meet the challenges involved in integrating a new business to realize the anticipated benefits of an acquisition could cause an interruption or loss of momentum in our existing activities and could adversely affect our profitability. Acquisitions also may result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial position and operating results.

Our diversification outside of the wind energy market exposes us to business risks associated with the gas turbine, oil and gas, and mining industries, among others, which may slow our growth or penetration in these markets.

Although we have experience in the gas turbine, oil and gas and mining industry markets, these markets have not historically been our primary focus. In further diversifying our business to serve these markets, we face competitors who may have more resources, longer operating histories and more well established relationships than we do, and we may not be able to successfully or profitably generate additional business opportunities in these industries. Moreover, if we are able to successfully diversify into these markets, our businesses may be exposed to risks associated with these industries, which could adversely affect our future earnings and growth. These risks include, among other things:

| · |  | the prices and relative demand for oil, gas, minerals and other commodities;

| · |  | domestic and global political and economic conditions affecting the O&G and mining industries;

| · |  | changes in technology;

| · |  | the price and availability of alternative fuels and energy sources, as well as changes in energy consumption or supply; and

| · |  | federal, state and local regulations, including, among others, regulations relating to hydraulic fracturing and greenhouse gas emissions.

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We have substantially generated net losses since our inception.

We have experienced operating losses since inception, except that we were profitable in 2016. We have incurred significant costs in connection with the development of our businesses, and because we have operated at low capacity utilization in certain facilities, there is no assurance that we will generate sufficient revenues to offset anticipated operating costs. Although we anticipate deriving revenues from the sale of our products, no assurance can be given that these products can be sold on a profitable basis. We cannot give any assurance that we will be able to sustain or increase profitability on a quarterly or annual basis in the future.

We may continue to incur significant losses in the future for a number of reasons, including other risks described in this Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors.

Current or future litigation and regulatory actions could have a material adverse impact on us.

From time to time, we are subject to litigation and other legal and regulatory proceedings relating to our business. No assurance can be given that the results of these matters will be favorable to us. An adverse resolution of lawsuits, investigations or arbitrations could have a material adverse effect on our business, financial condition and results of operations. Defending ourselves in these matters may be time consuming, expensive and disruptive to normal business operations and may result in significant expense and a diversion of management’s time and attention from the operation of our business, which could impede our ability to achieve our business objectives. Additionally, any amount that we may be required to pay to satisfy a judgment or settlement may not be covered by insurance. Under our charter and the indemnification agreements that we have entered into with our officers, directors and certain third parties, we are required to indemnify and advance expenses to them in connection with their participation in certain proceedings. There can be no assurance that any of these payments will not be material.

We may need to hire additional qualified personnel, including management personnel, and the loss of our key personnel could adversely affect our business.

Our future success will depend largely on the skills, efforts and motivation of our executive officers and other key personnel. Our success also depends, in large part, upon our ability to attract and retain highly qualified management and other key personnel throughout our organization. We face competition in the attraction and retention of personnel who possess the skill sets we seek. In addition, key personnel may leave us and subsequently compete against us. The loss of the services of any of our key personnel, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could have a material adverse effect on our business, results of operations or financial condition.

We rely on unionized labor, the loss of which could adversely affect our future success.

We depend on the services of unionized labor and have collective bargaining agreements with certain of our operations workforce at our Cicero, Illinois and Neville Island, Pennsylvania Gearing facilities. The loss of the services of these and other personnel, whether through terminations, attrition, labor strike or otherwise, or a material change in our collective bargaining agreements, could have a material adverse impact on us and our future profitability. In November 2017, a five-year collective bargaining agreement was ratified by the collective bargaining union in our Neville Island facility and is expected to remain in effect through October 2022. A new four-year collective bargaining agreement with the Cicero union was negotiated in the third quarter of 2018 and is expected to remain in effect through February 2022. As of December 31, 2018, these collective bargaining units represented approximately 23% of our workforce.

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We could incur substantial costs to comply with environmental, health and safety (“EHS”) laws and regulations and to address violations of or liabilities under these requirements.

Our operations are subject to a variety of EHS laws and regulations in the jurisdictions in which we operate and sell products governing, among other things, health, safety, pollution and protection of the environment and natural resources, including the use, handling, transportation and disposal of non-hazardous and hazardous materials and wastes, as well as emissions and discharges into the environment, including discharges to air, surface water, groundwater and soil, product content, performance and packaging. We cannot guarantee that we have been, or will at all times be in compliance with such laws and regulations. Changes in existing EHS laws and regulations, or their application, could cause us to incur additional or unexpected costs to achieve or maintain compliance. Failure to comply with these laws and regulations, obtain the necessary permits to operate our business, or comply with the terms and conditions of such permits may subject us to a variety of administrative, civil and criminal enforcement measures, including the imposition of civil and criminal sanctions, monetary fines and penalties, remedial obligations, and the issuance of compliance requirements limiting or preventing some or all of our operations. The assertion of claims relating to regulatory compliance, on or off site contamination, natural resource damage, the discovery of previously unknown environmental liabilities, the imposition of criminal or civil fines or penalties and/or other sanctions, or the obligation to undertake investigation, remediation or monitoring activities could result in potentially significant costs and expenditures to address contamination or resolve claims or liabilities. Such costs and expenditures could have a material adverse effect on our business, financial condition or results of operations. Under certain circumstances, violation of such EHS laws and regulations could result in us being disqualified from eligibility to receive federal government contracts or subcontracts under the federal government’s debarment and suspension system.

We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, such liabilities can be imposed for cleanup of currently and formerly owned, leased or operated properties, or properties to which hazardous substances or wastes were sent by current or former operators at our current or former facilities, regardless of whether we directly caused the contamination or violated any law at the time of discharge or disposal. Several of our facilities have a history of industrial operations, and contaminants have been detected at some of our facilities. The presence of contamination from hazardous substances or wastes could interfere with ongoing operations or adversely affect our ability to sell, lease or use our properties as collateral for financing. We also could be held liable under third party claims for property damage, natural resource damage or personal injury and for penalties and other damages under such environmental laws and regulations, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to comply with regulatory requirements is critical to our future success, and there can be no guarantee that our businesses are in full compliance with all such requirements.

As a manufacturer and distributor of wind and other energy industry products we are subject to the requirements of federal, state, local and foreign regulatory authorities. In addition, we are subject to a number of industry standard setting authorities, such as the American Gear Manufacturers Association and the American Welding Society. Changes in the standards and requirements imposed by such authorities could have a material adverse effect on us. In the event we are unable to meet any such standards when adopted, our businesses could be adversely affected. We may not be able to obtain all regulatory approvals, licenses and permits that may be required in the future, or any necessary modifications to existing regulatory approvals, licenses and permits, or maintain all required regulatory approvals, licenses and permits. There can be no guarantee that our businesses are fully compliant with such standards and requirements.

We may be unable to keep pace with rapidly changing technology in wind turbine and other industrial component manufacturing.

The global market for wind turbines, as well as for our other manufactured industrial components, is rapidly evolving technologically. Our component manufacturing equipment and technology may not be suited for future generations of products being developed by wind turbine companies. As turbines grow in size, tower manufacturing becomes more complicated and may require investments in new manufacturing equipment. For example, some wind turbine manufacturers are using wind turbine towers made partially or fully from concrete instead of steel. To maintain a successful business in our field, we must keep pace with technological developments and the changing standards of our customers and potential customers and meet their constantly evolving demands. If we fail to adequately respond to the technological changes in our industry, or are not suited to provide components for new types of wind turbines, our business, financial condition and operating results may be adversely affected.

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Disruptions in the supply of parts and raw materials, or changes in supplier relations, may negatively impact our operating results.

We are dependent upon the supply of certain raw materials used in our production process, and these raw materials are exposed to price fluctuations on the open market. Raw material costs for materials such as steel, our primary raw material, have fluctuated significantly and may continue to fluctuate. To reduce price risk caused by market fluctuations, we have generally tried to match raw material purchases to our sales contracts or incorporated price adjustment clauses in our contracts. However, limitations on availability of raw materials or increases in the cost of raw materials (including steel), energy, transportation and other necessary services may impact our operating results if our manufacturing businesses are not able to fully pass on the costs associated with such increases to their respective customers. Alternatively, we will not realize material improvements from any decline in steel prices as the terms of our contracts generally require that we pass these cost savings through to our customers. In addition, we may encounter supplier constraints, be unable to maintain favorable supplier arrangements and relations or be affected by disruptions in the supply chain caused by events such as natural disasters, shipping delays, power outages and labor strikes. Additionally, our supply chain has become more global in nature and, thus, more complex from a shipping and logistics perspective. In the event of limitations on availability of raw materials or significant changes in the cost of raw materials, particularly steel, our margins and profitability could be negatively impacted.

If our estimates for warranty expenses differ materially from actual claims made, or if we are unable to reasonably estimate future warranty expense for our products, our business and financial results could be adversely affected.

We provide warranty terms generally ranging between one and five years to our customers depending upon the specific product and terms of the customer agreement. We reserve for warranty claims based on prior experience and estimates made by management based upon a percentage of our sales revenues related to such products. From time to time, customers have submitted warranty claims to us. However, we have a limited history on which to base our warranty estimates for certain of our manufactured products. Our assumptions could materially differ from the actual performance of our products in the future and could exceed the levels against which we have reserved. In some instances our customers have interpreted the scope and coverage of certain of our warranty provisions differently from our interpretation of such provisions. The expenses associated with remediation activities in the wind energy industry can be substantial, and if we are required to pay such costs in connection with a customer’s warranty claim, we could be subject to additional unplanned cash expenditures. If our estimates prove materially incorrect, or if we are required to cover remediation expenses in addition to our regular warranty coverage, we could be required to incur additional expenses and could face a material unplanned cash expenditure, which could adversely affect our business, financial condition and results of operations.

If we are unable to produce, maintain and disseminate relevant and/or reliable data and information pertaining to our business in an efficient, cost-effective, secure and well-controlled fashion and avoid security breaches affecting our information technology systems, such inability may have significant negative impacts on our confidentiality obligations, and proprietary needs and therefore on our future operations, profitability and competitive position.

Management relies on information technology infrastructure and architecture, including hardware, network, software, people and processes, to provide useful and confidential information to conduct our business in the ordinary course, including correspondence and commercial data and information interchange with customers, suppliers, consultants, advisors and governmental agencies, and to support assessments and conclusions about future plans and initiatives pertaining to market demands, operating performance and competitive positioning.

There has been an increase in global cybersecurity threats, computer viruses and more sophisticated and targeted cyber-related attacks as well as cybersecurity failures resulting from human and technological errors. While we attempt to mitigate these risks, including through the use of protective systems, monitoring and testing and employee training, any material failure, interruption of service, compromised data security, computer virus or cybersecurity threat or attack could adversely affect our relations with suppliers and customers, place us in violation of confidentiality and data protection laws, rules and regulations, and result in negative impacts to our reputation, market share, operations and profitability. Despite our use of measures to protect our systems and confidential information, security breaches, human or technological error or other failures in our information technology could result in theft, destruction, loss, misappropriation or release of confidential data or intellectual property which could materially and adversely impact our future results.

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Future sales of our common stock or securities convertible into our common stock may depress our stock price.

Sales of a substantial number of shares of our common stock or securities convertible into our common stock in the public market, or the perception that these sales might occur, may reduce the prevailing market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities and may make it more difficult for our stockholders to sell their common stock at a time and price that they deem appropriate.

On August 11, 2017, we filed a registration statement on Form S-3 (File No. 333-219931), which was declared effective by the SEC on October 10, 2017, to register securities that we may choose to issue in the future (the “Broadwind Form S-3”). Under the registration statement, we have the option to offer and sell up to $50,000 in the aggregate of securities in one or more offerings. On July 31, 2018, we entered into a $10,000 At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC. During 2018, the Company issued 15,112 shares of the Company’s common stock under the ATM Agreement and the net proceeds (before upfront costs) to the Company from the sale of the Company’s common stock were approximately $33 after deducting commissions paid of approximately $1. As of December 31, 2018, approximately $9,967 remained available for issuance with respect to the ATM Agreement.

There is a limited trading market for our securities and the market price of our securities is subject to volatility.

Our common stock trades on the Nasdaq Capital Market. The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. The market price and level of trading of our common stock could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control. These factors include, among other things, our limited trading volume, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact our business and the general state of the securities market, as well as general economic, political and market conditions and other factors that may affect our future results. In 2018, the price of our common stock varied from a high of $3.15 per share to a low of $1.20 per share. Stockholders may have incurred substantial losses with regard to any investment in our common stock adversely affecting stockholder confidence.

Limitations on our ability to utilize our net operating losses (“NOLs”) may negatively affect our financial results.

We may not be able to utilize all of our NOLs. For financial statement presentation, all benefits associated with the NOL carryforwards have been reserved; therefore, this potential asset is not reflected on our balance sheet. To the extent available, we will use any NOL carryforwards to reduce the U.S. corporate income tax liability associated with our operations. However, if we do not achieve profitability prior to their expiration, we will not be able to fully utilize our NOLs to offset income. Section 382 of the IRC (“Section 382”) generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. Our ability to utilize NOL carryforwards and built in losses may be limited, under Section 382 or otherwise, by our issuance of common stock or by other changes in ownership of our stock. After analyzing Section 382 in 2010 we determined that aggregate changes in our stock ownership had triggered an annual limitation of NOL carryforwards and built in losses available for utilization to $14,284 per annum. Although this event limited the amount of pre ownership change date NOLs and built in losses we can utilize annually, it does not preclude us from fully utilizing our current NOL carryforwards prior to their expiration. However, subsequent changes in our stock ownership could further limit our ability to use our NOL carryforwards and our income could be subject to taxation earlier than it would if we were able to use NOL carryforwards and built in losses without an annual limitation, which could result in lower profits. To address these concerns, in February 2013 we adopted a Section 382 Stockholder Rights Plan, which was subsequently approved by our stockholders and extended in 2016 for an additional three-year period (as amended, the “Rights Plan”), designed to preserve our substantial tax assets associated with NOL carryforwards under Section 382. The Rights Plan is intended to deter any person or group from being or becoming the beneficial owner of 4.9% or more of our common stock and thereby triggering a further limitation of our available NOL carryforwards. On February 7, 2019, the Board of Directors (the “Board”) approved an amendment extending the Rights Plan for an additional three years. The amendment is subject to approval by our stockholders at our 2019 Annual Meeting of Stockholders. See Note 14, “Income Taxes” of our consolidated financial statements for further discussion of our Rights Plan. There can be no assurance that our stockholders will ratify the extension of the Rights Plan or that the Rights Plan will be effective in protecting our NOL carryforwards.

ITEM 1B. UNRESOLVED STAFF COMMENTS

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None.

ITEM 2. PROPERTIES

Our corporate headquarters is located in Cicero, Illinois, a suburb located west of Chicago, Illinois. In addition, the Subsidiaries own or lease operating facilities, which are presented by operating segment as follows (information below is as of December 31, 2018).

|  |  |  | Owned / |  | Approximate |
Operating Segment and Facility Type |  | Location |  | Leased |  | Square Footage |
Towers and Heavy Fabrications (1) |  |  |  |  |  |  |
Tower Manufacturing |  | Manitowoc, WI |  | Leased |  | 213,000 |
Tower Manufacturing |  | Abilene, TX |  | Owned |  | 175,000 |
Heavy Fabrications Manufacturing |  | Manitowoc, WI |  | Leased |  | 30,000 |
Gearing and Corporate |  |  |  |  |  |  |
Gearing System Manufacturing—Machining and Corporate Administration |  | Cicero, IL |  | Leased |  | 301,000 |
Gearing System Manufacturing—Heat Treatment and Gearbox Repair |  | Neville Island, PA |  | Owned |  | 52,000 |
Process Systems |  |  |  |  |  |  |
Red Wolf Manufacturing |  | Sanford, NC |  | Leased |  | 105,000 |

| (1) |  | The Towers and Heavy Fabrications segment listing does not include the tower storage yards of 36 acres in Manitowoc, WI and 25 acres in Abilene, TX.

We consider our active facilities to be in good condition and adequate for our present and future needs.

ITEM 3. LEGAL PROCEEDINGS

We are party to a variety of legal proceedings that arise in the ordinary course of our business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on our results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations, financial condition or cash flows. It is possible that if one or more of such matters were decided against us, the effects could be material to our results of operations in the period in which we would be required to record or adjust the related liability and could also be material to our financial condition and cash flows in the period in which we would be required to pay such liability.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “BWEN.” The following table sets forth the high and low bid prices of our common stock traded on the NASDAQ.

|  | Common Stock |
|  | High |  | Low |
2018 |  |  |  |  |  |  |
First quarter |  | $ | 2.85 |  | $ | 2.20 |
Second quarter |  |  | 3.15 |  |  | 2.11 |
Third quarter |  |  | 2.54 |  |  | 2.07 |
Fourth quarter |  |  | 2.22 |  |  | 1.20 |

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|  | Common Stock |
|  | High |  | Low |
2017 |  |  |  |  |  |  |
First quarter |  | $ | 8.33 |  | $ | 4.02 |
Second quarter |  |  | 9.41 |  |  | 4.57 |
Third quarter |  |  | 4.84 |  |  | 2.98 |
Fourth quarter |  |  | 3.91 |  |  | 2.35 |

The closing price for our common stock as of February 22, 2019 was $1.30. As of February 22, 2019, there were 47 holders of record of our common stock.

Dividends

We have never paid cash dividends on our common stock and have no current plan to do so in the foreseeable future. The declaration and payment of dividends on our common stock are subject to the discretion of our Board and are further limited by our credit agreement and other contractual agreements we may have in place from time to time. The decision of our Board to pay future dividends will depend on general business conditions, the effect of a dividend payment on our financial condition, and other factors our Board may consider relevant. The current policy of our Board is to reinvest cash generated in our operations to promote future growth and to fund potential investments.

Repurchases

There were no repurchases of our equity securities under our repurchase program made during the years ended December 31, 2018 and 2017.

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities for the years ended December 31, 2018 or 2017.

Securities Authorized for Issuance Under Equity Compensation Plans

See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for information as of December 31, 2018 with respect to shares of our common stock that may be issued under our existing share‑based compensation plans.

ITEM 6. SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind,” and the “Company” refer to Broadwind Energy, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its Subsidiaries.

(Dollar amounts are presented in thousands, except per share data and unless otherwise stated)

We booked $83,241 in net new orders in 2018, down from $87,562 in 2017. This decrease in orders was driven primarily by lower orders for towers as planned production shifted into 2019 due to steel plate unavailability and increased foreign competition primarily attributable to steel tariffs. Partially offsetting the impact of the decrease in towers orders was an increase in heavy fabrications orders primarily due to strong mining demand and increased Gearing orders associated with strong demand from aftermarket wind and mining customers. Gearing orders increased by $4,648 in 2018 to $41,576. Our Process Systems segment had $18,154 in orders in 2018, an increase of $2,393 over 2017 primarily due to higher demand from mining and other industrial customers.

We recognized revenue of $125,380 in 2018, down from revenue of $146,785 in 2017. The Towers and Heavy Fabrications segment revenues decrease was primarily due to a 34% decrease in tower sections sold and a lower average sales price on the product mix sold, partially offset by an increase in heavy fabrication sales. Partially offsetting the Towers

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and Heavy Fabrications decrease was an increase in Gearing segment revenues of $12,370 or 48%, primarily as a result of the recovery in the oil and gas (“O&G”) and industrial markets and improved plant efficiencies. The Process Systems segment recognized revenue of $18,319 in 2018 as compared to $17,390 in 2017 due primarily to increased sales within mining and industrial markets. At December 31, 2018, total backlog was $96,456, down 30% from $138,198 at December 31, 2017, which is due in part to the winding down of a three-year tower framework agreement in mid-2016, against which we are still delivering.

We reported a net loss of $24,146, or $1.56 per share in 2018, compared to a net loss of $3,641 or $0.24 per share in 2017. The change in earnings was primarily due to a $7,592 intangible asset impairment charge recognized during the fourth quarter of 2018, a $4,993 goodwill impairment charge recognized during the second quarter of 2018, lower tower margin reflecting reduced production volumes and a less favorable product mix and start-up costs associated with restoring production levels as we ramped up activity during the first quarter of 2018 following a near shutdown in late 2017. Partially offsetting these factors were improvements in Gearing plant utilization and efficiencies and a $2,249 gain recognized upon extinguishment of the New Markets Tax Credit (NMTC) loan.

During the first quarter of 2018, we conducted a review of our business strategies and product plans given the outlook of the industries we serve and our business environment. As a result, we executed a restructuring plan to rationalize our facility capacity and management structure, and to consolidate and increase the efficiencies in our Abilene facility operations. We exited the market for natural gas compression units and transferred remaining operations from a leased facility in Abilene, TX into other production locations. We vacated the leased Abilene facility in 2018 (following the expiration of the New Markets Tax Credit Transaction compliance period) and incurred costs totaling $668 for the year ended December 31, 2018. In conjunction with this initiative, all costs associated with this vacated facility were recorded as restructuring expenses within the Process Systems segment. We expect any remaining restructuring costs associated with the restructuring plan to be immaterial. We anticipate future annual cost savings of approximately $575 in facility expenses related to the restructuring.

We use our credit facility to fund working capital requirements and believe that our credit facility, together with the operating cash generated by our businesses, and any potential proceeds from access to the public or private debt or equity markets, are sufficient to meet all cash obligations over the next twelve months. For a further discussion of our capital resources and liquidity, including a description of recent amendments and waivers under our credit facility, please see the discussion under “Liquidity, Financial Position and Capital Resources”.

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RESULTS OF OPERATIONS

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017.

|  | For the Year Ended December 31, |  | 2018 vs. 2017 |
|  |  |  |  | % of Total |  |  |  |  | % of Total |  |  |  |  |  |
|  | 2018 |  | Revenue |  | 2017 |  | Revenue |  | $ Change |  | % Change |
Revenues |  | $ | 125,380 |  | 100 | % | $ | 146,785 |  | 100.0 | % | $ | (21,405) |  | (14.6) | %
Cost of sales |  |  | 121,684 |  | 97.1 | % |  | 138,626 |  | 94.4 | % |  | (16,942) |  | (12.2) | %
Restructuring |  |  | 631 |  | 0.5 | % |  | — |  | 0.0 | % |  | 631 |  | 100.0 | %
Gross profit |  |  | 3,065 |  | 2.4 | % |  | 8,159 |  | 5.6 | % |  | (5,094) |  | (62.4) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses |  |  | 13,625 |  | 10.9 | % |  | 13,828 |  | 9.4 | % |  | (203) |  | (1.5) | %
Impairment charges |  |  | 12,585 |  | 10.0 | % |  | — |  | 0.0 | % |  | 12,585 |  | 100.0 | %
Intangible amortization |  |  | 1,884 |  | 1.5 | % |  | 1,764 |  | 1.2 | % |  | 120 |  | 6.8 | %
Restructuring |  |  | 37 |  | — | % |  | — |  | — | % |  | 37 |  | 100.0 | %
Total operating expenses |  |  | 28,131 |  | 22.4 | % |  | 15,592 |  | 10.6 | % |  | 12,539 |  | 80.4 | %
Operating loss |  |  | (25,066) |  | (20.0) | % |  | (7,433) |  | (5.1) | % |  | (17,633) |  | (237.2) | %
Other expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (1,496) |  | (1.2) | % |  | (798) |  | (0.5) | % |  | (698) |  | (87.5) | %
Other, net |  |  | 2,355 |  | 1.9 | % |  | 3 |  | 0.0 | % |  | 2,352 |  | 78,400.0 | %
Total other expense, net |  |  | 859 |  | 0.7 | % |  | (795) |  | (0.5) | % |  | 1,654 |  | 208.1 | %
Net loss before benefit for income taxes |  |  | (24,207) |  | (19.3) | % |  | (8,228) |  | (5.6) | % |  | (15,979) |  | (194.2) | %
Benefit for income taxes |  |  | (205) |  | (0.2) | % |  | (5,045) |  | (3.4) | % |  | 4,840 |  | 95.9 | %
Loss from continuing operations |  |  | (24,002) |  | (19.1) | % |  | (3,183) |  | (2.2) | % |  | (20,819) |  | (654.1) | %
Loss from discontinued operations |  |  | (144) |  | (0.1) | % |  | (458) |  | (0.3) | % |  | 314 |  | 68.6 | %
Net loss |  | $ | (24,146) |  | (19.3) | % | $ | (3,641) |  | (2.5) | % | $ | (20,505) |  | (563.2) | %

Consolidated

Revenues decreased by $21,405 from $146,785 for the year ended December 31, 2017, to $125,380 for the year ended December 31, 2018. Lower sales in our Towers and Heavy Fabrications segment of $34,574 were partially offset by higher sales in the Gearing segment of $12,370 and higher sales in the Process Systems segment of $929. The Towers and Heavy Fabrications segment revenue decrease was primarily due to a 34% decrease in towers sections sold and a lower average sales price on the product mix sold. Partially offsetting the impact of the towers revenue decrease was an increase in the volume of heavy fabrications primarily due to the recovery in mining and other industrial markets and the expansion of our machining capabilities. Gearing segment revenues increased primarily due to improved order intake beginning in the second half of 2017, primarily resulting from the recovery in demand from O&G and mining customers due to expanding our customer base.

Gross profit decreased by $5,094, from $8,159 for the year ended December 31, 2017, to $3,065, for the year ended December 31, 2018. The decrease in gross profit was primarily attributable to lower capacity utilization in the tower plants early in 2018 following a near shutdown at year end 2017 as our major customer rebalanced inventories. This decrease was partially offset by a $3,571 improvement in gross profit in our Gearing segment due to improved plant utilization and manufacturing efficiencies. As a result, our gross margin decreased from 5.6% for the year ended December 31, 2017, to 2.4% for the year ended December 31, 2018.

Operating expenses increased from $15,592 during the year ended December 31, 2017, to $28,131 during the year ended December 31, 2018. The increase was primarily attributable to a $7,592 intangible asset impairment charge recognized during the fourth quarter of 2018 and a $4,993 goodwill impairment charge recognized during the second quarter of 2018. As a result, operating expenses as a percentage of sales increased from 10.6% in 2017 to 22.4% in 2018.

Loss from continuing operations increased from a loss of $3,183 for the year ended December 31, 2017 to a loss of $24,002 for the year ended December 31, 2018, primarily as a result of the factors described above, partially offset by a $2,249 gain recognized on the NMTC Transaction during the current year.

The Company had a net loss of $3,641 for the year ended December 31, 2017, compared to a net loss of $24,146 for the year ended December 31, 2018, primarily as a result of the factors described above, in addition to the absence of a

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$5,034 benefit from income taxes in the prior year due to the release of a portion of the tax provision related to the acquisition of Red Wolf.

Towers and Heavy Fabrications Segment

The following table summarizes the Towers and Heavy Fabrications segment operating results for the years ended December 31, 2018 and 2017:

|  | Twelve Months Ended |
|  | December 31, |
|  | 2018 |  | 2017 |
Orders |  | $ | 23,511 |  | $ | 34,873 |
Revenues |  |  | 68,815 |  |  | 103,389 |
Operating (loss) income |  |  | (4,346) |  |  | 2,667 |
Operating margin |  |  | (6.3) | % |  | 2.6 | %

Towers orders decreased from $34,873 for the year ended December 31, 2017 to $23,511 for the year ended December 31, 2018. Lower demand for towers was partially offset by increased heavy fabrication orders for the year ended December 31, 2018 primarily due to the recovery in mining demand, and in response to a strategic focus on broadening our manufacturing capabilities and diversifying the customer base in this segment. Towers and Heavy Fabrications segment revenues decreased by $34,574, from $103,389 during the year ended December 31, 2017 to $68,815 during the year ended December 31, 2018 primarily due to a 34% reduction in towers sections sold and a lower average sales price on the product mix sold. Partially offsetting the impact of the decrease in towers revenue was an increase in heavy fabrications due primarily to the recovery in mining activity.

Towers and Heavy Fabrications segment operating income decreased by $7,013, from income of $2,667 during the year ended December 31, 2017, to a loss of $4,346 during the year ended December 31, 2018. This reduction was primarily attributable to lower capacity utilization, a lower margin product mix and start-up costs associated with restoring production levels as we ramped up activity during the first quarter following a near shutdown in late 2017. These factors were partially offset by increased sales and margins on the heavy fabrications product line, a reduction in manufacturing overhead and productivity improvements. The operating margin decreased from 2.6% during the year ended December 31, 2017, to a loss of 6.3% during the year ended December 31, 2018.

Gearing Segment

The following table summarizes the Gearing segment operating results for the years ended December 31, 2018 and 2017:

The following table summarizes the Gearing segment operating results for the years ended December 31, 2017 and 2016: |  |  |  |  |  |  |
|  | Twelve Months Ended |
|  | December 31, |
|  | 2018 |  | 2017 |
Orders |  | $ | 41,576 |  | $ | 36,928 |
Revenues |  |  | 38,376 |  |  | 26,006 |
Operating income (loss) |  |  | 51 |  |  | (2,632) |
Operating margin |  |  | 0.1 | % |  | (10.1) | %

Gearing segment orders rose 13% from the year ended December 31, 2017, primarily due to strong demand from wind and mining customers. As a result of the recovery in order intake that began in the prior year, revenue increased from $26,006 during the year ended December 31, 2017, to $38,376 during the year ended December 31, 2018.

The Gearing segment had operating income of $51 during the year ended December 31, 2018, an improvement from a loss of $2,632 during the year ended December 31, 2017. The operating income improvement was primarily due to improved plant utilization and manufacturing efficiencies, and higher labor productivity. Partially offsetting this was the absence of the $727 environmental reserve reversal that occurred in the prior year, as well as increased commissions and overhead costs to support higher production levels. The operating margin improved based on the above items from (10.1%) during the year ended December 31, 2017, to 0.1% during the year ended December 31, 2018.

Process Systems Segment

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The following table summarizes the Process Systems segment operating results for the years ended December 31, 2018 and 2017.

| Year Ended
| December 31,
| 2018 |  |  | 2017
Orders | $ | 18,154 |  | $ | 15,761 |
Revenues |  | 18,319 |  |  | 17,390 |
Impairment charges |  | 12,585 |  |  | - |
Operating loss |  | (16,442) |  |  | (2,269) |
Operating margin |  | (89.8) | % |  | (13.0) | %

Process Systems segment orders increased $2,393 from $15,761 during the year ended December 31, 2017, to $18,154 during the year ended December 31, 2018 primarily due to higher demand from mining and industrial customers, partially offset by weaker natural gas turbine component demand. Process Systems segment revenues increased by $929, from $17,390 during the year ended December 31, 2017, to $18,319 during the year ended December 31, 2018 primarily due to the recovery in mining and other industrial markets and the full year impact of the Red Wolf acquisition which closed in February of 2017.

The Process Systems segment operating loss increased by $14,173, from $2,269 during the year ended December 31, 2017, to $16,442 during the year ended December 31, 2018 primarily due to a $7,592 intangible asset impairment charge recognized during the fourth quarter of 2018, a $4,993 impairment charge resulting from the write-off of goodwill and $668 of restructuring costs related to the exit of a leased production facility in Abilene, TX. The operating margin decreased from a loss of 13.0% during the year ended December 30, 2017, to a loss of 89.8% during the year ended December 31, 2018.

Corporate and Other

Corporate and Other expenses decreased by $870, from $5,199 for the year ended December 31, 2017, to $4,329 for the year ended December 31, 2018. The decrease was primarily attributable to lower salaries and benefits expense of $811, partially offset by the $254 reduction in the Red Wolf earn-out release in the current period compared to the prior year.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

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

We have identified the accounting policies listed below to be critical to obtain an understanding of our consolidated financial statements. This section should also be read in conjunction with Note 1, “Description of Business and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements for further discussion of these and other significant accounting policies.

Revenue Recognition

We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers, like those made for liquidated damages, are presumed to be classified as reductions of revenue in our statement of operations.

In many instances within our Towers and Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition due to our customers’ preference to ship towers in batches to support efficient construction of wind farms. We recognize revenue under these arrangements when there is a substantive reason for the arrangement (i.e. the buyer requests the arrangement), the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and we do not have the ability to use the product or to direct it to another customer. Assuming these required

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revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

We adopted the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for the fiscal year beginning January 1, 2018 and elected the modified retrospective approach. Through our assessment of the ASC 606, we determined minimal changes to the assumptions utilized for the year ending December 31, 2017 and the adoption of the guidance did not result in a material impact on our consolidated financial statements.

Warranty Liability

We provide warranty terms that generally range from one to five years for various products relating to workmanship and materials supplied by us. In certain contracts, we have recourse provisions for items that would enable us to seek recovery from third parties for amounts paid to customers under warranty provisions. We estimate the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales.

Inventories

Inventories consist of raw materials, work-in-process and finished goods. Raw materials consist of components and parts for general production use. Work-in-process consists of labor and overhead, processing costs, purchased subcomponents, and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by us.

Inventories are stated at the lower of cost or market and net realizable value. We have recorded a reserve for the excess of cost over market value in our inventory allowance. Market value of inventory, and management’s judgment concerning the need for reserves, encompasses consideration of other business factors including physical condition, inventory holding period, contract terms and usefulness. Inventories are valued based either on actual cost or using a first‑in, first out method.

Long-Lived Assets

We review property and equipment and other long-lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. In evaluating the recoverability of long-lived assets, we utilize a fair value technique accepted by ASC 820, Fair Value Measurement, which is the asset accumulation approach. If the fair value of the asset group is less than the carrying amount, we recognize an impairment loss.

Due to the Gearing segment’s operating losses in 2017 combined with its history of operating losses, we continue to evaluate the recoverability of certain of the long-lived assets associated with the Gearing segment. Based on third-party appraisals and other estimates of the fair value of the Gearing asset group, we determined the fair value of the asset group is in excess of carrying amounts under ASC 360 testing, and no impairment was indicated as of December 31, 2018 or 2017. The appraised value of the assets was determined primarily through the use of market value third-party appraisals. To the extent assumptions used in our evaluations are not achieved, there may be a negative effect on the valuation of these assets.

During the second quarter of 2018, we identified triggering events associated with the release of Red Wolf’s final earn-out reserve, Red Wolf’s recent operating results, a reduction in Red Wolf’s major customer’s performance and the delay of new initiatives being implemented. As a result, we evaluated the recoverability of the Red Wolf asset group. In accordance with GAAP, we compared the carrying value of the Red Wolf asset group to the forecast undiscounted cash flows associated with this asset group. Based on the analysis performed, the forecast undiscounted cash flows exceeded the carrying value and no impairment of this group was indicated or recorded.

Next we compared the carrying value of the Red Wolf reporting unit to the fair value of the Red Wolf reporting unit. The fair value was determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The two main assumptions utilized in the forecast discounted cash flow analysis were the cash flows from operations and the weighted average cost of capital of 18.6%. Based on the analysis performed, we determined that the carrying amount of the reporting unit exceeded the fair value and recorded a $4,993 goodwill impairment charge in the second quarter of 2018. We utilized a third-party appraisal to validate the results of the analysis.

During the fourth quarter of 2018, we identified triggering events associated with Red Wolf’s recent operating results, a reduction in Red Wolf’s major customer’s performance and the delay of new initiatives being implemented. As a result, we tested the long‑lived assets associated with Red Wolf for impairment. The carrying value of the asset group was

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found to exceed both its undiscounted cash flows and its fair value determined using the asset accumulation approach. We relied upon a third-party valuation and determined that the customer relationship intangible asset was impaired, and recorded a corresponding $7,592 impairment charge during the fourth quarter of 2018. The two main assumptions utilized in the valuation were the cash flows from operations and the weighted average cost of capital of 18.5%.

Income Taxes

We account for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

In connection with the preparation of our consolidated financial statements, we are required to estimate our income tax liability for each of the tax jurisdictions in which we operate. This process involves estimating our actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. We also recognize the expected future income tax benefits of NOL carryforwards as deferred income tax assets. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, we consider, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

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

Workers’ Compensation Reserves

At the beginning of the third quarter of 2013, we began to self‑insure for our workers’ compensation liability, and began establishing reserves for self‑retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk transfer programs are used to determine required workers’ compensation reserves. We take into account claims incurred but not reported when determining our workers’ compensation reserves. Workers’ compensation reserves are included in accrued liabilities. While we believe that we have adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred. Although we entered into a guaranteed cost program at the beginning of the third quarter of 2016, we maintain a liability for the trailing claims associated with the self-insured policy years.

Health Insurance Reserves

At the beginning of the first quarter of 2014, we began to self‑insure for our health insurance liabilities, including establishing reserves for self‑retained losses. Historical loss experience combined with actuarial evaluation methods and the application of risk transfer programs are used to determine required health insurance reserves. We take into account claims incurred but not reported when determining our health insurance reserves. Health insurance reserves are included in accrued liabilities. While we believe that we have adequately reserved for these claims, the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of December 31, 2018, cash and cash equivalents totaled $1,177, an increase of $1,099 from December 31,

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2017. Debt and capital lease obligations at December 31, 2018 totaled $14,876, and we had the ability to borrow up to $10,319 under our Credit Facility (as defined in Note 10, “Debt and Credit Agreement” in the notes to our consolidated financial statements). We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including the option to raise capital under the Form S-3.

On January 29, 2018, we executed the Third Amendment to Loan and Security Agreement (the “Third Amendment”), which waived the Fixed Charge Coverage Ratio Covenant as of December 31, 2017 and added new minimum EBITDA and capital expenditure covenants through June 30, 2018. Among other changes, the Third Amendment also revised the Fixed Charge Coverage Ratio Covenant to be recalculated for future periods commencing with the quarter ending June 30, 2018.

On May 3, 2018, we executed the Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”), which waived our non-compliance with the minimum EBITDA covenant through March 31, 2018. The Fourth Amendment, among other changes, amended the minimum EBITDA thresholds for the period ending June 30, 2018 and adjusted the definition of EBITDA to add back certain restructuring expenses.

On October 26, 2018, we executed the Fifth Amendment to Loan and Security Agreement which, among other changes, removed the Fixed Charge Coverage Ratio and capital expenditure covenants as of the period ending December 31, 2018 and added minimum EBITDA covenants through June 30, 2019.

On January 16, 2019, we executed the Sixth Amendment to Loan and Security Agreement which increased our capability to issue letters of credit.

On February, 25, 2019, we executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019 and introduces a Fixed Charge Coverage Ratio thereafter. For a more detailed description of the Amended and Restated Loan Agreement refer to Item 9B of this Form 10-K.

While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial obligations and amended debt covenants, there can be no assurance that our operations will generate sufficient cash, that we will be able to comply with applicable loan covenants or that credit facilities will be available in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Sources and Uses of Cash

Operating Cash Flows

During the year ended December 31, 2018 net cash provided by operations was $2,045 compared to net cash used in operating activities of $9,350 for the year ended December 31, 2017. The operating cash flow improved versus the prior year due to a significant increase in customer deposits associated with higher scheduled Tower production levels in 2019. Partially offsetting this increase was a greater use of cash for accounts receivable and inventory that supported higher production levels in the current year as compared to the prior year when our largest tower customer reduced orders to correct inventories.

Investing Cash Flows

During the year ended December 31, 2018, net cash used in investing activities was $1,648 compared to net cash used in investing activities of $19,894 for the year ended December 31, 2017. The decrease in net cash used in investing activities as compared to the prior-year period was primarily due to the $16,449 cash paid for the Red Wolf acquisition in February 2017. In addition, we realized a $4,968 decrease in net purchases of property and equipment, primarily driven by the completion of our Abilene, TX tower plant upgrade and expansion project in the prior year, partially offset by the $3,171 liquidation of available-for-sale securities in 2017.

Financing Cash Flows

During the year ended December 31, 2018, net cash provided by financing activities totaled $807 compared to net cash provided by financing activities of $10,660 for the year ended December 31, 2017. The decrease in net cash provided by financing activities as compared to the prior-year period was primarily due to the increased usage of our Credit Facility in 2017, which subsequently flattened in 2018 partially offset by an increase of $842 in net proceeds on long-term debt.

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Other

The $2,600 liability associated with the NMTC transaction described further in Note 18, “New Markets Tax Credit Transaction” in the notes to our consolidated financial statements is included in the line of credit, NMTC and other notes payable line item of our consolidated financial statements as of December 31, 2017. During the third quarter of 2018, the NMTC loan was extinguished and we recorded a gain of $2,249 in other income, net of transaction expenses.

Separately in 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon us meeting and maintaining specific employment thresholds. During 2018, $114 of the loan was forgiven. In addition, we have outstanding notes payable for capital expenditures in the amount of $1,882 and $1,146 as of December 31, 2018 and 2017, respectively, with $930 and $804 included in the “Line of credit, NMTC and other notes payable” line item of our consolidated financial statements as of December 31, 2018 and 2017, respectively. The notes payable have monthly payments that range from $3 to $36 and an interest rate of 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to May 2021.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial information required by Item 8 is contained in Part IV, Item 15 “EXHIBITS AND FINANCIAL STATEMENT SCHEDULES” of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures

We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal year reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective as of December 31, 2018.

(b)Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c)Report of Management on Internal Control Over Financial Reporting

Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

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Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that our internal control over financial reporting was effective as of December 31, 2018.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION

On February, 25, 2019, the Company and its subsidiaries Brad Foote Gear Works, Inc. (“Brad Foote”), Broadwind Towers, Inc. (“Broadwind Towers”), Broadwind Services, LLC (“Broadwind Services”), and Red Wolf (each individually, a “Subsidiary” and collectively, the “Subsidiaries”), entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), with CIBC Bank USA, formerly known as The PrivateBank and Trust Company (“CIBC”), as administrative agent and sole lead arranger and the other financial institutions party thereto (the “Lenders”), providing the Company and its Subsidiaries with a $35 million secured credit facility (the “Credit Facility”).

Under the terms of the Amended and Restated Loan Agreement, the Credit Facility is a three-year asset-based revolving credit facility, pursuant to which the Lenders will advance funds against a borrowing base consisting of approximately (a) 85% of the face value of eligible receivables of the Company and the Subsidiaries, plus (b) the lesser of (i) 50% of the lower of cost or market value of eligible inventory of the Company, (ii) 85% of the orderly liquidation value of eligible inventory and (iii) $12.5 million, plus (c) the lesser of (i) the sum of (A) 75% of the appraised net orderly liquidation value of the Company’s eligible machinery and equipment plus (B) 50% of the fair market value of the Company’s mortgaged property and (ii) $12 million. Subject to certain borrowing base conditions, the aggregate Credit Facility limit under the Amended and Restated Loan Agreement is $35 million with a sublimit for letters of credit of $10 million. Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, the one, two or three-month LIBOR rate or the base rate, plus a margin. The applicable margin is 5.50% for LIBOR rate loans and 3.50% for base rates loans. Upon certain pay downs, a pricing grid based on the Company’s trailing twelve month fixed charge coverage ratio may become effective under which applicable margins would range from 2.25% to 2.75% for LIBOR rate loans and 0.00% to 0.75% for base rate loans. Letter of credit fees are payable on outstanding letters of credit in an amount equal to the applicable LIBOR margin under the pricing grid, plus other customary fees. The Company must also pay an unused facility fee equal to 0.50% per annum on the unused portion of the Credit Facility along with other standard fees. The initial term of the Amended and Restated Loan Agreement ends on February 25, 2022.

The Company is allowed to prepay in whole or in part advances under the Credit Facility without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.

The Amended and Restated Loan Agreement contains customary representations and warranties applicable to the Company and the Subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain minimum quarterly EBITDA levels through September 30, 2019 and a minimum quarterly fixed charge coverage ratio thereafter, along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications. These restrictive covenants include limitations on the ability of the Company and the Subsidiaries to, among other things, form or acquire subsidiaries, incur indebtedness, create liens, enter into a merger, consolidation, reorganization or recapitalization, dispose of assets, pay dividends, cause or permit a change of control, make investments or enter into affiliate transactions.

The Amended and Restated Loan Agreement also contains customary events of default including, without limitation, non-payment of obligations, non-performance of covenants and obligations, material judgments, bankruptcy or insolvency, default on other material debt, change of control, breaches of representations and warranties, limitation or termination of any guarantee with respect to the Amended and Restated Loan Agreement, impairment of security or invalidity or unenforceability of documentation or liens related to the Amended and Restated Loan Agreement. The occurrence of an event of default could, among other things, result in the acceleration of the obligations under the Amended and Restated Loan Agreement.

The obligations under the Amended and Restated Loan Agreement are secured by, subject to certain exclusions, (i) a first priority security interest in all of the accounts, inventory, equipment, chattel paper, payment intangibles, cash and cash equivalents and other personal property and stock or other equity interest in subsidiaries of the Company and the Subsidiaries and (ii) a first priority mortgage of the real property of Abilene, Texas and Pittsburgh, Pennsylvania.

The Company and the Subsidiaries may use the proceeds from the Credit Facility for working capital purposes, to refinance the debt of the Company and its Subsidiaries and for other business purposes.

The foregoing description of the Amended and Restated Loan Agreement is not intended to be complete and is qualified in its entirety by reference to the Amended and Restated Loan Agreement, which is attached hereto as Exhibit 10-25 to this Annual Report on Form 10-K and is incorporated herein by reference.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

With the exception of the description of our Code of Ethics and Business Conduct below, the information required by this item is incorporated herein by reference from the discussion under the headings “Directors and Director Compensation,” “Corporate Governance,” “Executive Officers” and “Other Matters—Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with our 2019 Annual Meeting of Stockholders (the “2019 Proxy Statement”).

Code of Ethics

We have adopted a Code of Ethics and Business Conduct (the “Code”) that applies to all of our directors, executive officers and senior financial officers (including our principal executive officer, principal financial officer, principal accounting officer, controller, and any person performing similar functions). The Code is available on our website at www.bwen.com under the caption “Investors” and is available in print, free of charge, to any stockholder who sends a request for a paper copy to Broadwind Energy, Inc., Attn: Investor Relations, 3240 South Central Avenue, Cicero, IL 60804. We intend to include on our website any amendment to, or waiver from, a provision of the Code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S‑K.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding director and executive compensation is incorporated by reference from the discussion under the headings “Directors and Director Compensation” and “Executive Officers and Executive Compensation” in the 2019 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Certain of the information required by this item is incorporated herein by reference from the discussion under the heading “Security Ownership of Certain Beneficial Holders and Management” in the 2019 Proxy Statement.

The following table provides information as of December 31, 2018, with respect to shares of our common stock that may be issued under our existing equity compensation plans:

EQUITY COMPENSATION PLAN INFORMATION

|  | (a) |  | (b) |  | (c) |
|  |  |  |  |  |  | Number of securities |
|  |  |  |  |  |  | remaining available for |
|  | Number of securities |  |  |  |  | future issuances under |
|  | to be issued upon |  | Weighted‑average |  | equity compensation |
|  | exercise of |  | exercise price of |  | plans (excluding |
|  | outstanding options, |  | outstanding options, |  | securities reflected in |
Plan Category |  | warrants, and rights |  | warrants, and rights |  | column (a)) |
Equity compensation plans approved by stockholders |  | 862,706 | (1) | $ | 3.95 |  | 135,192 |
Total |  | 862,706 |  | $ | 3.95 |  | 135,192 |

| (1) |  | Includes outstanding stock options to purchase shares of our common stock and outstanding restricted stock awards pursuant to the Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan, the Broadwind Energy, Inc. 2012 Equity Incentive Plan, and the Broadwind Energy, Inc. 2015 Equity Incentive Plan. Each of these plans has been approved by our stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference from the discussion under the headings “Certain Transactions and Business Relationships” and “Corporate Governance” in the 2019 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference from the discussion under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in the 2019 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements

The financial statements listed on the Index to Financial Statements (page 34) are filed as part of this Annual Report.

2. Financial Statement Schedules

These schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required.

3. Exhibits

The exhibits listed on the Index to Exhibits (pages 70 through 72) are filed as part of this Annual Report.

ITEM 16. FORM 10-K SUMMARY

None.

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INDEX TO FINANCIAL STATEMENTS

|  | Page |
Report of Independent Registered Public Accounting Firm |  | 35 |
Consolidated Balance Sheets as of December 31, 2018 and 2017 |  | 36 |
Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017 |  | 37 |
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018 and 2017 |  | 38 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 |  | 39 |
Notes to Consolidated Financial Statements |  | 40 |

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Broadwind Energy, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Broadwind Energy, Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company's auditor since 2016.

Chicago, Illinois

February 26, 2019

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

|  |  | As of December 31, |
|  |  | 2018 |  | 2017 |
ASSETS |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | $ | 1,177 |  | $ | 78 |
Accounts receivable, net |  |  |  | 17,455 |  |  | 13,644 |
Inventories, net |  |  |  | 22,670 |  |  | 19,279 |
Prepaid expenses and other current assets |  |  |  | 1,776 |  |  | 1,798 |
Current assets held for sale |  |  |  | — |  |  | 580 |
Total current assets |  |  |  | 43,078 |  |  | 35,379 |
LONG-TERM ASSETS: |  |  |  |  |  |  |  |
Property and equipment, net |  |  |  | 49,087 |  |  | 55,693 |
Goodwill |  |  |  | — |  |  | 4,993 |
Other intangible assets, net |  |  |  | 6,602 |  |  | 16,078 |
Other assets |  |  |  | 398 |  |  | 207 |
TOTAL ASSETS |  |  | $ | 99,165 |  | $ | 112,350 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Line of credit, NMTC and other notes payable |  |  | $ | 11,930 |  | $ | 14,138 |
Current maturities of long-term debt |  |  |  | — |  |  | 114 |
Current portions of capital lease obligations |  |  |  | 967 |  |  | 762 |
Accounts payable |  |  |  | 11,618 |  |  | 11,756 |
Accrued liabilities |  |  |  | 3,806 |  |  | 4,393 |
Customer deposits |  |  |  | 23,507 |  |  | 9,791 |
Current liabilities held for sale |  |  |  | 27 |  |  | 30 |
Total current liabilities |  |  |  | 51,855 |  |  | 40,984 |
LONG-TERM LIABILITIES: |  |  |  |  |  |  |  |
Long-term debt, net of current maturities |  |  |  | 1,408 |  |  | 797 |
Long-term capital lease obligations, net of current portions |  |  |  | 571 |  |  | 941 |
Other |  |  |  | 1,969 |  |  | 3,557 |
Total long-term liabilities |  |  |  | 3,948 |  |  | 5,295 |
COMMITMENTS AND CONTINGENCIES |  |  |  |  |  |  |  |
STOCKHOLDERS’ EQUITY: |  |  |  |  |  |  |  |
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding |  |  |  | — |  |  | — |
Common stock, $0.001 par value; 30,000,000 shares authorized; 15,982,622 and 15,480,299 shares issued as of December 31, 2018, and December 31, 2017, respectively |  |  |  | 16 |  |  | 15 |
Treasury stock, at cost, 273,937 shares as of December 31, 2018 and December 31, 2017 |  |  |  | (1,842) |  |  | (1,842) |
Additional paid-in capital |  |  |  | 381,441 |  |  | 380,005 |
Accumulated deficit |  |  |  | (336,253) |  |  | (312,107) |
Total stockholders’ equity |  |  |  | 43,362 |  |  | 66,071 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  | $ | 99,165 |  | $ | 112,350 |

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

|  |  |  |  | For the Years Ended December 31, |
|  |  |  |  | 2018 |  | 2017 |  |
Revenues |  |  |  |  | $ | 125,380 |  | $ | 146,785 |  |
Cost of sales |  |  |  |  |  | 121,684 |  |  | 138,626 |  |
Restructuring |  |  |  |  |  | 631 |  |  | — |  |
Gross profit |  |  |  |  |  | 3,065 |  |  | 8,159 |  |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative |  |  |  |  |  | 13,625 |  |  | 13,828 |  |
Impairment charges |  |  |  |  |  | 12,585 |  |  | — |  |
Intangible amortization |  |  |  |  |  | 1,884 |  |  | 1,764 |  |
Restructuring |  |  |  |  |  | 37 |  |  | — |  |
Total operating expenses |  |  |  |  |  | 28,131 |  |  | 15,592 |  |
Operating loss |  |  |  |  |  | (25,066) |  |  | (7,433) |  |
OTHER (EXPENSE) INCOME, net: |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  |  |  |  | (1,496) |  |  | (798) |  |
Other, net |  |  |  |  |  | 2,355 |  |  | 3 |  |
Total other income (expense), net |  |  |  |  |  | 859 |  |  | (795) |  |
Net loss before benefit for income taxes |  |  |  |  |  | (24,207) |  |  | (8,228) |  |
Benefit for income taxes |  |  |  |  |  | (205) |  |  | (5,045) |  |
LOSS FROM CONTINUING OPERATIONS |  |  |  |  |  | (24,002) |  |  | (3,183) |  |
LOSS FROM DISCONTINUED OPERATIONS |  |  |  |  |  | (144) |  |  | (458) |  |
NET LOSS |  |  |  |  | $ | (24,146) |  | $ | (3,641) |  |
NET LOSS PER COMMON SHARE—BASIC: |  |  |  |  |  |  |  |  |  |  |
Loss from continuing operations |  |  |  |  | $ | (1.55) |  | $ | (0.21) |  |
Loss from discontinued operations |  |  |  |  |  | (0.01) |  |  | (0.03) |  |
Net loss |  |  |  |  | $ | (1.56) |  | $ | (0.24) |  |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC |  |  |  |  |  | 15,469 |  |  | 15,053 |  |
NET LOSS PER COMMON SHARE—DILUTED: |  |  |  |  |  |  |  |  |  |  |
Loss from continuing operations |  |  |  |  | $ | (1.55) |  | $ | (0.21) |  |
Loss from discontinued operations |  |  |  |  |  | (0.01) |  |  | (0.03) |  |
Net loss |  |  |  |  | $ | (1.56) |  | $ | (0.24) |  |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED |  |  |  |  |  | 15,469 |  |  | 15,053 |  |

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

|  |  | Common Stock |  | Treasury Stock |  |  |  |  |  |  |  |  |  |
|  |  | Shares |  | Issued |  |  |  | Issued |  | Additional |  | Accumulated |  |  |  |
|  |  | Issued |  | Amount |  | Shares |  | Amount |  | Paid-in Capital |  | Deficit |  | Total |
BALANCE, December 31, 2016 |  |  | 15,175,767 |  | $ | 15 |  | (273,937) |  | $ | (1,842) |  | $ | 378,876 |  | $ | (308,466) |  | $ | 68,583 |
Stock issued for restricted stock |  |  | 190,482 |  |  | — |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock issued under defined contribution 401(k) retirement savings plan |  |  | 114,050 |  |  | — |  | — |  |  | — |  |  | 316 |  |  | — |  |  | 316 |
Share-based compensation |  |  | — |  |  | — |  | — |  |  | — |  |  | 813 |  |  | — |  |  | 813 |
Net loss |  |  | — |  |  | — |  | — |  |  | — |  |  | — |  |  | (3,641) |  |  | (3,641) |
BALANCE, December 31, 2017 |  |  | 15,480,299 |  | $ | 15 |  | (273,937) |  | $ | (1,842) |  | $ | 380,005 |  | $ | (312,107) |  | $ | 66,071 |
Stock issued for restricted stock |  |  | 156,472 |  |  | 1 |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |
Stock issued under defined contribution 401(k) retirement savings plan |  |  | 330,739 |  |  | — |  | — |  |  | — |  |  | 685 |  |  | — |  |  | 685 |
Share-based compensation |  |  | — |  |  | — |  | — |  |  | — |  |  | 803 |  |  | — |  |  | 803 |
Sale of common stock, net of expenses |  |  | 15,112 |  |  | — |  | — |  |  | — |  |  | (52) |  |  | — |  |  | (52) |
Net loss |  |  | — |  |  | — |  | — |  |  | — |  |  | — |  |  | (24,146) |  |  | (24,146) |
BALANCE, December 31, 2018 |  |  | 15,982,622 |  | $ | 16 |  | (273,937) |  | $ | (1,842) |  | $ | 381,441 |  | $ | (336,253) |  | $ | 43,362 |

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

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BROADWIND ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

|  |  |  | December 31, |
|  |  |  | 2018 |  | 2017 |  |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |  |  |
Net loss |  |  |  | $ | (24,146) |  | $ | (3,641) |  |
Loss from discontinued operations |  |  |  |  | (144) |  |  | (458) |  |
Loss from continuing operations |  |  |  |  | (24,002) |  |  | (3,183) |  |
Adjustments to reconcile net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |  |  |
Depreciation and amortization expense |  |  |  |  | 9,183 |  |  | 8,999 |  |
Deferred income taxes |  |  |  |  | (307) |  |  | (5,045) |  |
Impairment charges |  |  |  |  | 12,585 |  |  | 80 |  |
Remeasurement of contingent consideration |  |  |  |  | (1,140) |  |  | (1,394) |  |
Stock-based compensation |  |  |  |  | 803 |  |  | 813 |  |
Extinguishment of New Markets Tax Credits obligation |  |  |  |  | (2,249) |  |  | — |  |
Allowance for doubtful accounts |  |  |  |  | (35) |  |  | 37 |  |
Common stock issued under defined contribution 401(k) plan |  |  |  |  | 685 |  |  | 316 |  |
Gain on disposal of assets |  |  |  |  | (116) |  |  | (12) |  |
Changes in operating assets and liabilities, net of acquisition: |  |  |  |  |  |  |  |  |  |
Accounts receivable |  |  |  |  | (3,776) |  |  | 884 |  |
Inventories |  |  |  |  | (2,944) |  |  | 7,057 |  |
Prepaid expenses and other current assets |  |  |  |  | 22 |  |  | 651 |  |
Accounts payable |  |  |  |  | 801 |  |  | (5,287) |  |
Accrued liabilities |  |  |  |  | 553 |  |  | (4,921) |  |
Customer deposits |  |  |  |  | 13,716 |  |  | (8,219) |  |
Other non-current assets and liabilities |  |  |  |  | (1,734) |  |  | (126) |  |
Net cash provided by (used in) operating activities of continuing operations |  |  |  |  | 2,045 |  |  | (9,350) |  |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |  |  |
Cash paid in acquisition |  |  |  |  | — |  |  | (16,449) |  |
Sales of available for sale securities |  |  |  |  | — |  |  | 2,221 |  |
Maturities of available for sale securities |  |  |  |  | — |  |  | 950 |  |
Purchases of property and equipment |  |  |  |  | (2,324) |  |  | (6,688) |  |
Proceeds from disposals of property and equipment |  |  |  |  | 676 |  |  | 72 |  |
Net cash used in investing activities of continuing operations |  |  |  |  | (1,648) |  |  | (19,894) |  |
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |  |  |
Proceeds from line of credit |  |  |  |  | 141,414 |  |  | 158,856 |  |
Payments on line of credit |  |  |  |  | (141,040) |  |  | (148,009) |  |
Proceeds from long-term debt |  |  |  |  | 2,060 |  |  | 457 |  |
Payments on long-term debt |  |  |  |  | (761) |  |  | — |  |
Principal payments on capital leases |  |  |  |  | (814) |  |  | (644) |  |
Proceeds from sale of common stock, net of expenses |  |  |  |  | (52) |  |  | — |  |
Net cash provided by financing activities of continuing operations |  |  |  |  | 807 |  |  | 10,660 |  |
DISCONTINUED OPERATIONS: |  |  |  |  |  |  |  |  |  |
Operating cash flows |  |  |  |  | (105) |  |  | (78) |  |
Net cash used in discontinued operations |  |  |  |  | (105) |  |  | (78) |  |
Add: Cash balance of discontinued operations, beginning of period |  |  |  |  | — |  |  | 2 |  |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  |  |  |  | 1,099 |  |  | (18,660) |  |
CASH AND CASH EQUIVALENTS beginning of the period |  |  |  |  | 78 |  |  | 18,738 |  |
CASH AND CASH EQUIVALENTS end of the period |  |  |  | $ | 1,177 |  | $ | 78 |  |
Supplemental cash flow information: |  |  |  |  |  |  |  |  |  |
Interest paid |  |  |  | $ | 1,168 |  | $ | 585 |  |
Income taxes paid |  |  |  | $ | 116 |  | $ | 44 |  |
Non-cash activities: |  |  |  |  |  |  |  |  |  |
Issuance of restricted stock grants |  |  |  | $ | 803 |  | $ | 813 |  |
Equipment additions via capital lease |  |  |  | $ | 650 |  | $ | 844 |  |
Non-cash purchases of property and equipment |  |  |  | $ | 64 |  | $ | 1,003 |  |
Contingent consideration related to business acquisition |  |  |  | $ | — |  | $ | 2,534 |  |
Red Wolf acquisition: |  |  |  |  |  |  |  |  |  |
Assets acquired |  |  |  | $ | — |  | $ | 26,602 |  |
Liabilities assumed |  |  |  | $ | — |  | $ | 7,619 |  |

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018 and 2017

(in thousands, except share and per share data)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Broadwind Energy, Inc. (the “Company”) provides technologically advanced high‑value products to energy, mining and infrastructure sector customers, primarily in the United States of America (the “U.S.”). The Company’s most significant presence is within the U.S. wind energy industry, although the Company has increasingly diversified into other industrial markets. Within the U.S. wind energy industry, the Company provides products primarily to turbine manufacturers. The Company also provides precision gearing and heavy fabrications to a broad range of industrial customers for oil and gas (“O&G”), mining, steel and other industrial applications. With the acquisition of Red Wolf Company, LLC (“Red Wolf”), a Sanford, North Carolina-based, privately held fabricator, kitter and assembler of industrial systems primarily supporting the global natural gas turbine (“NGT”) market in February 2017, the Company further diversified into the business of supplying components for natural gas turbines. The Company has three reportable operating segments: Towers and Heavy Fabrications, Gearing, and Process Systems.

Towers and Heavy Fabrications

The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for multiple megawatt (“MW”) wind turbines. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of up to approximately 550 towers (1650 towers sections), sufficient to support turbines generating more than 1,100 MW of power. This product segment also encompasses the manufacture of other heavy fabrications for mining and other industrial customers. In the fourth quarter 2017, the segment changed its name from “Towers and Weldments” to “Towers and Heavy Fabrications” to more accurately reflect the nature of the segment’s activities.

Gearing

The Company engineers, builds and remanufactures precision gears and gearboxes for O&G, wind energy, mining, steel and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

Process Systems

On February 1, 2017, the Company acquired Red Wolf and as a result, aggregated its Abilene TX based fabrication business with Red Wolf to form the Process Systems reportable segment. This segment provides contract manufacturing services that include build-to-spec, kitting, fabrication and inventory management for customers throughout the U.S. and in foreign countries, primarily supporting the natural gas turbine power generation market.

Liquidity

The Company meets its short term liquidity needs through cash generated from operations, through its available cash balances and through the Company’s Credit Facility (as defined below), first established in October 2016, additional equipment financing and access to the public and private debt equity markets, including the option to raise capital under the Company’s registration statement on Form S-3 (as discussed below). The Company uses the Credit Facility to fund working capital requirements. Under the terms of the Credit Facility, CIBC agreed to advance funds against a borrowing base consisting of up to 85% of the face value of the Company’s eligible accounts receivable (“A/R”), up to 50% of the book value of the Company’s eligible inventory and up to 50% of the appraised value of the Company’s eligible machinery, equipment and certain real property up to $10,000. Under the Credit Facility, borrowings are continuous and all cash receipts are usually applied to the outstanding borrowed balance. As of December 31, 2018, cash and cash equivalents and short-term investments totaled $1,177, an increase of $1,099 from December 31, 2017, and $11,000 was outstanding under the Credit Facility. The Company had the ability to borrow up to $10,319 under the Credit Facility as of December 31, 2018.

The Credit Facility has been periodically amended since the original transaction closed in 2016 to address changes in business conditions. On January 29, 2018, the Company executed the Third Amendment to Loan and Security

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

Agreement (the “Third Amendment”), which waived the Fixed Charge Coverage Ratio Covenant as of December 31, 2017 and added new minimum EBITDA and capital expenditure covenants through June 30, 2018. Among other changes, the Third Amendment also revised the Fixed Charge Coverage Ratio Covenant to be recalculated for future periods commencing with the quarter ending June 30, 2018.

On May 3, 2018, the Company executed the Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”), waiving the Company’s non-compliance with the minimum EBITDA covenant through March 31, 2018. The Fourth Amendment, among other changes, amended the minimum EBITDA thresholds for the period ending June 30, 2018 and adjusted the definition of EBITDA to add back certain restructuring expenses.

On October 26, 2018, the Company executed the Fifth Amendment to Loan and Security Agreement which, among other things, removed the Fixed Charge Coverage Ratio and capital expenditure covenants as of the period ending December 31, 2018 and added minimum EBITDA covenants through June 30, 2019.

On January 16, 2019, the Company executed the Sixth Amendment to Loan and Security Agreement which increased the Company’s capability to issue letters of credit.

On February 25, 2019, the Company executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), which expanded the Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019 and introduces a Fixed Charge Coverage Ratio thereafter. For a more detailed description of the Amended and Restated Loan Agreement refer to Item 9B of this Form 10-K.

Debt and capital lease obligations at December 31, 2018 totaled $14,876, which includes current outstanding debt and capital lease obligations totaling $12,897, over the next twelve months. The current outstanding debt includes $11,000 outstanding under the Credit Facility.

On August 11, 2017, the Company filed a “shelf” registration statement on Form S-3, which was declared effective by the SEC on October 10, 2017 (the “Broadwind Form S-3”). This shelf registration statement, which includes a base prospectus, allows the Company at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in the prospectus supplement accompanying the Company’s base prospectus, the Company would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes.

On July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the "ATM Agreement") with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent shares of the Company's common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. During the year ended December 31, 2018, the Company issued 15,112 shares of the Company’s common stock under the ATM Agreement and the net proceeds (before upfront costs) to the Company from the sale of the Company’s common stock were approximately $33 after deducting commissions paid of approximately $1. As of December 31, 2018, the Company’s common stock having a value of approximately $9,967 remained available for issuance with respect to the ATM Agreement.

The Company anticipates that current cash resources, amounts available under the Credit Facility, cash to be generated from operations, additional equipment financing, and any potential proceeds from access to the public or private debt or equity markets, including the option to raise capital under the Broadwind Form S-3, will be adequate to meet the Company’s liquidity needs for at least the next twelve months. If assumptions regarding the Company’s production, sales and subsequent collections from several of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash flow and liquidity issues, which could have a material adverse effect on the Company’s business, financial condition and results of operations. If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

Company’s operational flexibility or require a delay in making planned investments. Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company. While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial obligations and debt covenants, for at least the next 12 months, there can be no assurances that its operations will generate sufficient cash, or that credit facilities or other resources will be available in an amount sufficient to enable the Company to meet these financial obligations.

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

These consolidated financial statements include the accounts of the Company and entities in which it has a controlling financial interest. All significant intercompany transactions and balances have been eliminated in consolidation. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”).

When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a VIE, and if the Company is deemed to be the primary beneficiary, in accordance with the accounting standard for the consolidation of VIE’s. The accounting standard for the consolidation of VIE’s requires the Company to qualitatively assess if the Company was the primary beneficiary of the VIE based on whether the Company had (i) the power to direct those matters that most significantly impacted the activities of the VIE and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant. Refer to Note 18, “New Markets Tax Credit Transaction” of these consolidated financial statements for a description of two VIE’s that were included in the Company’s consolidated financial statements.

Management’s Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period. Significant estimates, among others, include revenue recognition, future tax rates, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts, workers’ compensation reserves, health insurance reserves, and environmental reserves. Although these estimates are based upon management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from these estimates.

Cash and Cash Equivalents and Short‑Term Investments

Cash and cash equivalents typically comprise cash balances and readily marketable investments with original maturities of three months or less, such as money market funds, short‑term government bonds, Treasury bills, marketable securities and commercial paper. Marketable investments with original maturities between three and twelve months are recorded as short‑term investments. The Company’s treasury policy is to invest excess cash in money market funds or other investments, which are generally of a short‑term duration based upon operating requirements. Income earned on these investments is recorded to interest income in the Company’s consolidated statements of operations. As of December 31, 2018 and December 31, 2017, cash and cash equivalents totaled $1,177 and $78, respectively. For the years ended December 31, 2018 and 2017, interest income was $5.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are presumed to be classified as reductions of revenue in the Company’s statement of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

In many instances within the Company’s Towers and Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under these arrangements only when the buyer requests the arrangement, the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

The Company adopted the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for the fiscal year beginning January 1, 2018 and elected the modified retrospective approach. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 605. Based on the Company’s contract evaluation, the Company determined there was no need to record any changes to the opening retained earnings due to the impact of adopting Topic 606. The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements.

Cost of Sales

Cost of sales represents all direct and indirect costs associated with the production of products for sale to customers. These costs include operation, repair and maintenance of equipment, materials, direct and indirect labor and benefit costs, rent and utilities, maintenance, insurance, equipment rentals, freight in and depreciation.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include all corporate and administrative functions such as sales and marketing, legal, human resource management, finance, investor and public relations, information technology and senior management. These functions serve to support the Company’s current and future operations and provide an infrastructure to support future growth. Major expense items in this category include management and staff wages and benefits, share‑based compensation and professional services.

Accounts Receivable (A/R)

The Company generally grants uncollateralized credit to customers on an individual basis based upon the customer’s financial condition and credit history. Credit is typically on net 30 day terms and customer deposits are frequently required at various stages of the production process to finance customized products and minimize credit risk.

Historically, the Company’s A/R is highly concentrated with a select number of customers. During the year ended December 31, 2018, the Company’s five largest customers accounted for 78% of its consolidated revenues and 54% of outstanding A/R balances, compared to the year ended December 31, 2017 when the Company’s five largest customers accounted for 85% of its consolidated revenues and 57% of its outstanding A/R balances.

Allowance for Doubtful Accounts

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to A/R. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the realizability of its A/R. These factors include individual customer circumstances, history with the Company and other relevant criteria. A/R balances that remain outstanding after the Company has exhausted reasonable collection efforts are written off through a charge to the valuation allowance and a credit to A/R.

The Company monitors its collections and write‑off experience to assess whether or not adjustments to its allowance estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the realizability of its A/R, as noted above, or modifications to the Company’s credit standards, collection practices and other related policies may impact its allowance for doubtful accounts and its financial results. Bad debt (recoveries) expense for the years ended December 31, 2018 and 2017 was $(34) and $80, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

Inventories

Inventories are stated at the lower of cost or market and net realizable value. Cost is determined either based on the first‑in, first‑out (“FIFO”) method, or on a standard cost basis that approximates the FIFO method. Market is determined based on net realizable value. Any excess of cost over net realizable value is included in the Company’s inventory allowance. Net realizable value of inventory, and management’s judgment of the need for reserves, encompasses consideration of other business factors including physical condition, inventory holding period, contract terms and usefulness.

Inventories consist of raw materials, work‑in‑process and finished goods. Raw materials consist of components and parts for general production use. Work‑in‑process consists of labor and overhead, processing costs, purchased subcomponents and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by the Company that will be used to produce final customer products.

Long-Lived Assets

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is recognized using the straight‑line method over the estimated useful lives of the related assets for financial reporting purposes, and generally using an accelerated method for income tax reporting purposes. Depreciation expense related to property and equipment for the years ended December 31, 2018 and 2017 was $7,299 and $7,235, respectively. Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs that do not improve or extend the useful lives of the respective assets are expensed as incurred. The Company has in the past capitalized interest costs incurred on indebtedness used to construct property and equipment. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. There was no interest cost capitalized during the years ended December 31, 2018 or 2017. Property or equipment sold or disposed of is removed from the respective property accounts, with any corresponding gains and losses recorded within operating income (loss) in the Company’s consolidated statement of operations.

The Company reviews property and equipment and other long‑lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. In evaluating the recoverability of long-lived assets, the Company utilizes a fair value technique accepted by ASC 820, Fair Value Measurement, which is the asset accumulation approach. If the fair value of the asset group is less than the carrying amount, the Company recognizes an impairment loss.

In evaluating the recoverability of long‑lived assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of such assets. If the Company’s fair value estimates or related assumptions change in the future, the Company may be required to record impairment charges related to property and equipment and other long‑lived assets. Asset recoverability is first measured by comparing the assets’ carrying amounts to their expected future undiscounted net cash flows to determine if the assets are impaired. If such assets are considered to be impaired, the impairment recognized is measured based on the amount by which the carrying amount of the assets exceeds the fair value. To the extent the assumptions used in the Company’s analysis are not achieved, there may be a negative effect on the valuation of these assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

Warranty Liability

The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions. Warranty liability is recorded in accrued liabilities within the consolidated balance sheet. The Company estimates the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales. The changes in the carrying amount of the Company’s total product warranty liability for the years ended December 31, 2018 and 2017 were as follows, excluding activity related to the discontinued Services segment:

|  |  | As of December 31, |
|  |  | 2018 |  | 2017 |  |
Balance, beginning of period |  |  | $ | 581 |  | $ | 671 |  |
Addition to (reduction of) warranty reserve |  |  |  | (350) |  |  | (28) |  |
Warranty claims |  |  |  | (5) |  |  | (62) |  |
Balance, end of period |  |  | $ | 226 |  | $ | 581 |  |

Income Taxes

The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

In connection with the preparation of its consolidated financial statements, the Company is required to estimate its income tax liability for each of the tax jurisdictions in which the Company operates. This process involves estimating the Company’s actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. The Company also recognizes as deferred income tax assets the expected future income tax benefits of net operating loss (“NOL”) carryforwards. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, the Company considers, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause its income tax provision to vary significantly among financial reporting periods.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. In connection with the Tax Act, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information, prepared or analyzed in reasonable detail to complete its accounting for the change in tax law.

The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition related to the uncertainty in these income tax positions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

Share‑Based Compensation

The Company grants incentive stock options, restricted stock units (“RSUs”) and/or performance awards (“PSUs”) to certain officers, directors, and employees. The Company accounts for share‑based compensation related to these awards based on the estimated fair value of the equity award and recognizes expense ratably over the required vesting term of the award. The expense associated with PSUs is also based on the probability of achieving embedded targets. See Note 15 “Share‑Based Compensation” of these consolidated financial statements for further discussion of the Company’s share‑based compensation plans, the nature of share‑based awards issued and the Company’s accounting for share‑based compensation.

Net Income (Loss) Per Share

The Company presents both basic and diluted net income (loss) per share. Basic net income (loss) per share is based solely upon the weighted average number of common shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income (loss) per share is based upon the weighted average number of common shares and common‑share equivalents outstanding during the year excluding those common‑share equivalents where the impact to basic net income (loss) per share would be anti‑dilutive.

2. REVENUES

On January 1, 2018, the Company adopted ASU 2014-09 and 2015-14, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 605. Based on the Company’s contract evaluation, the Company determined there was no need to record any changes to the opening retained earnings due to the impact of adopting Topic 606. The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements.

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by revenue source for years ended December 31, 2018 and 2017:

|  | For the Years Ended December 31,
|  | 2018 |  | 2017 (1)
Towers and Heavy Fabrications | $ | 68,815 | $ | 103,389
Gearing |  | 38,376 |  | 26,006
Process Systems |  | 18,319 |  | 17,390
Eliminations |  | (130) |  | -
Consolidated | $ | 125,380 | $ | 146,785

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

(1)As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Revenue within the Company’s Gearing and Process Systems segments is recognized at a point in time, typically when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The Company measures revenue based on the consideration specified in the purchase order and revenue is recognized when the performance obligations are satisfied. If applicable, the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

For many transactions within the Company’s Towers and Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under these arrangements only when there is a substantive reason for the arrangement, the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s statement of operations.

The Company does not disclose the value of the unsatisfied performance obligations for contracts with an original expected length of one year or less.

3. EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31, 2018 and 2017 as follows:

|  |  |  | For the Years Ended December 31, |
|  |  |  | 2018 |  | 2017 |  |
Basic earnings per share calculation: |  |  |  |  |  |  |  |  |  |
Net loss |  |  |  | $ | (24,146) |  | $ | (3,641) |  |
Weighted average number of common shares outstanding |  |  |  |  | 15,468,975 |  |  | 15,053,049 |  |
Basic net (loss) income per share |  |  |  | $ | (1.56) |  | $ | (0.24) |  |
Diluted earnings per share calculation: |  |  |  |  |  |  |  |  |  |
Net loss |  |  |  | $ | (24,146) |  | $ | (3,641) |  |
Weighted average number of common shares outstanding |  |  |  |  | 15,468,975 |  |  | 15,053,049 |  |
Common stock equivalents: |  |  |  |  |  |  |  |  |  |
Stock options and non-vested stock awards (1) |  |  |  |  | — |  |  | — |  |
Weighted average number of common shares outstanding |  |  |  |  | 15,468,975 |  |  | 15,053,049 |  |
Diluted net loss per share |  |  |  | $ | (1.56) |  | $ | (0.24) |  |

(1) Stock options and restricted stock units granted and outstanding of 862,706 and 579,330 are excluded from the computation of diluted earnings for the years ended December 31, 2018 and 2017 due to the anti‑dilutive effect as a result of the Company’s net loss for those respective periods.

4. DISCONTINUED OPERATIONS

The Company’s former Services segment had substantial continued operating losses for several years, due to low capacity utilization in our gearbox remanufacturing facility and an increasingly competitive environment for field services due in part to increased in-sourcing of service functions by customers. In July, 2015 the Company’s Board of Directors (the

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(in thousands, except share and per share data)

“Board”) directed management to evaluate potential strategic alternatives with respect to the Services segment. In September 2015 the Board authorized management to sell substantially all of the assets of the Services segment to one or more third-party purchasers, and thereafter to liquidate or otherwise dispose of any such assets remaining unsold. The Company began negotiations to sell substantially all the assets of the Services segment in the third quarter of 2015. The exit of this business was a strategic shift that had a major effect on the Company; therefore, the Company reclassified the related assets and liabilities of the Services segment as held for sale, which the divestiture was substantially completed in December 2015.

Results of Discontinued Operations

Results of operations associated with the Services segment, which are reflected as discontinued operations in the Company’s consolidated statements of income for the twelve months ended December 31, 2018 and 2017, were as follows:

|  |  |  |  | Year Ended December 31,
|  |  |  |  | 2018 |  | 2017
Revenues |  |  |  |  | $ | 3 |  | $ | 151
Cost of sales |  |  |  |  |  | (132) |  |  | (391)
Selling, general and administrative |  |  |  |  |  | (15) |  |  | (57)
Impairment of held for sale assets and liabilities and gain on sale of assets |  |  |  |  |  | — |  |  | (161)
Loss from discontinued operations |  |  |  |  | $ | (144) |  | $ | (458)

Assets and Liabilities Held for Sale

Assets and liabilities classified as held for sale in the Company’s consolidated balance sheets as of December 31, 2018 and 2017 include the following:

|  | December 31, |  | December 31,
|  | 2018 |  | 2017
Assets: |  |  |  |  |  |
Accounts receivable, net |  | $ | — |  | $ | 11
Inventories, net |  |  | — |  |  | 9
Total Assets Held For Sale Related To Discontinued Operations |  | $ | — |  | $ | 20
Liabilities: |  |  |  |  |  |
Accrued liabilities |  | $ | 26 |  | $ | 27
Customer deposits and other current obligations |  |  | 1 |  |  | 3
Total Liabilities Held For Sale Related To Discontinued Operations |  | $ | 27 |  | $ | 30

5. RECENT ACCOUNTING PRONOUNCEMENTS

The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its consolidated financial statements, except as discussed below.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current guidance. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This ASU became effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. The Company expects to adopt this guidance for leases existing at the date of adoption and expects to recognize a liability and corresponding asset associated with in-scope leases. The Company has commenced identifying its lease population, but is still in the process of determining those amounts to be recognized as liabilities and right of use assets.

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In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), which clarifies the definition of a business. The amendments in this ASU provide a screen to determine when a set (group of assets and activities) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this ASU (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. This ASU became effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this ASU had no material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2, which compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill, from the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. The Company early adopted this ASU during the second quarter of 2018 and recorded a $4,993 impairment charge as discussed in Note 8 “Long-Lived Assets” of these consolidated financial statements.

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The activity in the A/R allowance from operations for the years ended December 31, 2018 and 2017 consists of the following:

|  |  | For the Years Ended
|  |  | December 31,
|  |  | 2018 |  | 2017
Balance at beginning of period |  |  | $ | 225 |  | $ | 145
(Recoveries) bad debt expense |  |  |  | (34) |  |  | 80
Write-offs |  |  |  | (1) |  |  | —
Balance at end of period |  |  | $ | 190 |  | $ | 225

7. INVENTORIES

The components of inventories from operations as of December 31, 2018 and 2017 are summarized as follows:

|  | As of December 31, |
|  | 2018 |  | 2017 |
Raw materials |  | $ | 16,394 |  | $ | 11,945 |
Work-in-process |  |  | 5,426 |  |  | 6,305 |
Finished goods |  |  | 2,958 |  |  | 3,538 |
|  |  | 24,778 |  |  | 21,788 |
Less: Reserve for excess and obsolete inventory |  |  | (2,108) |  |  | (2,509) |
Net inventories |  | $ | 22,670 |  | $ | 19,279 |

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8. LONG-LIVED ASSETS

The cost basis and estimated lives of property and equipment from continuing operations as of December 31, 2018 and 2017 are as follows:

|  | As of December 31, |  |  |  |  |  |
|  | 2018 |  | 2017 |  | Life |
Land |  | $ | 1,423 |  | $ | 1,423 |  |  |  |  |  |
Buildings |  |  | 20,747 |  |  | 22,998 |  | 39 | years |  |  |
Machinery and equipment |  |  | 107,469 |  |  | 103,878 |  | 2 | - | 10 | years |
Office furniture and equipment |  |  | 4,387 |  |  | 4,202 |  | 3 | - | 7 | years |
Leasehold improvements |  |  | 8,974 |  |  | 9,095 |  | Asset life or life of lease |  |  |  |
Construction in progress |  |  | 172 |  |  | 4,138 |  |  |  |  |  |
|  |  | 143,172 |  |  | 145,734 |  |  |  |  |  |
Less accumulated depreciation and amortization |  |  | (94,085) |  |  | (90,041) |  |  |  |  |  |
Total property and equipment |  | $ | 49,087 |  | $ | 55,693 |  |  |  |  |  |

As of December 31, 2018 and December 31, 2017, the Company had commitments of $80 and $132, respectively, related to the completion of projects within construction in progress.

As a result of the Red Wolf acquisition, the Company added $4,993 of goodwill, which was included in the Process Systems segment. See Note 16, “Segment Reporting” of these consolidated financial statements for further discussion of the Company’s segments. The goodwill represented the excess of the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities as part of the Company’s acquisition of Red Wolf.

During the second quarter of 2018, the Company identified triggering events associated with the release of Red Wolf’s final earn-out reserve, Red Wolf’s recent operating results, a reduction in Red Wolf’s major customer’s performance and the delay of new initiatives being implemented. As a result, the Company evaluated the recoverability of the Red Wolf asset group. In accordance with GAAP, the Company compared the carrying value of the Red Wolf asset group to the forecast undiscounted cash flows associated with this asset group. Based on the analysis performed, the forecast undiscounted cash flows exceeded the carrying value and no impairment of this group was indicated or recorded.

The Company next compared the carrying value of the Red Wolf reporting unit to the fair value of the Red Wolf reporting unit. The fair value was determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The two main assumptions utilized in the forecast discounted cash flow analysis were the cash flows from operations and the weighted average cost of capital of 18.6%. Based on the analysis performed, the Company determined that the carrying amount of the reporting unit exceeded the fair value and recorded a $4,993 goodwill impairment charge in the second quarter of 2018. The Company utilized a third-party appraisal to validate the results of the analysis.

During the fourth quarter of 2018, the Company identified triggering events associated with Red Wolf’s recent operating results, a reduction in Red Wolf’s major customer’s performance and the delay of new initiatives being implemented. As a result, the Company tested the long‑lived assets associated with Red Wolf for impairment. The carrying value of the asset group was found to exceed both its undiscounted cash flows and its fair value determined using the asset accumulation approach. The Company relied upon a third-party valuation and determined that the customer relationship intangible asset was impaired, and recorded a corresponding $7,592 impairment charge during the fourth quarter of 2018. The two main assumptions utilized in the valuation were the cash flows from operations and the weighted average cost of capital of 18.5%.

During 2018 and 2017, the Company continued to experience triggering events associated with the Gearing segment’s history of operating losses. As a result, the Company evaluated the recoverability of certain of its long‑lived

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assets associated with the Gearing segment. The Company relied upon a third-party appraisal and determined that there were no significant changes to the inputs or assumptions used previously. The Company concluded that no impairment to this asset group was indicated as of December 31, 2018 or 2017.

Other intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed in 2007 as well as the noncompetition agreements, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf. See Note 21, “Business Combinations” of these consolidated financial statements for further discussion of the Red Wolf acquisition. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 4 to 10 years.

As of December 31, 2018 and 2017, the cost basis, accumulated amortization and net book value of intangible assets were as follows:

|  |  |  |  | December 31, 2018 |  | December 31, 2017
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Remaining |  |  |  |  |  |  |  |  |  |  | Remaining
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  |  |  | Weighted
|  |  |  |  |  |  |  |  |  |  |  |  |  | Net |  | Average |  |  |  |  |  |  |  | Net |  | Average
|  |  |  |  |  |  |  | Accumulated |  | Impairment |  | Book |  | Amortization |  |  |  |  | Accumulated |  | Book |  | Amortization
|  |  |  |  | Cost |  | Amortization |  | Charge |  | Value |  | Period |  | Cost |  | Amortization |  | Value |  | Period
Goodwill and other intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  |  |  | $ | 4,993 |  | $ | — |  | $ | (4,993) |  | $ | - |  |  |  | $ | 4,993 |  | $ | — |  | $ | 4,993 |  |
Noncompete agreements |  |  |  |  |  | 170 |  |  | (54) |  |  | — |  |  | 116 |  | 4.1 |  |  | 170 |  |  | (26) |  |  | 144 |  | 5.1
Customer relationships |  |  |  |  |  | 15,979 |  |  | (6,369) |  |  | (7,592) |  |  | 2,018 |  | 6.8 |  |  | 15,979 |  |  | (4,992) |  |  | 10,987 |  | 8.0
Trade names |  |  |  |  |  | 9,099 |  |  | (4,631) |  |  | — |  |  | 4,468 |  | 9.5 |  |  | 9,099 |  |  | (4,152) |  |  | 4,947 |  | 10.5
Other intangible assets |  |  |  |  | $ | 25,248 |  | $ | (11,054) |  | $ | (7,592) |  | $ | 6,602 |  | 6.5 |  | $ | 25,248 |  | $ | (9,170) |  | $ | 16,078 |  | 8.8

Intangible assets are amortized on a straight‑line basis over their estimated useful lives, which range from 6 to 20 years. Amortization expense was $1,884 and $1,764 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, estimated future amortization expense is as follows:

2019 |  | $ | 812
2020 |  |  | 812
2021 |  |  | 812
2022 |  |  | 812
2023 |  |  | 786
2024 and thereafter |  |  | 2,568
Total |  | $ | 6,602

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(in thousands, except share and per share data)

9. ACCRUED LIABILITIES

Accrued liabilities as of December 31, 2018 and 2017 consisted of the following:

|  | December 31, |
|  | 2018 |  | 2017 |
Accrued payroll and benefits |  | $ | 2,126 |  | $ | 1,797 |
Accrued property taxes |  |  | — |  |  | 144 |
Income taxes payable |  |  | 66 |  |  | 77 |
Accrued professional fees |  |  | 101 |  |  | 40 |
Accrued warranty liability |  |  | 226 |  |  | 581 |
Accrued self-insurance reserve |  |  | 374 |  |  | 812 |
Accrued other |  |  | 913 |  |  | 942 |
Total accrued liabilities |  | $ | 3,806 |  | $ | 4,393 |

10. DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of December 31, 2018 and 2017 consisted of the following:

|  | December 31, |
|  | 2018 |  | 2017 |
Line of credit |  | $ | 11,000 |  | $ | 10,733 |
NMTC note payable |  |  | — |  |  | 2,600 |
Other notes payable |  |  | 1,882 |  |  | 1,146 |
Long-term debt |  |  | 456 |  |  | 570 |
Less: Current portion |  |  | (11,930) |  |  | (14,252) |
Long-term debt, net of current maturities |  | $ | 1,408 |  | $ | 797 |

As of December 31, 2018, future annual principal payments on the Company’s outstanding debt obligations were as follows:

2019 |  | $ | 12,045 |
2020 |  |  | 913 |
2021 |  |  | 266 |
2022 |  |  | 114 |
Total |  | $ | 13,338 |

Credit Facilities

On October 26, 2016, the Company established a $20,000 three-year secured revolving line of credit (the “Credit Facility”) with CIBC Bank USA, formerly known as The PrivateBank and Trust Company (“CIBC”). The Credit Facility was subsequently increased to $25,000 in March of 2017 pursuant to a Second Amendment to Loan and Security Agreement and an Amended and Restated Revolving Note. Under the Credit Facility, CIBC advances funds when requested against a borrowing base consisting of up to 85% of the face value of the Company’s eligible A/R, up to 50% of the book value of eligible inventory and up to 50% of the appraised value of eligible machinery, equipment and certain real property up to $10,000. Borrowings under the Credit Facility bear interest at a per annum rate equal to the applicable LIBOR plus a margin ranging from 2.25% to 3.00%, or the applicable base rate plus a margin ranging from 0.00% to 1.00%, both of which are based on the trailing twelve-month EBITDA. The Company also pays an unused facility fee to CIBC equal to 0.50% per annum on the unused portion of the Credit Facility, along with other standard fees. The Credit Facility contains customary representations and warranties. It also contains a requirement that the Company, on a consolidated basis, maintain a Fixed Charge Coverage Ratio Covenant, along with other customary restrictive covenants. The obligations under the Credit Facility are secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower facility.

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On January 29, 2018, the Company executed the Third Amendment to Loan and Security Agreement (the “Third Amendment”), which waived the Company’s non-compliance with the Fixed Charge Coverage Ratio Covenant as of December 31, 2017 and added new minimum EBITDA and capital expenditure covenants through June 30, 2018. The amendment also revised the Fixed Charge Coverage Ratio Covenant to be recalculated for future periods commencing with the quarter ending June 30, 2018.

On May 3, 2018, the Company executed the Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”), which waived the Company’s non-compliance with the minimum EBITDA covenant through March 31, 2018. The Fourth Amendment, among other changes, amended the minimum EBITDA thresholds for the period ending June 30, 2018 and adjusted the definition of EBITDA to add back certain restructuring expenses.

On October 26, 2018, the Company executed the Fifth Amendment to Loan and Security Agreement which, among other changes, removed the Fixed Charge Coverage Ratio and capital expenditure covenants as of the period ending December 31, 2018 and added minimum EBITDA covenants through June 30, 2019.

On January 16, 2019, the Company executed the Sixth Amendment to Loan and Security Agreement which increased the Company’s capability to issue letters of credit.

On February, 25, 2019, the Company executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), which expanded the Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019 and introduces a Fixed Charge Coverage Ratio thereafter. For a more detailed description of the Amended and Restated Loan Agreement refer to Item 9B of this Form 10-K.

As of December 31, 2018, there was $11,000 outstanding under the Credit Facility. The Company had the ability to borrow up to $10,319 under the Credit Facility as of December 31, 2018.

Other

The $2,600 liability associated with the NMTC transaction described further in Note 18, “New Markets Tax Credit Transaction” of these consolidated financial statements is included in the “Line of credit, NMTC and other notes payable” line item of the Company’s consolidated financial statements as of December 31, 2017. During the third quarter of 2018, the loan was extinguished and the Company recorded a gain of $2,249 in other income, net of transaction expenses.

Separately, in 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During 2018, $114 of the loan was forgiven. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $1,882 and $1,146 as of December 31, 2018 and 2017, respectively, with $930 and $804 included in the “Line of credit, NMTC and other notes payable” line item of the Company’s consolidated financial statements as of December 31, 2018 and 2017, respectively. The notes payable have monthly payments that range from $3 to $36 and an interest rate of 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to May 2021.

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11. LEASES

The Company leases various property and equipment under operating lease arrangements. Lease terms generally range from 3 to 15 years with renewal options for extended terms. Certain leases contain rent escalation clauses that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a straight‑line basis over the minimum lease term. Any lease concessions received by the Company are deferred and recognized as an adjustment to rent expense ratably over the minimum lease term. The Company is required to make additional payments under certain property leases for taxes, insurance and other operating expenses incurred during the operating lease period. Rental expense for the years ended December 31, 2018 and 2017 was $3,654 and $3,378, respectively.

In addition, the Company has entered into capital lease arrangements to finance property and equipment and assumed capital lease obligations in connection with certain acquisitions. The cost basis and accumulated depreciation of assets recorded under capital leases, which are included in property and equipment, are as follows as of December 31, 2018 and 2017:

|  | December 31, |
|  | 2018 |  | 2017 |
Cost |  | $ | 4,354 |  | $ | 2,460 |
Accumulated depreciation |  |  | (951) |  |  | (424) |
Net book value |  | $ | 3,403 |  | $ | 2,036 |

Depreciation expense recorded in connection with assets recorded under capital leases was $527 and $295 for the years ended December 31, 2018 and 2017, respectively.

As of December 31, 2018, future minimum lease payments under capital leases and operating leases were as follows:

|  | Capital |  | Operating |  |  |  |
|  | Leases |  | Leases |  | Total |
2019 |  | $ | 1,057 |  | $ | 3,524 |  | $ | 4,581 |
2020 |  |  | 376 |  |  | 2,784 |  |  | 3,160 |
2021 |  |  | 252 |  |  | 2,334 |  |  | 2,586 |
2022 |  |  | — |  |  | 2,333 |  |  | 2,333 |
2023 |  |  | — |  |  | 2,213 |  |  | 2,213 |
2024 and thereafter |  |  | — |  |  | 6,340 |  |  | 6,340 |
Total |  | $ | 1,685 |  | $ | 19,528 |  | $ | 21,213 |
Less—portion representing interest at a weighted average annual rate of 5.0% |  |  | (147) |  |  |  |  |  |  |
Principal |  |  | 1,538 |  |  |  |  |  |  |
Less—current portion |  |  | (967) |  |  |  |  |  |  |
Capital lease obligations, noncurrent portion |  | $ | 571 |  |  |  |  |  |  |

12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is subject to legal proceedings or claims that arise in the ordinary course of its business. The Company accrues for costs related to loss contingencies when such costs are probable and reasonably estimable. As of December 31, 2018, the Company is not aware of any material pending legal proceedings or threatened litigation that would have a material adverse effect on the Company’s results of operations, financial condition or cash flows, although no assurance can be given with respect to the ultimate outcome of pending actions. Refer to Note 20, “Legal Proceedings” of these consolidated financial statements for further discussion of legal proceedings.

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(in thousands, except share and per share data)

Environmental Compliance and Remediation Liabilities

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

In connection with the Company’s restructuring initiatives, during the third quarter of 2012, the Company identified a liability associated with the planned sale of one of the Company’s facilities located in Cicero, Illinois (the “Cicero Avenue Facility”). The liability is associated with environmental remediation costs that were identified while preparing the site for sale. During 2013, the Company applied for and was accepted into the Illinois Environmental Protection Agency (“IEPA”) voluntary site remediation program. In the first quarter of 2014, the Company completed a comprehensive review of remedial options for the Cicero Avenue Facility and selected a preferred remediation technology. In the fourth quarter of 2017, the Company completed the remediation of the Cicero Avenue Facility which was subsequently sold for $583, net of expenses, in the third quarter of 2018.

Collateral

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations.

Warranty Liability

The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions.

Liquidated Damages

In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays. These damages are typically limited to a specific percentage of the value of the product in question and dependent on actual losses sustained by the customer. When the damages are determined to be probable and estimable, the damages are recorded as a reduction to revenue. During 2018 and 2017, the Company incurred no liquidated damages and there was no reserve for liquidated damages as of December 31, 2018.

Workers’ Compensation Reserves

As of December 31, 2018 and 2017, respectively, the Company had $374 and $812 accrued for self‑insured workers’ compensation liabilities. At the beginning of the third quarter of 2013, the Company began to self‑insure for its workers’ compensation liabilities, including reserves for self‑retained losses. The Company entered into a guaranteed workers’ compensation cost program at the beginning of the third quarter of 2016, but still maintains a liability for the trailing claims for the self-insured policy periods. Although the ultimate outcome of these matters may exceed the amounts recorded and additional losses may be incurred, the Company does not believe that any additional potential exposure for such liabilities will have a material adverse effect on the Company’s consolidated financial position or results of operations.

Other

As of December 31, 2018, approximately 23% of the Company’s employees were covered by two collective bargaining agreements with local unions at the Company’s Cicero, Illinois and Neville Island, Pennsylvania locations. The

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(in thousands, except share and per share data)

current five-year collective bargaining agreement with the Neville Island union is expected to remain in effect through October 2022. During the third quarter of 2018, a new collective bargaining agreement was negotiated and ratified with the Cicero Union. The new four-year collective bargaining agreement with the Cicero union is expected to remain in effect through February 2022.

See Note 18, “New Markets Tax Credit Transaction” of these consolidated financial statements for a discussion of a strategic financing transaction (the “NMTC Transaction”) which originally related to the Company’s drivetrain service center in in Abilene, Texas (the “Abilene Gearbox Facility”), and was amended in August 2015 to also include the activities of the Company’s heavy industries business conducted in the same building in Abilene, Texas (the “Abilene Heavy Industries Facility”). The Abilene Heavy Industries Facility focuses on Heavy Fabrications for industries including those related to compressed natural gas distribution. Pursuant to the NMTC Transaction, the gross loan and investment in the Abilene Heavy Industries Facility and the Abilene Gearbox Facility of $10,000 is expected to generate $3,900 in tax credits over a period of seven years, which the NMTC Transaction makes available to Capital One, National Association (“Capital One”). The Abilene Heavy Industries Facility and/or the Abilene Gearbox Facility operated and remained in compliance with the terms and conditions of the NMTC Transaction during the seven year compliance period ending in the third quarter of 2018, allowing Capital One to capture up to $3,900 in tax credits. At the end of the seven year compliance period, Capital One exercised its right to put the investment back to the Company in exchange for $130. The loan was extinguished and the Company recorded a gain of $2,249 in other income, net of transaction expenses.

13. FAIR VALUE MEASUREMENTS

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. The fair value hierarchy is defined as follows:

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

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. For the Company’s corporate and municipal bonds, although quoted prices are available and used to value said assets, they are traded less frequently.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date. The Company used market negotiations to value the Gearing segments assets.

The following tables represent the fair values of the Company’s financial assets measured as of December 31, 2018 and 2017:

|  |  | December 31, 2018 |
|  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets measured on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Customer relationships |  |  |  |  |  |  |  |  |  | 1,852 |  |  | 1,852 |
Total assets at fair value |  |  | $ | — |  | $ | — |  | $ | 1,852 |  | $ | 1,852 |

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December 31, 2018 and 2017

(in thousands, except share and per share data)

|  | December 31, 2017 |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Assets measured on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |
Gearing Cicero Ave. facility |  | $ | — |  | $ | — |  | $ | 560 |  | $ | 560 |
Services assets |  |  | — |  |  | — |  |  | 20 |  |  | 20 |
Total assets at fair value |  | $ | — |  | $ | — |  | $ | 580 |  | $ | 580 |

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, A/R, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value.

Assets measured at fair value on a nonrecurring basis

The fair value measurement approach for long lived assets utilizes a number of significant unobservable inputs or Level 3 assumptions. To the extent assumptions used in the Company’s evaluations are not achieved, there may be a negative effect on the valuation of these assets.

The carrying value of the land and building comprising the Cicero Avenue Facility of $560 reflected the expected proceeds associated with selling this facility. During 2017, the Company reclassified the Cicero Avenue Facility as Assets Held for Sale upon completion of general site remediation activities. See Note 12, “Commitments and Contingencies” of these consolidated financial statements for additional detail of the Cicero Avenue Facility. During the third quarter of 2018, the Company sold the Cicero Avenue Facility and recognized a gain of $23 on the sale. The gain is included in operating income in these consolidated financial statements.

Following the Board’s approval of a plan to divest the Company’s Services segment, the Company has been able to evaluate the value of the segment’s assets on the open market; therefore, the Company has utilized this measurement to determine the fair value of the Services segment assets.

14. INCOME TAXES

The provision for income taxes for the years ended December 31, 2018 and 2017 consists of the following:

|  | For the Years Ended December 31, |
|  | 2018 |  | 2017 |  |
Current provision |  |  |  |  |  |  |  |
Federal |  | $ | — |  | $ | — |  |
Foreign |  |  | — |  |  | — |  |
State |  |  | 98 |  |  | 5 |  |
Total current benefit |  |  | 98 |  |  | 5 |  |
Deferred credit |  |  |  |  |  |  |  |
Federal |  |  | (3,978) |  |  | 31,614 |  |
State |  |  | (2,963) |  |  | 468 |  |
Total deferred credit |  |  | (6,941) |  |  | 32,082 |  |
Increase (decrease) in deferred tax valuation allowance |  |  | 6,638 |  |  | (37,132) |  |
Total benefit for income taxes |  | $ | (205) |  | $ | (5,045) |  |

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. With the Tax Act, the Securities and

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December 31, 2018 and 2017

(in thousands, except share and per share data)

Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information, prepared or analyzed in reasonable detail to complete its accounting for the change in tax law.

During the year ended December 31, 2018, the Company recorded a benefit for income taxes of $205, compared to a benefit for income taxes of $5,045 during the year ended December 31, 2017. The income tax benefit during the year ended December 31, 2017 included an income tax benefit of $5,060 from the partial release of the valuation allowance, net of Red Wolf’s current state taxes, resulting from the consolidation of the Company’s deferred tax assets with Red Wolf’s deferred tax liabilities upon acquisition.

The total change in the deferred tax valuation allowance was $6,638 and ($37,132) for the years ended December 31, 2018 and 2017, respectively. The changes in the deferred tax valuation allowances in 2018 and 2017 were primarily the result of (decreases) increases to the deferred tax assets pertaining to federal and state NOLs.

The tax effects of the temporary differences and NOLs that give rise to significant portions of deferred tax assets and liabilities are as follows:

|  | As of December 31, |
|  | 2018 |  | 2017 |
Noncurrent deferred income tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 63,906 |  | $ | 56,619 |
Intangible assets |  |  | 7,261 |  |  | 6,889 |
Accrual and reserves |  |  | 2,502 |  |  | 2,402 |
Other |  |  | 19 |  |  | 88 |
Total noncurrent deferred tax assets |  |  | 73,688 |  |  | 65,998 |
Valuation allowance |  |  | (73,129) |  |  | (66,491) |
Noncurrent deferred tax assets, net of valuation allowance |  |  | 559 |  |  | (493) |
Noncurrent deferred income tax liabilities: |  |  |  |  |  |  |
Fixed assets |  |  | 593 |  |  | (152) |
Intangible assets |  |  | — |  |  | — |
Total noncurrent deferred tax liabilities |  |  | 593 |  |  | (152) |
Net deferred income tax liability |  | $ | (34) |  | $ | (341) |

Valuation allowances of $73,129 and $66,491 have been provided for deferred income tax assets for which realization is uncertain as of December 31, 2018 and 2017, respectively. A reconciliation of the beginning and ending amounts of the valuation is as follows:

Valuation allowance as of December 31, 2017 |  | $ | (66,491) |
Gross increase for current year activity |  |  | (6,638) |
Valuation allowance as of December 31, 2018 |  | $ | (73,129) |

As of December 31, 2018, the Company had federal and unapportioned state NOL carryforwards of approximately $248,717 of which $228,787 will begin to expire in 2026. The majority of the NOL carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018 will not expire.

The reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate is as follows:

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December 31, 2018 and 2017

(in thousands, except share and per share data)

|  | For the Year Ended
|  | December 31,
|  | 2018 |  | 2017 |
Statutory U.S. federal income tax rate |  | 21.0 | % | 34.0 | %
State and local income taxes, net of federal income tax benefit |  | 3.2 |  | 3.4 |
Permanent differences |  | (4.4) |  | (1.2) |
Change in valuation allowance |  | (18.7) |  | 446.7 |
Change in uncertain tax positions |  | 0.0 |  | 0.5 |
Other |  | (0.3) |  | 0.1 |
Effect of U.S. tax rate change |  | 0.0 |  | (422.6) |
Effective income tax rate |  | 0.8 | % | 60.9 | %

The Company accounts for the uncertainty in income taxes by prescribing a minimum recognition threshold for a tax position taken, or expected to be taken, in a tax return that is required to be met before being recognized in the financial statements. The changes in the Company’s uncertain income tax positions for the years ended December 31, 2018 and 2017 consisted of the following:

|  | For the Year |
|  | Ended |
|  | December 31, |
|  | 2018 |  | 2017 |
Beginning balance |  | $ | 1 |  | $ | 27 |
Tax positions related to current year: |  |  |  |  |  |  |
Additions |  |  | — |  |  | — |
Reductions |  |  | — |  |  | — |
|  |  | — |  |  | — |
Tax positions related to prior years: |  |  |  |  |  |  |
Additions |  |  | — |  |  | — |
Reductions |  |  | — |  |  | — |
Settlements |  |  | — |  |  | — |
Lapses in statutes of limitations |  |  | (1) |  |  | (26) |
Additions from current year acquisitions |  |  | — |  |  | — |
|  |  | (1) |  |  | (26) |
Ending balance |  | $ | — |  | $ | 1 |

The amount of unrecognized tax benefits at December 31, 2018 that would affect the effective tax rate if the tax benefits were recognized was $0.

It is the Company’s policy to include interest and penalties in tax expense. During the years ended December 31, 2018 and 2017, the Company recognized and accrued approximately $0 of interest and penalties.

The Company files income tax returns in the U.S. federal and state jurisdictions. As of December 31, 2018, open tax years in the federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust NOL carryforwards. The Company’s 2008 and 2009 federal tax returns were examined in 2011 and no material adjustments were identified related to any of the Company’s tax positions. Although these periods have been audited, they continue to remain open until all NOLs generated in those tax years have either been utilized or expire.

Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built‑in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built‑in losses may be limited, under this section or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon completion of the Company’s analysis of IRC Section 382, the Company has determined

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December 31, 2018 and 2017

(in thousands, except share and per share data)

that aggregate changes in stock ownership have resulted in an annual limitation of $14,284 on NOLs and built‑in losses available for utilization based on the triggering event in 2010. To the extent the Company’s use of NOL carryforwards and associated built‑in losses is significantly limited in the future due to additional changes in stock ownership, the Company’s income could be subject to U.S. corporate income tax earlier than it would if the Company were able to use NOL carryforwards and built‑in losses without such annual limitation, which could result in lower profits and the loss of the majority of the benefits from these attributes.

In February 2013, the Company adopted a Stockholder Rights Plan, which was amended in February 2016 and approved by our stockholders (as amended, the “Rights Plan”), designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382. On February 7, 2019, the Board of Directors (the “Board”) approved an amendment extending the Rights Plan for an additional three years. The amendment is subject to approval by our stockholders at our 2019 Annual Meeting of Stockholders.

The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, being or becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection with the adoption of the Rights Plan, the Board declared a non‑taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013. Each Right entitles its holder to purchase from the Company one one‑thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $4.25 per Right, subject to adjustment. As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date.

As of December 31, 2018, the Company had $0 of unrecognized tax benefits, which would have a favorable impact on income tax expense. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. The Company had accrued interest and penalties of $0 as of December 31, 2018. As of December 31, 2017, the Company had unrecognized tax benefits of $1, of which $1 represented accrued interest and penalties.

15. SHARE‑BASED COMPENSATION

Overview of Share‑Based Compensation Plan

2007 Equity Incentive Plan

The Company has granted incentive stock options and other equity awards pursuant to the Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan (the “2007 EIP”), which was approved by the Board in October 2007 and by the Company’s stockholders in June 2008. The 2007 EIP has been amended periodically since its original approval.

The 2007 EIP reserved 691,051 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates depends to a large degree. As of December 31, 2018, the Company had reserved 22,733 shares for issuance upon the exercise of stock options outstanding and no shares for issuance upon the vesting of RSU awards outstanding. As of December 31, 2018, 253,659 shares of common stock reserved for stock options and RSU awards under the 2007 EIP have been issued in the form of common stock.

2012 Equity Incentive Plan

The Company has granted incentive stock options and other equity awards pursuant to the Broadwind Energy, Inc. 2012 Equity Incentive Plan (the “2012 EIP”), which was approved by the Board in March 2012 and by the Company’s stockholders in May 2012.

The 2012 EIP reserved 1,200,000 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates will depend to a large

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December 31, 2018 and 2017

(in thousands, except share and per share data)

degree. As of December 31, 2018, the Company had reserved 34,129 shares for issuance upon the exercise of stock options outstanding and no shares for issuance upon the vesting of RSU awards outstanding. As of December 31, 2018, 635,089 shares of common stock reserved for stock options and RSU awards under the 2012 EIP have been issued in the form of common stock.

2015 Equity Incentive Plan

The Company has granted equity awards pursuant to the Broadwind Energy, Inc. 2015 Equity Incentive Plan (the “2015 EIP;” together with the 2007 EIP and the 2012 EIP, the “Equity Incentive Plans”), which was approved by the Board in February 2015 and by the Company’s stockholders in April 2015. The Company announced on February 8, 2019 that the Board had approved an Amended and Restated 2015 Equity Incentive Plan, which is subject to approval by the Company’s stockholders at the 2019 Annual Meeting of Stockholders.

The purposes of the 2015 EIP are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2015 EIP by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors and independent contractors; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders. Under the 2015 EIP, the Company may grant (i) non-qualified stock options; (ii) “incentive stock options” (within the meaning of IRC Section 422); (iii) stock appreciation rights; (iv) restricted stock and RSUs; and (v) PSUs.

The 2015 EIP reserves 1,100,000 shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates will depend to a large degree. As of December 31, 2018, the Company had reserved 805,844 shares for issuance upon the vesting of RSU awards outstanding. As of December 31, 2018, a total of 343,429 shares of common stock reserved for RSU awards under the 2015 EIP had been issued in the form of common stock.

Stock Options. The exercise price of stock options granted under the Equity Incentive Plans is equal to the closing price of the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. Additionally, stock options expire ten years after the date of grant. The fair value of stock options granted is expensed ratably over their vesting term.

Restricted Stock Units (RSUs). The granting of RSUs is provided for under the Equity Incentive Plans. RSUs generally vest on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. The fair value of each RSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the vesting term of the RSU award.

Performance Awards (PSUs). The granting of PSUs is provided for under the Equity Incentive Plans. PSUs generally vest upon the Company meeting performance measures as of the vesting date over the period of the plan. The fair value of each PSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the term of the PSU award plan.

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December 31, 2018 and 2017

(in thousands, except share and per share data)

Stock option activity during the year ended December 31, 2018 under the Equity Incentive Plans was as follows:

|  |  |  |  |  |  |  | Weighted Average |  | Aggregate Intrinsic |
|  |  |  |  | Weighted Average |  | Remaining |  | Value |
|  |  | Options |  | Exercise Price |  | Contractual Term |  | (in thousands) |
Outstanding as of December 31, 2017 |  |  | 67,188 |  | $ | 24.65 |  | 3.39 |  |  |  |
Expired |  |  | (10,326) |  |  | 77.47 |  |  |  |  |  |
Outstanding as of December 31, 2018 |  |  | 56,862 |  | $ | 15.06 |  | 2.72 |  | $ | — |
Exercisable as of December 31, 2018 |  |  | 56,862 |  | $ | 15.06 |  | 2.72 |  | $ | — |

The following table summarizes information with respect to all outstanding and exercisable stock options under the Equity Incentive Plans as of December 31, 2018:

|  |  |  | Options Outstanding |  |  | Options Exercisable |
|  |  |  |  |  |  |  |  | Weighted Average |  |  |  |  |  |  |
|  |  |  | Number of options |  | Weighted Average |  | Remaining |  |  | Number |  | Weighted Average |
Exercise Price or Range |  | outstanding |  | Exercise Price |  | Contractual Term |  |  | Exercisable |  | Exercise Price |
$3.39 | - | $13.50 |  | 49,039 |  | $ | 6.47 |  | 2.99 | years |  | 49,039 |  | $ | 6.47 |
$54.40 | - | $99.90 |  | 7,823 |  |  | 68.94 |  | 0.99 | years |  | 7,823 |  |  | 68.94 |
|  |  |  | 56,862 |  | $ | 15.06 |  | 2.72 | years |  | 56,862 |  | $ | 15.06 |

The fair value of each stock option award is estimated on the date of grant using the Black‑Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the expected life of the awards and actual and projected stock option exercise behavior. There were no stock options granted during the twelve months ended December 31, 2018.

The following table summarizes information with respect to outstanding RSU’s and PSU’s as of December 31, 2018 and 2017:

|  |  |  |  | Weighted Average |
|  |  |  |  | Grant-Date Fair Value |
|  |  | Number of Shares |  | Per Share |
Unvested as of December 31, 2017 |  |  | 512,142 |  | $ | 4.57 |
Granted |  |  | 565,964 |  | $ | 2.42 |
Vested |  |  | (202,713) |  | $ | 4.41 |
Forfeited |  |  | (69,549) |  | $ | 3.85 |
Unvested as of December 31, 2018 |  |  | 805,844 |  | $ | 3.16 |

During the years ended December 31, 2018 and 2017, the Company utilized a forfeiture rate of 25% for estimating the forfeitures of stock compensation granted.

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December 31, 2018 and 2017

(in thousands, except share and per share data)

The following table summarizes share‑based compensation expense, net of taxes withheld, included in the Company’s consolidated statements of operations for the years ended December 31, 2018 and 2017 as follows:

|  |  | For the Years Ended |
|  |  | December 31, |
|  |  | 2018 |  | 2017 |
Share-based compensation expense: |  |  |  |  |  |  |  |
Cost of sales |  |  | $ | 99 |  | $ | 101 |
Selling, general and administrative |  |  |  | 704 |  |  | 712 |
Net effect of share-based compensation expense on net income |  |  | $ | 803 |  | $ | 813 |
Reduction in earnings per share: |  |  |  |  |  |  |  |
Basic earnings per share |  |  | $ | 0.05 |  | $ | 0.05 |
Diluted earnings per share |  |  | $ | 0.05 |  | $ | 0.05 |

| (1) |  | Income tax benefit is not illustrated because the Company is currently in a full tax valuation allowance position and an actual income tax benefit was not realized for the years ended December 31, 2018 and 2017. The result of the income (loss) situation creates a timing difference, resulting in a deferred tax asset, which is fully reserved for in the Company’s valuation allowance.

As of December 31, 2018, the Company estimates that pre‑tax compensation expense for all unvested share‑based awards, including both stock options and RSUs, in the amount of approximately $1,132 will be recognized through the year 2020. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.

16. SEGMENT REPORTING

The Company is organized into reporting segments based on the nature of the products offered and business activities from which it earns revenues and incurs expenses for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision maker. On February 1, 2017, the Company acquired Red Wolf, and Red Wolf is being operated as a wholly-owned subsidiary, as more fully described in Note 21, “Business Combinations” of these consolidated financial statements. The Red Wolf acquisition aligns with the Company’s growth strategy approved by our Board in late 2016 to expand and diversify our business through organic growth and strategic bolt-on acquisitions. Red Wolf’s operations is being reported in the “Process Systems” segment.

As a result of the 2017 Red Wolf acquisition, the Company revised its segment presentation to include three reportable operating segments: Towers and Weldments, Gearing and Process Systems. All current and prior period financial results have been revised to reflect these changes. In the fourth quarter of 2017, the segment changed its name from “Towers and Weldments” to “Towers and Heavy Fabrications” to more accurately reflect the nature of the segment’s activities. The Company’s segments and their product offerings are summarized below:

Towers and Heavy Fabrications

The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for multiple MW wind turbines. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The facilities have a combined annual tower production capacity of up to approximately 550 tower towers (1650 tower sections), sufficient to support turbines generating more than 1,100 MW of power. This product segment also encompasses the fabrication of heavy weldments for mining and other industrial customers.

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(in thousands, except share and per share data)

Gearing

The Company engineers, builds and remanufactures precision gears and gearing systems for oil and gas, wind, mining, steel and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

Process Systems

The Company acquired Red Wolf on February 1, 2017 and as a result, aggregated its Abilene, TX fabrication business with Red Wolf to form the Process Systems reportable segment. This segment provides contract manufacturing services that include build-to-spec, kitting, fabrication and inventory management for customers throughout the U.S. and in foreign countries, primarily supporting the natural gas turbine market.

Corporate and Other

“Corporate” includes the assets and SG&A expenses of the Company’s corporate office. “Eliminations” comprises adjustments to reconcile segment results to consolidated results.

The accounting policies of the reportable segments are the same as those referenced in Note 1, “Description of Business and Summary of Significant Accounting Policies” of these consolidated financial statements. Summary financial information by reportable segment is as follows:

|  |  | Towers and |  |  |  |  | Process |  |  |  |  |  |  |  |  |  |
|  |  | Heavy Fabrications |  | Gearing |  | Systems |  | Corporate |  | Eliminations |  | Consolidated |
For the Year Ended December 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from external customers |  |  | $ | 68,773 |  | $ | 38,376 |  | $ | 18,231 |  | $ | — |  | $ | — |  | $ | 125,380 |
Intersegment revenues |  |  |  | 42 |  |  | — |  |  | 88 |  |  | — |  |  | (130) |  |  | — |
Net revenues |  |  |  | 68,815 |  |  | 38,376 |  |  | 18,319 |  |  | — |  |  | (130) |  |  | 125,380 |
Operating (loss) profit |  |  |  | (4,346) |  |  | 51 |  |  | (16,442) |  |  | (4,329) |  |  | — |  |  | (25,066) |
Depreciation and amortization |  |  |  | 4,986 |  |  | 2,255 |  |  | 1,709 |  |  | 233 |  |  | — |  |  | 9,183 |
Capital expenditures |  |  |  | 1,441 |  |  | 706 |  |  | 31 |  |  | 146 |  |  | — |  |  | 2,324 |
Total assets |  |  |  | 32,866 |  |  | 37,028 |  |  | 13,731 |  |  | 243,867 |  |  | (228,327) |  |  | 99,165 |

|  | Towers and |  |  |  |  | Process |  |  |  |  |  |  |  |  |  |
|  | Heavy Fabrications |  | Gearing |  | Systems |  | Corporate |  | Eliminations |  | Consolidated |
For the Year Ended December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from external customers |  | $ | 103,389 |  | $ | 26,006 |  |  | 17,390 |  | $ | — |  | $ | — |  | $ | 146,785 |
Operating (loss) profit |  |  | 2,667 |  |  | (2,632) |  |  | (2,269) |  |  | (5,199) |  |  | — |  |  | (7,433) |
Depreciation and amortization |  |  | 4,638 |  |  | 2,430 |  |  | 1,706 |  |  | 225 |  |  | — |  |  | 8,999 |
Capital expenditures |  |  | 5,355 |  |  | 726 |  |  | 426 |  |  | 181 |  |  | — |  |  | 6,688 |
Assets held for sale |  |  | — |  |  | 560 |  |  | — |  |  | 20 |  |  | — |  |  | 580 |
Total assets |  |  | 27,958 |  |  | 38,016 |  |  | 26,442 |  |  | 249,346 |  |  | (229,412) |  |  | 112,350 |

The Company generates revenues entirely from transactions completed in the U.S. and its long‑lived assets are all located in the U.S. All intercompany revenue is eliminated in consolidation. During 2018, two customers accounted for more than 10% of total net revenues. These two customers accounted for revenues of $72,851 for fiscal year 2018, with one reported within the Towers and Heavy Fabrications segment and one reported within the Gearing segment. During 2017, one customer accounted for more than 10% of total net revenues or $100,413 in revenue for fiscal year 2017, which was reported within the Towers and Heavy Fabrications segment. During the years ended December 31, 2018 and 2017, five customers accounted for 78% and 85%, respectively, of total net revenues.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

17. EMPLOYEE BENEFIT PLANS

Retirement Savings and Profit Sharing Plans

Retirement Savings and Profit Sharing Plans

The Company offers a 401(k) retirement savings plan to all eligible employees who may elect to contribute a portion of their salary on a pre‑tax basis, subject to applicable statutory limitations. All participating non‑union employees are eligible to receive safe harbor matching contributions equal to 100% of the first 3% of the participant’s elective deferral contributions and 50% of the next 2% of the participant’s elective deferral contributions. For 2018, in accordance with the collective bargaining agreements in place at its two union locations, the Company’s Illinois‑based union employees were eligible to receive a discretionary match in an amount up to 50% of each participant’s first 4% of elective deferral contributions, and the Company’s Pennsylvania‑based union employees were eligible to receive a discretionary match in an amount up to 100% of each participant’s first 3% and 50% of the next 2% of elective deferral contributions. The safe harbor matching contribution was extended to all union employees, beginning in 2019, following the extension of the Company’s collective bargaining agreements during 2018. The Company has the discretion, subject to applicable statutory requirements, to fund any matching contribution with a contribution to the plan of the Company’s common stock. In the third quarter of 2017, the Company began funding the matching contributions primarily in the form of the Company’s common stock. Under the plan, elective deferrals and basic Company matching is 100% vested at all times.

For the years ended December 31, 2018 and 2017, the Company recorded expense under these plans of approximately $812 and $765, respectively.

Deferred Compensation Plan

The Company maintains a deferred compensation plan for certain key employees and nonemployee directors, whereby certain wages earned, compensation for services rendered, and discretionary company‑matching contributions may be deferred and deemed to be invested in the Company’s common stock. Changes in the fair value of the plan liability are recorded as charges or credits to compensation expense. Compensation expense associated with the deferred compensation plan recorded during the years ended December 31, 2018 and 2017 was $(13) and $(12). The fair value of the plan liability to the Company is included in accrued liabilities in the Company’s consolidated balance sheets. As of December 31, 2018 and 2017, the fair value of plan liability to the Company was $12 and $24, respectively.

In addition to the employee benefit plans described above, the Company participates in certain customary employee benefits plans, including those which provide health and life insurance benefits to employees.

18. NEW MARKETS TAX CREDIT TRANSACTION

On July 20, 2011, the Company executed the NMTC Transaction, which was amended on August 24, 2015, involving the following third parties: AMCREF Fund VII, LLC (“AMCREF”), a registered community development entity; COCRF Investor VIII, LLC (“COCRF”); and Capital One. The NMTC Transaction allows the Company to receive below market interest rate funds through the federal New Markets Tax Credit (“NMTC”) program. The Company received $2,280 in proceeds via the NMTC Transaction. The NMTC Transaction qualifies under the NMTC program and includes a gross loan from AMCREF to the Company's wholly-owned subsidiary Broadwind Services, LLC, a Delaware limited liability company, in the principal amount of $10,000, with a term of fifteen years and interest payable at the rate of 1.4% per annum, largely offset by a gross loan in the principal amount of $7,720 from the Company to COCRF, with a term of fifteen years and interest payable at the rate of 2.5% per annum. The August 2015 amendment did not change the financial terms of the NMTC Transaction, but did add the activities and assets of the Abilene Heavy Industries Facility to the NMTC Transaction and allow for the sale of the Abilene Gearbox Facility assets provided that the proceeds of such sale be re-invested in the Abilene Heavy Industries Facility.

The NMTC regulations permit taxpayers to claim credits against their federal income taxes for up to 39% of qualified investments in the equity of community development entities. The NMTC Transaction could generate $3,900 in tax credits, which the Company has made available under the structure by passing them through to Capital One. The proceeds

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

have been applied to the Company’s investment in the Abilene Gearbox Facility assets and associated operating costs and in the assets of the Abilene Heavy Industries Facility, as permitted under the amended NMTC Transaction.

The Abilene Heavy Industries Facility and the Abilene Gearbox Facility must operate and remain in compliance with various regulations and restrictions through September 2018, the end of the seven year compliance period, to comply with the terms of the NMTC Transaction, or the Company may be liable under its indemnification agreement with Capital One for the recapture of tax credits. In the event the Company does not comply with these regulations and restrictions, the NMTC program tax credits may be subject to 100% recapture for a period of seven years as provided in the IRC. The Company does not anticipate that any tax credit recapture events will occur or that it will be required to make any payments to Capital One under the indemnification agreement.

The Capital One contribution, including a loan origination payment of $320, has been included as other assets in the Company’s consolidated balance sheet as of December 31, 2017. Capital One exercised its option to put its investment to the Company and receive $130 from the Company at that time. The Capital One contribution other than the amount allocated to the put obligation was recognized as income only after the put/call was exercised and when Capital One had no ongoing interest.

The Company has determined that two pass‑through financing entities created under NMTC Transaction structure are VIEs. The ongoing activities of the VIEs—collecting and remitting interest and fees and complying with NMTC program requirements—were considered in the initial design of the NMTC Transaction and are not expected to significantly affect economic performance throughout the life of the VIEs. In making this determination, management also considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees under the NMTC Transaction structure, Capital One’s lack of a material interest in the underlying economics of the project, and the fact that the Company is obligated to absorb losses of the VIEs. The Company has concluded that it is required to consolidate the VIEs because the Company has both (i) the power to direct those matters that most significantly impact the activities of each VIE, and (ii) the obligation to absorb losses or the right to receive benefits of each VIE.

The $262 of issue costs paid to third parties in connection with the NMTC Transaction were recorded as prepaid expenses, and are being amortized over the expected seven-year term of the NMTC arrangement. Capital One’s net contribution of $2,600 was included in “Line of credit, NMTC, and other notes payable” line item of the Company’s consolidated balance sheet at December 31, 2017. Incremental costs to maintain the transaction structure during the compliance period will be recognized as they are incurred. At the end of the seven year compliance period, Capital One exercised its right to put the investment back to the Company in exchange for $130. The loan was extinguished and the Company recorded a gain of $2,249 in other income, net of transaction expenses. As the NMTC loan was extinguished, the VIEs were dissolved.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

19. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)

The following table provides a summary of selected financial results of operations by quarter for the years ended December 31, 2018 and 2017 as follows:

2018 |  | First |  | Second |  | Third |  | Fourth |
Revenues |  | $ | 29,967 |  | $ | 36,781 |  | $ | 31,445 |  | $ | 27,187 |
Gross (loss) profit |  |  | (132) |  |  | 2,223 |  |  | 1,486 |  |  | (512) |
Operating loss |  |  | (4,537) |  |  | (5,736) |  |  | (2,612) |  |  | (12,181) |
Loss from continuing operations, net of tax |  |  | (4,811) |  |  | (6,083) |  |  | (750) |  |  | (12,358) |
Net loss |  |  | (4,838) |  |  | (6,116) |  |  | (783) |  |  | (12,409) |
Loss from continuing operations per share: |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.32) |  | $ | (0.40) |  | $ | (0.05) |  | $ | (0.79) |
Diluted |  | $ | (0.32) |  | $ | (0.40) |  | $ | (0.05) |  | $ | (0.79) |
Net loss per share: |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.32) |  | $ | (0.40) |  | $ | (0.05) |  | $ | (0.79) |
Diluted |  | $ | (0.32) |  | $ | (0.40) |  | $ | (0.05) |  | $ | (0.79) |

2017 |  | First |  | Second |  | Third |  | Fourth |
Revenues |  | $ | 56,060 |  | $ | 43,362 |  | $ | 29,595 |  | $ | 17,768 |
Gross profit (loss) |  |  | 6,374 |  |  | 3,872 |  |  | 1,014 |  |  | (3,101) |
Operating (loss) profit |  |  | 1,603 |  |  | (516) |  |  | (1,831) |  |  | (6,689) |
(Loss) income from continuing operations, net of tax |  |  | 6,482 |  |  | (688) |  |  | (2,049) |  |  | (6,928) |
Net (loss) income |  |  | 6,327 |  |  | (780) |  |  | (2,207) |  |  | (6,981) |
(Loss) income from continuing operations per share: |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.43 |  | $ | (0.05) |  | $ | (0.14) |  | $ | (0.45) |
Diluted |  | $ | 0.43 |  | $ | (0.05) |  | $ | (0.14) |  | $ | (0.45) |
Net (loss) income per share: |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.42 |  | $ | (0.05) |  | $ | (0.15) |  | $ | (0.46) |
Diluted |  | $ | 0.42 |  | $ | (0.05) |  | $ | (0.15) |  | $ | (0.46) |

20. LEGAL PROCEEDINGS

The Company is party to a variety of legal proceedings that arise in the normal course of its business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on the Company’s results of operations, financial condition or cash flows. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. It is possible that if one or more litigation matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could also be material to the Company’s financial condition and cash flows in the periods the Company would be required to pay such liability.

21. BUSINESS COMBINATIONS

Overview

On January 30, 2017, the Company announced that it had agreed upon the material terms to acquire Red Wolf, a Sanford, North Carolina-based, privately held fabricator, kitter and assembler of industrial systems primarily supporting the global gas turbine market, for approximately $18,983, subject to certain adjustments. The transaction closed on February 1, 2017, and Red Wolf is being operated as a wholly-owned subsidiary of the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

Accounting for the Transaction

The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance requires consideration given, including contingent consideration, assets acquired and liabilities assumed to be valued at their fair market values at the acquisition date. The guidance further provides that: (1) in-process research and development will be recorded at fair value as an indefinite-lived intangible asset; (2) acquisition costs will generally be expensed as incurred, (3) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (4) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of purchase price over fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill. Red Wolf’s results are included in the Company’s results from the acquisition date of February 1, 2017.

The purchase price of the transaction totaled $18,983, of which $16,449 was paid in cash and $2,534 was the expected value of contingent future earn-out payments. The contingent consideration arrangement requires the Company to pay the former owners of Red Wolf a payout if Red Wolf achieves a targeted profitability benchmark. The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between $0 and $9,900. Annual earn-out payments may not exceed $4,950. The fair value of the contingent consideration arrangement of $2,534 was estimated by using a Monte Carlo simulation. Key assumptions include a short-term weighted average cost of capital of 15% and historical volatility of public company comparables.

During the third quarter of 2017, the Company released $1,394 of this contingency into operating income because management determined that Red Wolf’s full-year financial performance during the first year of ownership by the Company was unlikely to meet the threshold required to pay the first installment of the contingent earn-out. During the second quarter of 2018, the Company released the final contingent earn-out liability of $1,140 into operating income as the Company does not expect Red Wolf to achieve the targeted profitability benchmark for the second year of ownership. The release of the earn-out is reflected in the selling, general, and administrative line item in the consolidated statements of operations.

The Company’s allocation of the $18,983 purchase price to Red Wolf’s tangible and identifiable intangible assets acquired and liabilities assumed, based on their fair values as of February 1, 2017, is included in the table below. Goodwill is recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired and is not deductible for tax purposes. The measurement period adjustments were a result of changes in the fair value of the contingent consideration arrangement and adjustments to working capital accounts. The decrease in goodwill from March 31, 2017 is due to opening balance sheet changes noted in the table below.

The purchase price allocation as of March 31, 2017 and December 31, 2017 is as follows (in thousands):

|  | Allocation as of 3/31/2017 |  | Measurement Period Adjustments |  | Allocation as of 12/31/2017
Assets acquired and liabilities assumed: |  |  |  |  |  |
Cash and cash equivalents | $ | 63 | $ | (63) | $ | -
Receivables |  | 2,796 |  | (96) |  | 2,700
Inventories |  | 4,998 |  | 179 |  | 5,177
Property and equipment |  | 462 |  | - |  | 462
Noncompete agreements |  | 170 |  | - |  | 170
Customer relationships |  | 12,000 |  | - |  | 12,000
Trade names |  | 1,100 |  | - |  | 1,100
Goodwill |  | 5,568 |  | (575) |  | 4,993
Accounts payable |  | (1,354) |  | 2 |  | (1,352)
Accrued expenses |  | (809) |  | (67) |  | (876)
Deferred tax liabilities |  | (5,391) |  | - |  | (5,391)
Total purchase price | $ | 19,603 | $ | (620) | $ | 18,983

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018 and 2017

(in thousands, except share and per share data)

The allocation of the purchase price is based on valuations performed to determine the fair value of such assets and liabilities as of the acquisition date. The acquired noncompete agreements, customer relationships, and trade names have weighted average amortization periods of 6.0 years, 9.0 years, and 14.0 years, respectively and the total weighted average life of the acquired intangible assets is 9.4 years. Goodwill from this transaction has been allocated to the Company’s Process Systems segment and is not deductible for tax purposes.

The Company incurred transaction costs of $182 for the year ended December 31, 2017 related to the acquisition. These costs were expensed as incurred and were primarily recorded as selling, general, and administrative expenses on the Company’s consolidated statements of operations. Red Wolf recorded revenues of $15,868 and a net loss of $146 for the period beginning from the acquisition date of February 1, 2017 and ending on December 31, 2017. The Company has not shown the pro forma results of Red Wolf because it is not significant.

NOTE 22 — RESTRUCTURING

During the first quarter of 2018, the Company conducted a review of its business strategies and product plans given the outlook of the industries it serves and its business environment. As a result, the Company began to execute a restructuring plan to rationalize its facility capacity and management structure, and to consolidate and increase the efficiencies of its Abilene operations. The Company exited the CNG and Fabrication Manufacturing location in Abilene, TX in 2018 as soon as it fully complied with the requirements established as part of the NMTC Transaction agreement and consolidate these manufacturing activities into other locations. All remaining costs associated with this facility have been recorded as restructuring expenses. All costs will be incurred solely within the Process Systems segment.

The Company expects that any additional costs related to the 2018 restructuring initiative will be immaterial. The Company anticipates annual cost savings going forward of approximately $575 in facility expenses related to the restructuring.

The Company’s total net restructuring charges for the year ended December 31, 2018 consist of the following:

|  | Year Ended |
|  | December 31, 2018 |
Cost of sales: |  |  |  |
Facility costs |  | $ | 249 |
Moving and remediation |  |  | 33 |
Salary and severance |  |  | 17 |
Depreciation |  |  | 332 |
Total cost of sales |  |  | 631 |
Selling, general, and administrative expenses: |  |  |  |
Salary and severance |  |  | 37 |
Total selling, general, and administrative expenses |  |  | 37 |
Grand Total |  | $ | 668 |

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INDEX TO EXHIBITS

Exhibit Number |  | Description
2.1 |  | Membership Interest Purchase Agreement dated as of February 1, 2017, by and among the Company, Christopher J. Brice , Lewis J. Hendrix and Kimberley M. Sutton (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed February 1, 2017)
3.1 |  | Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended June 30, 2008)
3.2 |  | Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8‑K filed August 23, 2012)
3.3 |  | Second Amended and Restated Bylaws of the Company, adopted as of May 20, 2014 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8‑K filed May 23, 2014)
4.1 |  | Section 382 Rights Agreement dated as of February 12, 2013 between the Company and Equiniti Trust Company, as rights agent, which includes the Form of Rights Certificate as Exhibit B thereto (incorporated by reference to Exhibit 1 to the Company’s Registration Statement on Form 8‑A filed February 13, 2013)
4.2 |  | Certificate of Designation of Series A Junior Participating Preferred Stock of the Company (incorporated by reference to Exhibit 2 to the Company’s Registration Statement on Form 8‑A filed February 13, 2013)
4.3 |  | First Amendment to Section 382 Rights Agreement dated as of February 2, 2016 between the Company and Equiniti Trust Company, as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 8, 2016)
4.4 |  | Second Amendment to Section 382 Rights Agreement dated as of February 7, 2019 between the Company and Equiniti Trust Company, as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February 12, 2019)
10.1 |  | Lease Agreement dated December 26, 2007 between Tower Tech Systems Inc. and City Centre, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10‑KSB for the fiscal year ended December 31, 2007)
10.2 |  | Amended and Restated Lease for Industrial/Manufacturing Space dated as of May 1, 2010 between Tower Tech Systems Inc. and City Centre, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2010)
10.3† |  | Severance and Non‑Competition Agreement, dated as of December 15, 2011 between the Company and Robert R. Rogowski (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014)
10.4† |  | Severance and Non‑Competition Agreement, dated as of July 8, 2014 between the Company and Erik W. Jensen (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014)
10.5† |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2010)
10.6† |  | Broadwind Energy, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit A to the Company’s Schedule 14A filed on March 12, 2015)
10.7† |  | Form of Executive Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended June 30, 2010)
10.8† |  | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2012)
10.9† |  | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2012)

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10.10† |  | Form of Stock Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended March 31, 2012)
10.11† |  | Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
10.12† |  | Form of Restricted Stock Unit Award Agreement (Extended Executive Team) (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
10.13† |  | Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)
10.14† |  | Broadwind Energy, Inc. 2015 Equity Incentive Plan Restricted Stock Unit Award Notice (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018)
10.15† |  | Second Amended and Restated Employment Agreement, dated May 20, 2016, between the Company and Stephanie K. Kushner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 24, 2016)
10.16 |  | Loan and Security Agreement, dated October 26, 2016, among the Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, and Broadwind Towers, Inc. and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10 Q for the quarterly period ended September 30, 2016)
10.17† |  | First Amendment to Loan and Security Agreement, dated February 10, 2017, among the Company, Brad Foote Gear Works, Inc., Broadwind Services, LLC, Broadwind Towers, Inc. and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016)
10.18 |  | Joinder to Loan and Security Agreement, dated February 10, 2017, executed by Red Wolf Company, LLC (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016)
10.19 |  | Second Amendment to Loan and Security Agreement and Waiver, dated March 27, 2017, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc. and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017)
10.20 |  | Amended and Restated Revolving Note, dated March 27, 2017 among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc. and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017)
10.21 |  | Third Amendment to Loan and Security Agreement, dated January 29, 2018, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., Red Wolf Company, LLC and CIBC Bank USA (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 2, 2018)
10.22 |  | Fourth Amendment to Loan and Security Agreement, dated May 3, 2018, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., Red Wolf Company, LLC and CIBC Bank USA (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018)
10.23 |  | Fifth Amendment to Loan and Security Agreement, dated October 26, 2018, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., Red Wolf Company, LLC and CIBC Bank USA (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018)

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10.24 |  | Sixth Amendment to Loan and Security Agreement, dated January 26, 2019, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., Red Wolf Company, LLC and CIBC Bank USA (filed herewith)
10.25 |  | Amended and Restated Loan and Security Agreement, dated February 25, 2019, among the Company, Brad Foote Gearworks, Inc., Broadwind Services, LLC, Broadwind Towers, Inc., Red Wolf Company, LLC, the other Loan Parties and Lenders party thereto, and CIBC Bank USA, as Administrative Agent and Sole Lead Arranger (filed herewith)
10.26† |  | Severance and Non-Competition Agreement, dated October 23, 2017, between the Company and Jason L. Bonfigt (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed November 28, 2017)
10.27† |  | Severance and Non-Competition Agreement, dated as of May 4, 2018, between the Company and Eric Blashford (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 3, 2018)
10.28 |  | At Market Issuance Sales Agreement, dated July 31, 2018, by and among the Company and Roth Capital Partners, LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed July 31, 2018)
21 |  | Subsidiaries of the Registrant (filed herewith)
23 |  | Consent of RSM LLP (filed herewith)
31.1 |  | Rule 13a‑14(a) Certification of Chief Executive Officer (filed herewith)
31.2 |  | Rule 13a‑14(a) Certification of Chief Financial Officer (filed herewith)
32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (filed herewith)
32.2 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (filed herewith)

†Indicates management contract or compensation plan or arrangement.

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Table of Contents

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26 th day of February, 2019.

| BROADWIND ENERGY, INC.
| By: | /s/ Stephanie K. Kushner
Stephanie K. Kushner President and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE |  | TITLE |  | DATE
/s/ Stephanie K. Kushner |  | President, Chief Executive Officer, and Director (Principal Executive Officer) |  | February 26, 2019
Stephanie K. Kushner
/s/ Jason L. Bonfigt |  | Vice President and Chief Financial Officer (Principal Financial Officer) |  | February 26, 2019
Jason L. Bonfigt
/s/ David P. Reiland |  | Director and Chairman of the Board |  | February 26, 2019
David P. Reiland
/s/ Philip J. Christman |  | Director |  | February 26, 2019
Philip J. Christman
/s/ Terence P. Fox |  | Director |  | February 26, 2019
Terence P. Fox
/s/ Thomas A. Wagner |  | Director |  | February 26, 2019
Thomas A. Wagner
/s/ Cary B. Wood |  | Director |  | February 26, 2019
Cary B. Wood |  |  |  |

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