Exhibit 99.2
BROADWIND ENERGY, INC.
INDEX TO (UNAUDITED) PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Financial Information | D-2 |
| |
Pro Forma Combined Balance Sheet - December 31, 2007 | D-3 |
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Pro Forma Combined Statement of Operations
For the year ended December 31, 2007 | D-5 |
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Notes to the Pro Forma Combined Financial Statements | D-6 |
D-1
BROADWIND ENERGY, INC.
(UNAUDITED) PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying (unaudited) pro forma combined financial statements present the historical financial information of Broadwind Energy, Inc. (“Broadwind”), as adjusted for the purchase of Energy Maintenance Service, LLC (“EMS”). For financial reporting purposes, the business combination is to be accounted for with Broadwind as the acquirer.
The accompanying pro forma combined balance sheet presents the historical financial information of Broadwind as of December 31, 2007, as adjusted for the purchase of EMS, accounted for as a business combination.
The accompanying pro forma combined statement of operations for the year ended December 31, 2007, combine the historical financial information of EMS for the year ended December 31, 2007 with the historical information of Broadwind for the year ended December 31, 2007, as if the acquisition had occurred on January 1, 2007.
The pro forma combined financial statements have been prepared by management, based on the historical financial statements of Broadwind and EMS. These pro forma combined financial statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma combined financial statements should be read in conjunction with the historical financial statements of Broadwind for the year ended December 31, 2007 and with the historical statements of EMS for the years ended December 31, 2007 and 2006 included elsewhere in this filing.
D-2
BROADWIND ENERGY, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2007
| | Energy
Maintenance
Service, LLC | | Broadwind
Energy, Inc. | | Pro Forma
Adjustments | | Notes | | Pro Forma
Combined | |
ASSETS | | | | | | | | | | | |
| | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | | |
Cash | | $ | 431,006 | | $ | 5,781,526 | | $ | (1,189,343 | ) | (1,2,6) | | $ | 5,023,189 | |
Restricted Cash | | — | | 500,000 | | | | | | 500,000 | |
Accounts receivable, net of allowances | | 5,145,731 | | 13,541,373 | | | | | | 18,687,104 | |
Inventories, net of allowances | | 429,928 | | 12,982,798 | | 64,489 | | (1) | | 13,477,215 | |
Prepaid expenses | | 337,429 | | 344,690 | | | | | | 682,119 | |
Other current assets | | — | | 1,600,796 | | | | | | 1,600,796 | |
Total current assets | | 6,344,094 | | 34,751,183 | | | | | | 39,970,423 | |
| | | | | | | | | | | |
PROPERTY AND EQUIPMENT, AT COST | | | | | | | | | | | |
Buildings and land | | — | | 4,032,312 | | 501,740 | | (6) | | 4,534,052 | |
Machinery and equipment | | 1,567,388 | | 54,775,014 | | (651,611 | ) | (1) | | 55,690,791 | |
Leasehold improvements | | 422,258 | | 1,919,359 | | (26,756 | ) | (1) | | 2,314,861 | |
Office furniture and equipment | | 400,139 | | 640,177 | | (179,539 | ) | (1) | | 860,777 | |
| | 2,389,785 | | 61,366,862 | | | | | | 63,400,481 | |
Less accumulated depreciation and amortization | | 898,819 | | 2,475,711 | | (839,196 | ) | (1,6) | | 2,535,334 | |
Property and equipment, net | | 1,490,966 | | 58,891,151 | | | | | | 60,865,147 | |
| | | | | | | | | | | |
OTHER ASSETS: | | | | | | | | | | | |
Goodwill | | — | | 27,610,540 | | 3,602,484 | | (1) | | 31,213,024 | |
Intangibles, net of accumulated amortization | | — | | 84,021,554 | | 26,490,000 | | (1) | | 110,511,554 | |
Acquisition costs | | — | | 331,379 | | (331,379 | ) | (1,5) | | — | |
Deposits | | — | | 212,418 | | | | | | 212,418 | |
Total other assets | | — | | 112,175,891 | | | | | | 141,936,996 | |
Total assets | | $ | 7,835,060 | | $ | 205,818,225 | | | | | | $ | 242,772,566 | |
| | | | | | | | | | | | | | | |
D-3
BROADWIND ENERGY, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2007
| | Energy
Maintenance
Service, LLC | | Broadwind
Energy, Inc. | | Pro Forma
Adjustments | | Notes | | Pro Forma
Combined | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
| | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | |
Lines of credit and notes payable | | $ | 1,409,714 | | $ | 440,311 | | | | | | $ | 1,850,025 | |
Notes payable to related parties | | — | | 24,999,997 | | | | | | 24,999,997 | |
Current maturities of long-term debt | | 448,115 | | 12,693,453 | | 12,426 | | (6) | | 13,153,994 | |
Current portions of long-term capital lease obligations | | — | | 300,413 | | | | | | 300,413 | |
Accounts payable | | 1,236,435 | | 10,133,742 | | | | | | 11,370,177 | |
Accrued liabilities | | 1,486,295 | | 12,457,231 | | 81,015 | | (1) | | 14,024,541 | |
Unearned revenue | | — | | 97,260 | | | | | | 97,260 | |
Customer deposits | | — | | 1,325,788 | | | | | | 1,325,788 | |
Total current liabilities | | 4,580,559 | | 62,448,195 | | | | | | 67,122,195 | |
| | | | | | | | | | | |
LONG-TERM DEBT, net of current maturities | | 799,993 | | 17,620,200 | | 460,536 | | (6) | | 18,880,729 | |
| | | | | | | | | | | |
Capital lease obligations, net of current portions | | — | | 685,874 | | | | | | 685,874 | |
Interest rate swaps | | — | | 388,136 | | | | | | 388,136 | |
Deferred income taxes | | — | | 139,340 | | | | | | 139,340 | |
Total liabilities | | 5,380,552 | | 81,281,745 | | | | | | 87,216,274 | |
| | | | | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | | | | | | |
| | | | | | | | | | | |
SHAREHOLDERS’ EQUITY | | | | | | | | | | | |
Common stock, $.001 par value | | — | | 76,261 | | 3,661 | | (1,2) | | 79,922 | |
Additional paid-in capital | | — | | 134,432,064 | | 31,042,331 | | (1,2) | | 165,474,395 | |
Members’ equity | | 2,454,508 | | — | | (2,454,508 | ) | (1) | | — | |
Accumulated deficit | | — | | (9,971,845 | ) | (26,180 | ) | (6) | | (9,998,025 | ) |
Total shareholders’ equity | | 2,454,508 | | 124,536,480 | | | | | | 155,556,292 | |
Total liabilities and shareholders’ equity | | $ | 7,835,060 | | $ | 205,818,225 | | | | | | $ | 242,772,566 | |
D-4
BROADWIND ENERGY, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2007
| | Energy
Maintenance
Service, LLC | | Broadwind
Energy, Inc. | | Pro Forma
Adjustments | | Notes | | Pro Forma
Combined | |
Net sales | | $ | 19,752,911 | | $ | 29,804,432 | | | | | | $ | 49,557,343 | |
Cost of sales | | 11,957,960 | | 25,864,795 | | | | | | 37,822,755 | |
| | | | | | | | | | | |
Gross margin | | 7,794,951 | | 3,939,637 | | | | | | 11,734,588 | |
| | | | | | | | | | | |
Operating costs and expenses: | | | | | | | | | | | |
Selling, general and administrative expenses | | 4,996,626 | | 5,726,328 | | | | | | 10,722,954 | |
Depreciation and amortization | | 278,413 | | 1,749,560 | | 2,595,839 | | (3,4,6) | | 4,623,812 | |
| | 5,275,039 | | 7,475,888 | | | | | | 15,346,766 | |
| | | | | | | | | | | |
Operating income (loss) | | 2,519,912 | | (3,536,251 | ) | | | | | (3,612,178 | ) |
| | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | |
Interest expense | | (144,525 | ) | (1,238,909 | ) | (39,051 | ) | (6) | | (1,422,485 | ) |
Interest income | | — | | 400,290 | | | | | | 400,290 | |
Realized loss on foreign currency transactions | | — | | (14,824 | ) | | | | | (14,824 | ) |
Other, net | | 198,152 | | 82,943 | | 54,000 | | (6) | | 335,095 | |
Income (expense) relating to variable interest entity | | — | | (94,698 | ) | | | | | (94,698 | ) |
| | 53,627 | | (865,198 | ) | | | | | (796,622 | ) |
Income (loss) before provision for income taxes | | 2,573,539 | | (4,401,449 | ) | | | | | (4,408,800 | ) |
Income tax benefit | | — | | (1,039,470 | ) | | | | | (1,039,470 | ) |
| | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 2,573,539 | | $ | (3,361,979 | ) | | | | | $ | (3,369,330 | ) |
| | | | | | | | | | | |
Loss per common share - basic and diluted | | | | $ | (0.07 | ) | | | | | $ | (0.06 | ) |
Weighted average common shares outstanding - basic and diluted | | | | 51,535,137 | | 3,661,084 | | (1,2) | | 55,196,222 | |
D-5
BROADWIND ENERGY, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
Note 1 – Basis of presentation
Basis of presentation
The accompanying pro forma combined financial statements are presented to reflect the acquisition of Energy Maintenance Service, LLC by Broadwind Energy, Inc., with the operations of Broadwind Energy, Inc. being the continuing operations of the combined entities.
The accompanying pro forma combined balance sheet as of December 31, 2007 has been prepared to give effect to the acquisition of EMS by Broadwind as if the acquisition occurred on December 31, 2007. The historical financial statements prior to December 31, 2007, are those of Broadwind Energy, Inc. The accompanying pro forma combined statement of operations combines the historical operations of Broadwind Energy, Inc. for the year ended December 31, 2007 as if the acquisition had occurred on January 1, 2007.
Note 2 – Pro forma adjustments
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
The unaudited pro forma combined financial statements reflect the following pro forma adjustments:
Adjustment (1) - Broadwind Energy Inc. purchased 100% of the outstanding membership interests of Energy Maintenance Service, LLC for $32,240,000.
In accordance with SFAS 141, the purchase consideration of $32,240,000 and $412,394 of acquisition costs has been primarily allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The fair values were determined using an independent third party appraisal firm. Such allocations resulted in goodwill of $3,602,484. These allocations are preliminary and subject to final working capital adjustments and finalization of these allocations. The purchase consideration has been allocated as follows:
Adjustment | | Amount | |
Current assets | | $ | 6,344,094 | |
Inventory adjustment to fair value | | 64,489 | |
Property and equipment | | 1,531,879 | |
Intangible - Trademark | | 1,790,000 | |
Intangible - Customer List | | 24,700,000 | |
Goodwill | | 3,602,484 | |
Current liabilities | | (4,580,559 | ) |
Long-term liabilities | | (799,993 | ) |
Total purchase consideration | | $ | 32,652,394 | |
D-6
BROADWIND ENERGY, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The total purchase consideration was paid through a combination of cash, stock and direct acquisition costs. The break down is as follows:
Cash | | $ | 18,419,008 | |
Stock | | 13,820,992 | |
Direct acquisition costs | | 412,394 | |
Total purchase consideration | | $ | 32,652,394 | |
Broadwind issued 1,629,834 shares of its $.001 par value common stock to the sellers of Energy Maintenance Service, LLC.
Adjustment (2) - In order to finance the purchase price, Broadwind completed a private placement of 2,031,250 shares of its unregistered common stock at $8.48 per share totaling $17,225,000 to the accredited investor Tontine Capital Partners, L.P.
Adjustment (3) - As a result of the purchase, depreciation has been increased related to the increase to fair market value of machinery and equipment.
Adjustment (4) - As a result of the purchase, amortization has been calculated for the intangible assets using a life of 20 years for the trademark and 10 years for the customer list.
Adjustment (5) - As a result of the purchase, prepaid acquisition costs that were included in the total purchase consideration have been eliminated.
Adjustment (6) - Broadwind has adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities—an Interpretation of ARB No. 51 (Revised 2003) (“FIN 46(R)”) for the treatment of the consolidation of a Variable Interest Entity (“VIE”) as defined by this interpretation. FIN 46(R) requires that an equity investor in a VIE have significant equity at risk (generally a minimum of 10%), hold a controlling interest, evidenced by voting rights, and absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected returns, or both. If the equity investor is unable to evidence these characteristics, the entity that retains these ownership characteristics is required to consolidate the VIE. Broadwind has determined that Dakota Wind, LLC, (“Dakota Wind”), its landlord for the Howard West facility (“Howard West”), meets the criteria for consolidation based on identifying Broadwind as the primary beneficiary of Dakota Wind. Therefore, Broadwind has consolidated the results of Dakota Wind in the pro forma combined financial statements as of and for the fiscal year ended December 31, 2007.
D-7
BROADWIND ENERGY, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following table represents the balance sheet and statement of operations of the VIE, Dakota Wind, as of and for the fiscal year ended December 31, 2007:
| | Dakota Wind, LLC | |
Assets: | | | |
Cash | | $ | 4,665 | |
Property & equipment | | 501,740 | |
Accumulated depreciation | | (59,623 | ) |
Total Assets | | $ | 446,782 | |
| | | |
Liabilities and members’ deficit: | | | |
Current maturities of long-term debt | | $ | 12,426 | |
Long-term debt | | 460,536 | |
Members’ deficit | | (26,180 | ) |
Total liabilities and members’ deficit | | $ | 446,782 | |
| | Dakota Wind, LLC | |
Net Sales | | $ | — | |
Operating costs and expenses: | | | |
Depreciation and amortization | | (30,112 | ) |
Other income (expense): | | | |
Interest expense | | (39,051 | ) |
Other, net | | 54,000 | |
Net loss | | $ | (15,163 | ) |
D-8
