Attached files
As
filed with the Securities and Exchange Commission on March 10,
2010.
SEC
File No. 333-164504
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
______________________
AMENDMENT
NO. 1 TO
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
______________________
PIONEER
POWER SOLUTIONS, INC.
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(Exact
name of registrant as specified in its charter)
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Delaware
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3612
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26-3387077
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer Identification No.)
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9
West 57th Street, 26th Floor
New
York, New York 10019
(212)
867-0700
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(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
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Nathan
J. Mazurek
Chief
Executive Officer
Pioneer
Power Solutions, Inc.
9
West 57th Street,
26th
Floor
New
York, New York 10019
(212)
867-0700
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(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
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Copies
of all communications, including communications sent to agent for service,
should be sent to:
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Rick
A. Werner, Esq.
Haynes
and Boone, LLP
1221
Avenue of the Americas, 26th Floor
New
York, New York 10020
Tel.
(212) 659-7300
Fax
(212) 884-8234
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Approximate date of commencement of
proposed sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
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.
(Check
one):
Large
accelerated filer
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¨
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Accelerated
filer
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¨
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Non-accelerated
filer
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¨
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Smaller
reporting company
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x
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(Do
not check if a smaller reporting company)
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED MARCH 10, 2010
PRELIMINARY
PROSPECTUS
7,000,000
Shares
Pioneer
Power Solutions, Inc.
Common
Stock
_________________
This
prospectus relates to the sale by the selling stockholders identified in this
prospectus of up to 7,000,000 shares of our common stock, which
includes:
·
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5,000,000
shares of common stock issued in a private
placement;
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·
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1,000,000
shares of common stock initially issuable upon the exercise of an
outstanding warrant to purchase shares of common stock at an exercise
price of $2.00 per share; and
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·
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1,000,000
shares of common stock initially issuable upon the exercise of an
outstanding warrant to purchase shares of common stock at an exercise
price of $3.25 per share.
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The
prices at which the selling stockholders may sell shares will be determined by
the prevailing market price for the shares or in negotiated transactions. We
will not receive any proceeds from the sale of these shares by the selling
stockholders. However, we will receive the exercise price of the warrants if the
warrants are exercised for cash. All expenses of registration incurred in
connection with this offering are being borne by us, but all selling and other
expenses incurred by the selling stockholders will be borne by the selling
stockholders.
Our
common stock is quoted on the regulated quotation service of the OTC Bulletin
Board under the symbol “PPSI.OB”. On March 8, 2010, the last reported sale price
of our common stock as reported on the OTC Bulletin Board was $3.05 per
share.
Investing
in our common stock is highly speculative and involves a high degree of risk.
You should carefully consider the risks and uncertainties in the section
entitled “Risk Factors” beginning on page 3 of this prospectus before making a
decision to purchase our stock.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus
is ,
2010
TABLE
OF CONTENTS
Page
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1
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3
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9
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10
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10
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10
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10
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15
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20
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21
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23
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24
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27
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29
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30
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30
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31
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F-1
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You
should rely only on the information contained in this prospectus. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer to sell these securities in any jurisdiction
where offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate only as of the date on the front cover
of this prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
PROSPECTUS
SUMMARY
The
following summary highlights information contained elsewhere in this
prospectus. It may not contain all the information that may be important
to you. You should read this entire prospectus carefully, including the
sections entitled “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operation,” and our historical
financial statements and related notes included elsewhere in this
prospectus. In this prospectus, unless the context requires otherwise,
references to the “Company,” “Pioneer,” “we,” “our” and “us” for periods
prior to the closing of our share exchange on December 2, 2009, refer to
Pioneer Transformers Ltd., a private company incorporated under the Canada
Business Corporations Act that is now our wholly-owned subsidiary, and its
subsidiaries, and references to the “Company,” “Pioneer,” “we,” “our” and
“us” for periods subsequent to the closing of the share exchange on
December 2, 2009, refer to Pioneer Power Solutions, Inc., a publicly
traded company, and its subsidiary, Pioneer Transformers Ltd. and its
subsidiaries.
Corporate
History
We were
organized in the State of Nevada on September 16, 2008 as Sierra Concepts,
Inc. for the purpose of providing individuals with financial counseling
services through the Internet. On November 30, 2009, Sierra Concepts, Inc.
merged with and into Pioneer Power Solutions, Inc., a Delaware corporation
and wholly owned subsidiary of Sierra Concepts, Inc., for the sole purpose
of changing our state of incorporation from Nevada to Delaware and
changing our name from “Sierra Concepts, Inc.” to “Pioneer Power
Solutions, Inc.” On December 2, 2009, we entered into a share exchange
agreement with Pioneer Transformers Ltd., a company incorporated under the
Canada Business Corporations Act, and Provident Pioneer Partners, L.P., a
Delaware limited partnership and the sole stockholder of Pioneer
Transformers Ltd. Pursuant to the share exchange agreement, on
December 2, 2009, Provident Pioneer Partners, L.P. transferred all of the
issued and outstanding capital stock of Pioneer Transformers Ltd. to us in
exchange for (i) 22,800,000 newly issued shares of our common stock and
(ii) a five-year warrant to purchase up to 1,000,000 shares of our common
stock at an exercise price of $3.25 per share. As a result of this share
exchange, Pioneer Transformers Ltd. became our wholly owned
subsidiary.
Immediately
following the share exchange, we transferred all of our pre-share exchange
operating assets and liabilities to our wholly-owned subsidiary, Sierra
Concepts Holdings, Inc., a Delaware corporation, and transferred all of
Sierra Concepts Holdings, Inc.’s outstanding capital stock to our
then-majority stockholder in exchange for cancellation of shares of our
common stock held by such stockholder.
After
the share exchange and the divestiture of our pre-share exchange operating
assets and liabilities we succeeded to the business of Pioneer
Transformers Ltd. as our sole line of business, and all of our
then-current officers and directors resigned and were replaced by Nathan
J. Mazurek and four new directors. In addition, as a result of
the share exchange, Provident Pioneer Partners, L.P., which is controlled
by Mr. Mazurek, beneficially owns 79% of our outstanding common stock,
thereby allowing Provident Pioneer Partners, L.P. and Mr. Mazurek to
control all matters submitted to our stockholders for approval, including
the election of directors and approval of any merger, consolidation or
sale of all or substantially all of our assets.
Contemporaneously
with the foregoing transactions, we completed a private placement of
5,000,000 shares of our common stock to certain accredited investors for
aggregate gross proceeds of $5,000,000 and sold a five-year warrant to
purchase up to 1,000,000 shares of our common stock at an exercise price
of $2.00 per share to an investor for $10,000.
Our
common stock was originally approved for quotation on the OTC Bulletin
Board on February 2, 2009 under the symbol SRRC.OB. On January 7, 2010, as
a result of our name change from Sierra Concepts, Inc. to Pioneer Power
Solutions, Inc., our trading symbol on the OTC Bulletin Board was changed
to PPSI.OB. To date, there has not been an active market for
our common stock.
Overview
We are
a North American designer, developer and manufacturer of liquid-filled
power, distribution and specialty electric transformers. We have been in
the transformer business for over 50 years and distinguish ourselves by
manufacturing a wide range of customized, engineered-to-order equipment
for our customers. We serve Canadian and U.S. customers in a variety of
industries with particular emphasis on the electric utility, industrial
and commercial construction markets.
Our
principal executive offices are located at 9 West 57th Street, 26th Floor, New York, New
York 10019, and our telephone number is (212) 867-0700. Our website
address is http://www.pioneerpowersolutions.com. Information on or
accessed through our website is not incorporated into this prospectus and
is not a part of this prospectus.
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1
The Offering | ||||
Common
stock offered by the selling stockholders:
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7,000,000
shares, consisting of 5,000,000 shares issued to investors in a private
placement, 1,000,000 shares issuable upon the exercise of a warrant issued
to Provident Pioneer Partners, L.P. in connection with a share exchange
agreement and 1,000,000 shares issuable upon the exercise of a warrant
sold to an investor.
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Common
stock outstanding prior to the offering:
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29,000,000
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Common
stock outstanding after this offering:
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31,000,000(1)
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Use
of proceeds:
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We
will not receive any proceeds from the sale of shares in this offering by
the selling stockholders. However, we will receive proceeds from the
exercise of the warrants if the warrants are exercised for
cash.
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OTC
Bulletin Board symbol:
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PPSI.OB
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Risk
factors:
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You
should carefully consider the information set forth in this prospectus
and, in particular, the specific factors set forth in the “Risk Factors”
section beginning on page 3 of this prospectus before deciding whether or
not to invest in shares of our common stock.
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___________________
(1) The
number of outstanding shares after the offering is based upon 29,000,000
shares outstanding as of March 9, 2010 and assumes the full exercise
of all warrants with respect to which the underlying shares are being
registered pursuant to the registration statement of which this prospectus
forms a part.
The
number of shares of common stock outstanding after this offering
excludes:
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· | 1,600,000 shares of common stock available for future issuance under our 2009 Equity Incentive Plan and | |||
· |
150,000
shares of common stock issuable upon the exercise of a five
year warrant that we have agreed to issue to a consultant for an
exercise price of $2.00 per share.
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2
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Before investing in our
common stock you should carefully consider the following risks, together with
the financial and other information contained in this prospectus. If any of the
following risks actually occurs, our business, prospects, financial condition
and results of operations could be adversely affected. In that case, the trading
price of our common stock would likely decline and you may lose all or a part of
your investment.
Risks
Relating to Our Business
Our
industry is highly competitive.
The
electrical transformer industry is highly competitive. Principal
competitors in our markets include ABB Ltd., Carte International,
Inc., Cooper Industries plc, General Electric Company, Groupe Schneider, Howard
Industries, Inc., Partner Technologies, Inc. and Siemens AG. A number
of these competitors are significantly larger and have substantially greater
resources than we do and are able to achieve greater economies of scale and
lower cost structures than us and may, therefore, be able to provide their
products to customers at lower prices than we are able to. Moreover, we cannot
be certain that our competitors will not develop the expertise, experience and
resources to offer products that are superior in both price and quality to our
products. Similarly, we cannot be certain that we will be able to maintain or
enhance our competitive position within our industry, maintain our customer base
at current levels or increase our customer base.
Because
we currently derive a significant portion of our revenues from one customer, any
decrease in orders from this customer could have an adverse effect on our
business, financial condition and operating results.
We
depend on Hydro-Quebec Utility Company for a large portion of our business, and
any change in the level of orders from Hydro-Quebec Utility Company, has, in the
past, had a significant impact on our results of operations. In particular,
Hydro-Quebec Utility Company represented a substantial portion of our sales,
approximately 39.6% and 26.3% of net sales in the fiscal years ended December
31, 2009 and 2008, respectively. If Hydro-Quebec Utility Company was
to significantly cancel, delay or reduce the amount of business it does with us,
there could be a material adverse effect on our business, financial condition
and operating results. Our long term supply agreements for the sale of our
products to Hydro-Quebec Utility Company expire in 2012 and we therefore cannot
assure you that Hydro-Quebec Utility Company will continue to purchase
transformers from us in quantities consistent with the past or at
all. In addition, if Hydro-Quebec Utility Company were to become
insolvent or otherwise unable to pay or were to delay payment for services, our
business, financial condition and operating results could also be materially
adversely affected.
Fluctuations in
the price and supply of raw materials used to manufacture our products may
reduce our profits.
Our
raw material costs represented approximately 64% and 70% of our revenues for the
fiscal years ended December 31, 2009 and 2008, respectively. The principal raw
materials purchased by us are core steel, copper wire, aluminum strip and
insulating materials including transformer oil. We also purchase certain
electrical components from a variety of suppliers including bushings, switches,
fuses and protectors. These raw materials and components are available from and
supplied by numerous sources at competitive prices, although there are more
limited sources of supply for electrical core steel and transformer oil.
Unanticipated increases in raw material prices or disruptions in supply could
increase production costs and adversely affect our profitability. While we do
not anticipate significant difficulty fulfilling our raw material purchase
requirements and have not experienced any such difficulty in the past three
years, we cannot provide any assurances that we will not experience such
difficulties in the future.
We may not be
able to fully realize the revenue value reported in our
backlog.
We
have a backlog of work to be completed on contracts. Orders included in our
backlog are represented by customer purchase orders and contracts that we
believe to be firm. Backlog develops as a result of new business taken, which
represents the revenue value of new customer orders received by us during a
given period. Backlog consists of customer orders that either (1) have not yet
been started or (2) are in progress and are not yet completed. In the latter
case, the revenue value reported in backlog is the remaining value associated
with work that has not yet been completed. From time to time, customer orders
are canceled that appeared to have a high certainty of going forward at the time
they were recorded as new business taken. In the event of a customer order
cancellation, we may be reimbursed for certain costs but typically have no
contractual right to the total revenue reflected in our backlog. In addition to
our being unable to recover certain direct costs, canceled customer orders may
also result in additional unrecoverable costs due to the resulting
underutilization of our assets.
We are subject to
pricing pressure from our larger customers.
3
We
face significant pricing pressures in all of our business segments from our
larger customers, including Hydro-Quebec Utility Company. Because of their
purchasing size, our larger customers can influence market participants to
compete on price terms. Such customers also use their buying power to negotiate
lower prices. If we are not able to offset pricing reductions resulting from
these pressures by improved operating efficiencies and reduced expenditures,
those price reductions may have an adverse impact on our financial
results.
Deterioration in
the credit quality of several major customers could have a material adverse
effect on our operating results and financial condition.
A
significant asset included in our working capital is accounts receivable from
customers. If customers responsible for a significant amount of accounts
receivable become insolvent or otherwise unable to pay for products and
services, or become unwilling or unable to make payments in a timely manner, our
operating results and financial condition could be adversely affected. A
significant deterioration in the economy could have an adverse effect on the
servicing of these accounts receivable, which could result in longer payment
cycles, increased collection costs and defaults in excess of management’s
expectations. Deterioration in the credit quality of Hydro-Quebec Utility
Company, or of any other major customers, could have a material adverse effect
on our operating results and financial condition.
We may face
additional impairment charges if economic environments in which our business
operates and key economic and business assumptions substantially
change.
Assessment
of the potential impairment of property, plant and equipment, goodwill and other
identifiable intangible assets is an integral part of our normal ongoing review
of operations. Testing for potential impairment of long-lived assets is
dependent on numerous assumptions and reflects our best estimates at a
particular point in time, which may vary from testing date to testing date. The
economic environments in which our business operates and key economic and
business assumptions with respect to projected product selling prices and
materials costs, market growth and inflation rates, can significantly affect the
outcome of impairment tests. Estimates based on these assumptions may differ
significantly from actual results. Changes in factors and assumptions used in
assessing potential impairments can have a significant impact on both the
existence and magnitude of impairments, as well as the time at which such
impairments are recognized. Future changes in the economic environment and the
economic outlook for the assets being evaluated could also result in additional
impairment charges. Any significant asset impairments would adversely impact our
financial results.
Our
operating results may vary significantly from quarter to quarter.
Our
quarterly results may be materially and adversely affected by:
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the
timing and volume of work under new
agreements;
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general
economic conditions;
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the
spending patterns of customers;
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customer
orders received;
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losses
experienced in our operations not otherwise covered by
insurance;
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a
change in the demand or production of our products caused by severe
weather conditions;
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a
change in the mix of our customers, contracts and
business;
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increases
in design and manufacturing costs;
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the
ability of customers to pay their invoices owed to us and disagreements
with customers related to product performance on
delivery.
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Accordingly,
our operating results in any particular quarter may not be indicative of the
results that you can expect for any other quarter or for an entire
year.
We
rely on third parties whose operations are outside our control.
4
We rely
on arrangements with third-party shippers and carriers such as independent
shipping companies for timely delivery of our products to our customers. As a
result, we may be subject to carrier disruptions and increased costs due to
factors that are beyond our control, including labor strikes, inclement weather,
natural disasters and rapidly increasing fuel costs. If the services of any of
these third parties become unsatisfactory, we may experience delays in meeting
our customers’ product demands and we may not be able to find a suitable
replacement on a timely basis or on commercially reasonable terms. Any failure
to deliver products to our customers in a timely and accurate manner may damage
our reputation and could cause us to lose customers.
We
also utilize third party distributors and manufacturer’s representatives to
sell, install and service certain of our products. While we are selective in
whom we choose to represent us, it is difficult for us to ensure that our
distributors and manufacturer’s representatives consistently act in accordance
with the standards we set for them. To the extent any of our end-customers have
negative experiences with any of our distributors or manufacturer’s
representatives, it could reflect poorly on us and damage our reputation,
thereby negatively impacting our financial results.
We plan to engage
in acquisitions and joint ventures, and may encounter unexpected difficulties
identifying, pricing or integrating those businesses.
We
seek to grow, in part, through strategic acquisitions that are intended to
complement or expand our business, and expect to continue to do so in the
future. The success of this strategy will depend on our ability to identify,
price, finance and complete these transactions or arrangements. Success will
also depend on our ability to integrate the businesses acquired in these
transactions. We may encounter unexpected difficulties in completing and
integrating acquisitions with our existing operations, and in managing strategic
investments. Furthermore, we may not realize the degree, or timing,
of benefits we anticipated when we first entered into a transaction. Any of the
foregoing could adversely affect our business and results of
operations.
We may be
unsuccessful at generating internal growth.
Our
ability to generate internal growth will be affected by, among other factors,
our ability to attract new customers, increase the number or size of orders
received by existing customers, hire and retain employees and increase volume
utilizing our existing facilities. In addition, our customers may
reduce the number or size of their orders. Many of the factors affecting our
ability to generate internal growth may be beyond our control, and we cannot be
certain that our strategies will be successful or that we will be able to
generate cash flow sufficient to fund our operations and to support internal
growth. If we are unsuccessful, we may not be able to achieve internal growth,
expand our operations or grow our business.
The departure of
key personnel could disrupt our business.
We
depend on the continued efforts of Nathan J. Mazurek, our sole executive
officer, and other senior management. We cannot be certain that any individual
will continue in such capacity for any particular period of time. The loss of
key personnel, or the inability to hire and retain qualified employees, could
negatively impact our ability to manage our business.
Our business
requires skilled labor, and we may be unable to attract and retain qualified
employees.
Our
ability to maintain our productivity and profitability will be limited by our
ability to employ, train and retain skilled personnel necessary to meet our
requirements. We may experience shortages of qualified personnel. We cannot be
certain that we will be able to maintain an adequate skilled labor force
necessary to operate efficiently and to support our growth strategy or that our
labor expenses will not increase as a result of a shortage in the supply of
skilled personnel. Labor shortages or increased labor costs could impair our
ability to maintain our business or grow our revenues, and may adversely impact
our profitability.
Our business
operations are dependent upon our ability to engage in successful collective
bargaining with our unionized workforce.
Currently,
approximately 59% of our workforce is unionized, and we engage in collective
bargaining negotiations with the union that represents them. Our current
collective bargaining agreement with our unionized workforce shall expire in May
2010. If we are unable to reach a new agreement regarding the terms
of the collective bargaining agreement, or if additional segments of our
workforce become unionized, we may be subject to work interruptions or
stoppages. Strikes or labor disputes with our employees may adversely affect our
ability to conduct our business.
We
carry insurance against many potential liabilities, and our risk management
program may leave us exposed to unidentified or unanticipated
risks.
5
Although
we maintain insurance policies with respect to our related exposures, these
policies contain deductibles and limits of coverage. We estimate our liabilities
for known claims and unpaid claims and expenses based on information available
as well as projections for claims incurred but not reported. However, insurance
liabilities are difficult to estimate due to various factors. If any of our
insurance policies or programs are not effective in mitigating our risks, we may
incur losses that are not covered by our insurance policies or that exceed our
accruals or that exceed our coverage limits and could adversely impact our
consolidated results of operations, cash flows and financial
position.
Unforeseen
adverse regulatory, environmental, monetary and other governmental policies
could have a material adverse effect on our profitability.
We
are subject to international, federal, provincial and local laws and regulations
governing environmental matters, including emissions to air, discharge to waters
and the generation and handling of waste. We are also subject to laws relating
to occupational health and safety. The operation of manufacturing plants
involves a high level of susceptibility in these areas, and there is no
assurance that we will not incur material environmental or occupational health
and safety liabilities in the future. Moreover, expectations of remediation
expenses could be affected by, and potentially significant expenditures could be
required to comply with, environmental regulations and health and safety laws
that may be adopted or imposed in the future. Future remediation technology
advances could adversely impact expectations of remediation
expenses.
Future litigation
could impact our financial results and condition.
Our
business, results of operations and financial condition could be affected by
significant future litigation or claims adverse to us. Types of potential
litigation cases include product liability, contract, employment-related, labor
relations, personal injury or property damage, intellectual property,
stockholder claims and claims arising from any injury or damage to persons,
property or the environment from hazardous substances used, generated or
disposed of in the conduct of our business.
Market
disruptions caused by the worldwide financial crisis could affect our ability to
meet our liquidity needs at reasonable cost and our ability to meet long-term
commitments, which could adversely affect our financial condition and results of
operations.
We
rely on our credit facility with our primary lender, amongst other avenues, to
satisfy our liquidity needs. Further disruptions in the credit markets or
further deterioration of the banking industry’s financial condition, may
discourage or prevent our primary lender and other lenders from meeting their
existing lending commitments, extending the terms of such commitments or
agreeing to new commitments. Market disruptions may also limit our ability to
issue debt securities in the capital markets. We can provide no
assurances that our primary lender or any other lenders we may have will meet
their existing commitments or that we will be able to access the credit markets
in the future on terms acceptable to us or at all.
Longer
term disruptions in the capital and credit markets as a result of uncertainty,
reduced financing alternatives or failures of significant financial institutions
could adversely affect our access to the liquidity needed for our business. Any
disruption could require us to take measures to conserve cash until the market
stabilizes or until alternative financing can be arranged. Such measures could
include deferring capital expenditures and reducing other discretionary
expenditures.
Continued
market disruptions could cause a broad economic downturn that may lead to
increased incidence of customers’ failure to pay for services delivered, which
could adversely affect our financial condition, results of operations and cash
flow.
Continued
capital market disruptions could result in increased costs related to variable
rate debt. As a result, continuation of market disruptions could increase our
interest expense and adversely impact our results of operations.
Disruption
in the capital markets and its actual or perceived effects on particular
businesses and the greater economy also adversely affects the value of the
investments held within our pension plans. Significant declines in the value of
the investments held within our pension plans may require us to increase
contributions to those plans in order to meet future funding requirements if the
actual asset returns do not recover these declines in value in the foreseeable
future. These trends may also adversely impact our results of
operations, net cash flows and financial positions, including our stockholders’
equity.
Restrictive loan
covenants may impact our ability to operate our business and to pursue our
business strategies, and our failure to comply with these covenants could result
in an acceleration of our indebtedness.
Our
credit facilities with our primary lender contain certain covenants that
restrict our ability to, among other things:
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effect
an amalgamation, merger or consolidation with any legal
entity;
|
·
|
cause
our subsidiaries to wind up, liquidate or dissolve their
affairs;
|
·
|
change
the nature of our core business; or
|
6
·
|
alter
our capital structure in a manner that would be materially adverse to our
primary lender, undergo a change of control and make investments or
advancements to affiliated or related companies without our primary
lender’s prior written consent.
|
The
majority of the liquidity derived from our credit facilities is based on
availability determined by a borrowing base. Specifically, the availability of
credit is dependent upon our eligible receivables, inventory and certain liens.
We may not be able to maintain adequate levels of eligible assets to support our
required liquidity.
In
addition, our credit facilities requires us to meet certain financial ratios,
including maintenance of a minimum debt service coverage ratio, a
minimum current ratio and a maximum total debt to tangible net worth ratio. Our
ability to meet these financial provisions may be affected by events beyond our
control. If, as or when required, we are unable to repay, refinance
or restructure our indebtedness under, or amend the covenants contained in, our
credit facilities, our primary lender could institute foreclosure proceedings
against the assets securing borrowings under those facilities for up to $9.5
million, which would harm our business, financial condition and results of
operations.
Our
revenue may be adversely affected by fluctuations in currency exchange
rates.
Most of
our expenditures and revenue will be spent or derived in Canada. However, we
report our financial condition and results of operations in U.S. dollars. As a
result, fluctuations between the U.S. dollar and the Canadian dollar will impact
the amount of our revenues. For example, if the Canadian dollar appreciates
relative to the U.S. dollar, the fluctuation will result in a positive impact on
the revenues that we report. However, if the Canadian dollar depreciates
relative to the U.S. dollar, there will be a negative impact on the revenues we
report due to such fluctuation. It is possible that the impact of currency
fluctuations will result in a decrease in reported sales even though we have
experienced an increase in sales when reported in the Canadian dollar.
Conversely, the impact of currency fluctuations may result in an increase in
reported sales despite declining sales when reported in the Canadian dollar. The
exchange rate from the U.S. dollar to the Canadian dollar has
fluctuated substantially and may continue to do so in the future. Though we may
choose to hedge our exposure to foreign currency exchange rate changes in the
future, there is no guarantee such hedging, if undertaken, will be
successful.
Risks
Relating to the Offering
Our
stock price may be volatile after this offering, which could result in
substantial losses for investors.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in response to various factors, many of which are beyond our
control, including the following:
·
|
technological
innovations or new products and services by us or our
competitors;
|
·
|
additions
or departures of key personnel;
|
·
|
sales
of our common stock, particularly following effectiveness of the
registration statement of which this prospectus forms a part, and under
any registration statement for the purposes of selling any other
securities, including management
shares;
|
·
|
limited
availability of freely-tradable “unrestricted” shares of our common stock
to satisfy purchase orders and
demand;
|
·
|
our
ability to execute our business
plan;
|
·
|
operating
results that fall below
expectations;
|
·
|
loss
of any strategic relationship;
|
·
|
industry
developments;
|
·
|
economic
and other external factors; and
|
·
|
period-to-period
fluctuations in our financial
results.
|
7
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also significantly affect
the market price of our common stock.
There
is, at present, only a limited market for our common stock and we cannot ensure
investors that an active market for our common stock will ever develop or be
sustained.
There is,
at present, only a limited trading market for our common stock. The price at
which our common stock may be sold is very unpredictable because there are very
few trades in our common stock. Because our common stock is so thinly traded, a
large block of shares traded can lead to a dramatic fluctuation in the share
price. In addition, our common stock currently trades on the OTC Bulletin Board,
which generally lacks the liquidity, research coverage and institutional
investor following of a national stock exchange like the NYSE Amex Equities, the
New York Stock Exchange or the Nasdaq Stock Market. While we intend to list our
common stock on a national stock exchange once we satisfy the initial listing
standards for such an exchange, we currently do not, and may not ever, satisfy
such initial listing standards. Should we fail to satisfy the initial listing
standards for a national stock exchange or should our common stock be otherwise
rejected for listing and remain on the OTC Bulletin Board or be suspended from
the OTC Bulletin Board, the trading price of our common stock could suffer, the
trading market for our common stock may be less liquid and our common stock
price may be subject to increased volatility.
Substantial
sales of our common stock, or the perception that such sales are likely to
occur, could cause the price of our common stock to decline.
Sales of
a significant number of shares of our common stock in the public market could
harm the market price of our common stock and make it more difficult for us to
raise funds through future offerings of common stock. Upon the effectiveness of
the registration statement of which this prospectus from a part, 7,000,000
shares of our common stock will become freely tradable. As these shares and as
additional shares of our common stock become available for resale in the public
market, the supply of our common stock will increase, which could decrease its
price.
In
addition, if our stockholders sell substantial amounts of our common stock in
the public market, or upon the expiration of any statutory holding period under
Rule 144, upon expiration of lock-up periods applicable to outstanding shares,
or issued upon the exercise of outstanding options or warrants, it could create
a circumstance commonly referred to as an “overhang” and in anticipation of
which the market price of our common stock could fall. The existence of an
overhang, whether or not sales have occurred or are occurring, could also make
it more difficult for us to raise additional financing through the sale of
equity or equity-related securities in the future at a time and price that we
deem reasonable or appropriate.
We
do not expect to pay dividends in the future. As a result, any return on
investment may be limited to the value of our common stock.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
The payment of dividends on our common stock will depend on our earnings,
financial condition and other business and economic factors as our board of
directors may consider relevant. If we do not pay dividends, our common stock
may be less valuable because a return on your investment will only occur if our
stock price appreciates.
Risks
Relating to Our Organization
Our
certificate of incorporation authorizes our board to create new series of
preferred stock without further approval by our stockholders, which could
adversely affect the rights of the holders of our common stock.
Our board
of directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our board of directors also has the authority to
issue preferred stock without further stockholder approval. As a result, our
board of directors could authorize the issuance of a series of preferred stock
that would grant to holders the preferred right to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to the
holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In addition, our
board of directors could authorize the issuance of a series of preferred stock
that has greater voting power than our common stock or that is convertible into
our common stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing stockholders.
Your
ability to influence corporate decisions may be limited
because Provident Pioneer Partners, L.P. owns a controlling percentage of our
common stock.
Provident
Pioneer Partners, L.P., which is controlled by Nathan J. Mazurek, our president,
chief executive officer, chief financial officer, secretary, treasurer and
chairman of the board of directors beneficially owns approximately 79% of
our outstanding common stock. As a result of this stock ownership, Provident
Pioneer Partners, L.P. and Mr. Mazurek can control all matters
submitted to our stockholders for approval, including the election of directors
and approval of any merger, consolidation or sale of all or substantially all of
our assets.
8
This
concentration of voting power could delay or prevent an acquisition of our
company on terms that other stockholders may desire. In addition, as the
interests of Provident Pioneer Partners, L.P. and our minority stockholders may
not always be the same, this large concentration of voting power may lead to
stockholder votes that are inconsistent with the best interests of our minority
stockholders or the best interest of us as a whole.
We
are subject to financial reporting and other requirements for which our
accounting, internal audit and other management systems and resources may not be
adequately prepared.
On
December 2, 2009, we became subject to reporting and other obligations under the
Securities Exchange Act of 1934, as amended, including the requirements of
Section 404 of the Sarbanes-Oxley Act. Section 404 will require us to conduct an
annual management assessment of the effectiveness of our internal controls over
financial reporting and to obtain a report by our independent auditors
addressing these assessments. These reporting and other obligations will place
significant demands on our management, administrative, operational, internal
audit and accounting resources. We anticipate that we will need to upgrade our
systems; implement additional financial and management controls, reporting
systems and procedures; implement an internal audit function; and hire
additional accounting, internal audit and finance staff. If we are unable to
accomplish these objectives in a timely and effective fashion, our ability to
comply with our financial reporting requirements and other rules that apply to
reporting companies could be impaired. Any failure to maintain effective
internal controls could have a material adverse effect on our business,
operating results and stock price.
Because
we became public by means of a reverse merger, we may not be able to attract the
attention of major brokerage firms.
There may
be risks associated with us becoming public through a “reverse
merger.” Securities analysts of major brokerage firms may not provide
coverage of us since there is no incentive to brokerage firms to recommend the
purchase of our common stock. No assurance can be given that
brokerage firms will, in the future, want to conduct any secondary offerings on
our behalf.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains “forward-looking statements,” which include information
relating to future events, future financial performance, strategies,
expectations, competitive environment and regulation. Words such as “may,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,”
“anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and
similar expressions, as well as statements in future tense, identify
forward-looking statements. Forward-looking statements should not be read as a
guarantee of future performance or results and will probably not be accurate
indications of when such performance or results will be achieved.
Forward-looking statements are based on information we have when those
statements are made or our management’s good faith belief as of that time with
respect to future events, and are subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. Important factors that could
cause such differences include, but are not limited to:
·
|
We
depend on Hydro-Quebec Utility Company for a large portion of our
business, and any change in the level of orders from Hydro-Quebec Utility
Company, has, in the past, had a significant impact on our results of
operations.
|
·
|
Unanticipated
increases in raw material prices or disruptions in supply could increase
production costs and adversely affect our
profitability.
|
·
|
Most
of our expenditures and revenue will be spent or derived in Canada.
However, we report our financial condition and results of operations in
U.S. dollars. As a result, fluctuations between the U.S. dollar and the
Canadian dollar will impact the amount of our
revenues.
|
·
|
Many
of our competitors are better established and have significantly greater
resources, and may subsidize their competitive offerings with other
products and services, which may make it difficult for us to attract and
retain customers.
|
·
|
Restrictive
loan covenants under our credit facility could limit our future financing
options and liquidity position and may limit our ability to grow our
business.
|
·
|
Our
chairman controls a majority of our combined voting power, and may have,
or may develop in the future, interests that may diverge from
yours.
|
·
|
Future
sales of large blocks of our common stock may adversely impact our stock
price.
|
9
You
should review carefully the section entitled “Risk Factors” beginning on page 3
of this prospectus for a discussion of these and other risks that relate to our
business and investing in shares of our common stock.
USE
OF PROCEEDS
We will
not receive any proceeds from the sale of common stock by the selling
stockholders.
A portion
of the shares covered by this prospectus are issuable upon exercise of warrants
to purchase our common stock. The warrants have a cashless exercise option. If,
however, a selling stockholder were to exercise its warrants for cash, the
selling stockholder would pay us the exercise price of the
warrants.
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our
common stock was originally approved for quotation on the OTC Bulletin Board on
February 2, 2009 under the symbol SRRC.OB. On January 7, 2010, as a result of
our name change from Sierra Concepts, Inc. to Pioneer Power Solutions, Inc., our
trading symbol on the OTC Bulletin Board was changed to PPSI.OB. However, prior
to January 7, 2010, our common stock did not trade regularly. The following
table sets forth the high and low bid prices for our common stock for the
periods indicated, as reported by the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
Fiscal
Year 2010
|
High
|
Low
|
||
First
Quarter (through March 8, 2010)
|
$3.05
|
$1.50
|
The last
reported sales price of our common stock on the OTC Bulletin Board on March 8,
2010, was $3.05 per share. As of March 8, 2010, there were 22 holders
of record of our common stock.
DIVIDEND
POLICY
In the
past, we have not declared or paid cash dividends on our common stock, and we do
not intend to pay any cash dividends on our common stock. Rather, we intend to
retain future earnings (if any) to fund the operation and expansion of our
business and for general corporate purposes. Subject to legal and contractual
limits, our board of directors will make any decision as to whether to pay
dividends in the future. Notwithstanding the foregoing, Pioneer Transformers
Ltd., our wholly-owned subsidiary, prior to our share exchange on December 2,
2009, paid cash dividends to Provident Pioneer Partners, L.P., its sole
stockholder at the time, of $450,000 during 2008 and $2,706,000 during
2009.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATION
Overview
and Recent Events
We
design, develop, manufacture and sell liquid-filled power, distribution and
specialty electric transformers for the utility, industrial and commercial
markets. Prior to December 2, 2009, we were a public shell company,
as defined by the Securities and Exchange Commission, without material assets or
activities. On December 2, 2009, we completed a share exchange, pursuant to
which we acquired all of the capital stock of Pioneer Transformers Ltd., causing
Pioneer Transformers Ltd. to become our wholly owned subsidiary. In connection
with this share exchange, we discontinued our former business and succeeded to
the business of Pioneer Transformers Ltd. as our sole line of business.
Accounting
for the Share Exchange
The share
exchange is being accounted for as a recapitalization. Pioneer
Transformers Ltd. is the acquirer for accounting purposes and we are the
acquired company. Accordingly, the historical financial statements
presented and the discussion of financial condition and results of operations
herein are those of Pioneer Transformers Ltd., retroactively restated for, and
giving effect to, the number of shares received in the share exchange, and do
not include the historical financial results of our former
business. The accumulated earnings of Pioneer Transformers Ltd. were
also carried forward after the share exchange and earnings per share have been
retroactively restated to give effect to the recapitalization for all periods
presented. Operations reported for periods prior to the share
exchange are those of Pioneer Transformers Ltd.
Foreign
Currency Exchange Rates
In
connection with our acquisition of Pioneer Transformers Ltd. and the
discontinuation of our former business, we elected to report our financial
results in U.S. dollars. Accordingly, all comparative financial information
contained in this discussion has been recast from Canadian dollars to U.S.
dollars. We also elected to report our financial results in accordance with
generally accepted accounting principles in the U.S. to improve the
comparability of our financial information with our peer companies.
10
Although
we have elected to report our results in accordance with generally accepted
accounting principles in the U.S. and in U.S. dollars, our primary operating
subsidiary, Pioneer Transformers Ltd., is a Canadian entity and its functional
currency is the Canadian dollar. As such, our financial position, results of
operations, cash flows and equity are initially consolidated in Canadian
dollars. Our assets and liabilities are then translated from Canadian dollars to
U.S. dollars by applying the foreign currency exchange rate in effect at the
balance sheet date, while the results of our operations and cash flows are
translated to U.S. dollars by applying the average foreign currency exchange
rate in effect during the reporting period. The resulting translation
adjustments are included in other comprehensive income or loss.
Our consolidated financial position and
operating results have
been translated to U.S. dollars by applying the following exchange rates,
expressed as the number of Canadian dollars to one U.S. dollar for each period
reported:
2009 | 2008 | ||||||
Consolidated
Balance Sheet
|
Consolidated
Statements of Earnings and Comprehensive Income
|
Consolidated
Balance Sheet
|
Consolidated
Statements of
Earnings
and
Comprehensive
Income
|
||||
Quarter
Ended
|
End
of Period
|
Period
Average
|
Cumulative
Average
|
End
of Period
|
Period
Average
|
Cumulative
Average
|
|
March
31
|
$1.2613
|
$1.2453
|
$1.2453
|
$1.0265
|
$1.0041
|
$1.0041
|
|
June
30
|
$1.1630
|
$1.1672
|
$1.2062
|
$1.0197
|
$1.0100
|
$1.0070
|
|
September
31
|
$1.0707
|
$1.0974
|
$1.1700
|
$1.0642
|
$1.0418
|
$1.0186
|
|
December
31
|
$1.0510
|
$1.0563
|
$1.1415
|
$1.2180
|
$1.2125
|
$1.0671
|
Critical
Accounting Policies
Use of
Estimates. The preparation of financial statements in
accordance with generally accepted accounting principles in the U.S. requires us
to make estimates and assumptions that affect the 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. The financial statements include estimates based on
currently available information and our judgment as to the outcome of future
conditions and circumstances. Significant estimates in these financial
statements include pension expense, inventory provisions, useful lives and
impairment of long-lived assets, determination of fair values of warrants
and allowance for doubtful accounts. Changes in the status of certain facts
or circumstances could result in material changes to the estimates used in the
preparation of the financial statements and actual results could differ from the
estimates and assumptions.
Revenue Recognition
Policies. Revenue is recognized when (1) persuasive evidence
of an arrangement exists, (2) delivery occurs, (3) the sales price is fixed or
determinable, (4) collectibility is reasonably assured and (5) customer
acceptance criteria, if any, has been successfully demonstrated. Revenue is
recognized on the sale of goods, when the significant risks and rewards of
ownership have been transferred to the buyer upon delivery, provided that we
maintain neither managerial involvement to the degree usually associated with
ownership, nor effective control over the goods sold. There are no further
obligations on our part subsequent to revenue recognition,
except when customers have the right of return or when we warrant the
product. We record a provision for future returns, based on historical
experience at the time of shipment of products to customers. We warrant some of
our products against defects in design, materials and workmanship for periods
ranging from one to three years depending on the model. We record a provision
for estimated future warranty costs based on the historical relationship of
warranty claims to sales at the time of shipment of products to customers. We
periodically review the adequacy of our product warranties and adjusts, if
necessary, the warranty percentage and accrued warranty reserve for actual
experience.
Foreign Currency
Translation. Our reporting currency is the U.S. dollar. The
Canadian dollar is the functional currency of our Canadian operations and
is translated into the U.S. dollar using the current rate
method. Under this method, accounts are translated as
follows:
·
|
Assets
and liabilities - at exchange rates in effect at the balance sheet
date;
|
·
|
Revenue
and expenses - at average exchange rates prevailing during the
year.
|
Gains and
losses arising from foreign currency translation are included in other
comprehensive income.
Changes in
Accounting Principles
No
significant changes in accounting principles were adopted during fiscal 2008 and
2009, except for the following:
FASB Codification. On July 1,
2009, the FASB released the final version of its new Accounting Standards
Codification (the “Codification”) as the single authoritative source for U.S.
GAAP. The Codification replaces all previous U.S. GAAP accounting standards as
described in FAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. While not intended to
change U.S. GAAP, the Codification significantly changes the way in which the
accounting literature is organized. It is structured by accounting topic to help
accountants and auditors more quickly identify the guidance that applies to a
specific accounting issue. We have applied the Codification for the first time
for our interim financial statements for the nine months ending September 30,
2009. The adoption of the Codification did not have an effect on our financial
position and results of operations. However, because the Codification completely
replaces existing standards, it affects the way U.S. GAAP is referenced in our
consolidated financial statements and accounting policies.
11
Subsequent Events. FASB ASC
855, Subsequent Events (“ASC 855”), which established principles and
requirements for subsequent events, is effective for interim or annual reporting
periods ending after June 15, 2009. ASC 855 details the period after the balance
sheet date during which we should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, the
circumstances under which we should recognize events or transactions occurring
after the balance sheet date in our financial statements and the required
disclosures for such events. Since ASC 855 at most requires additional
disclosures, the adoption of ASC 855 did not have a material impact on our
consolidated financial statements.
Fair Value Measurements. SFAS
No.157 as codified in FASB ASC 820, Fair Value Measurement and Disclosures (“ASC
820”) is effective for financial assets and liabilities in fiscal years
beginning after November 15, 2007, and for non-financial assets and liabilities
in fiscal years beginning after November 15, 2008. We adopted ASC 820 for
financial assets and liabilities in the first quarter of fiscal 2008 with no
material impact on our consolidated financial statements. We adopted ASC 820 for
non-financial assets and liabilities in the first quarter of fiscal 2009 with no
material impact on our consolidated financial statements.
ASC 820
applies to all assets and liabilities that are being measured and reported on a
fair value basis. ASC 820 requires new disclosure that establishes a framework
for measuring fair value in U.S. GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial statements to
assess the inputs used to develop those measurements by establishing a hierarchy
for ranking the quality and reliability of the information used to determine
fair values. The statement requires that assets and liabilities carried at fair
value be classified and disclosed in one of the following three
categories:
Level
1: Quoted market prices in active
markets for identical assets or liabilities.
Level
2: Observable market based inputs or
unobservable inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not
corroborated by market data.
In
determining the appropriate levels, we perform a detailed analysis of the assets
and liabilities that are subject to ASC 820. At each reporting period, all
assets and liabilities for which the fair value measurement is based on
significant unobservable inputs are classified as Level 3. There are no assets
or liabilities measured at fair value as at December 31, 2009.
Fair Value of Financial
Instruments. The fair value
represents management’s best estimates based on a range of methodologies and
assumptions. The carrying value of receivables and payables arising in the
ordinary course of business approximate fair value because of the relatively
short period of time between their origination and expected
realization.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue. Total
revenue decreased 7.5% to $40.1 million in 2009 from $43.9 million in 2008. On a
constant-currency basis, which excludes the negative impact of currency
translation on revenue due to the relatively stronger U.S. dollar throughout
2009, revenue decreased approximately 1% in 2009 as compared to 2008.
This effect was more pronounced due to a decrease in our U.S. dollar denominated
revenue during 2009 as compared to 2008, reflecting an increase in sales to the
Canadian utility market. The remainder of our revenue decline in 2009
was attributable to the net effect of decreases in transformer unit volume,
offset by an increase in the average price per unit.
Gross Margin. Our
gross margin percentage for 2009 increased to 29.2% of revenues compared to
20.5% in 2008. This increase was primarily related to favorable
shifts in our sales mix, particularly increased sales of larger units to the
utility market. Our gross margin also benefited from more efficient
manufacturing, lower material costs and the translation effect of a
strengthening in the U.S. dollar on the portion of our cost of goods sold that
was denominated in Canadian dollars. While most of our operating revenues are
denominated in Canadian dollars, approximately half of our costs of goods sold
are based on purchases made in Canadian dollars, with the remainder based on
purchases made in U.S. dollars.
The
electrical transformer industry is highly competitive and requires that we
expend significant resources on, among other things, design and engineering,
production planning, machinery and equipment, product testing, logistics and
customer service. Our profitability is dependent on a number of
factors including a favorable product mix, factory configuration, manufacturing
capacity and utilization and prices for various raw material commodities.
Accordingly, there can be no assurance that such or other factors will not have
a material effect on our gross margin in future periods.
12
Selling, General and Administrative
Expense. Selling, general and administrative expense decreased
3.6% to approximately $4.1 million in 2009, as compared to $4.2 million in 2008.
On a constant currency basis, selling, general and administrative expense
increased by approximately 3%, primarily due to higher selling and engineering
expenses during the year, as well as to expenses that we incurred in connection
with the share exchange and becoming a public company. Selling, general and
administrative expenses as a percentage of revenue increased to 10.0% of revenue
in 2009 from 9.6% in 2008.
Foreign Exchange (Gain)
Loss. Most of our operating revenues are denominated in
Canadian dollars and a material percentage of our expenses are denominated and
disbursed in U.S. dollars. Historically, we have not engaged in currency hedging
activities. Accordingly, fluctuations in foreign currency exchange rates between
the time we initiate and then settle transactions with our customers and
suppliers can have an impact on our operating results. During 2009, the impact
of these fluctuations resulted in a gain of approximately $272,000 to operating
profit, compared to a gain of approximately $98,000 in 2008.
Write-down of Advances to Limited
Partners of a Stockholder. During the third quarter of
2008, we wrote down the entire amount of advances we made to Nathan J. Mazurek
and David Landes, limited partners of Provident Pioneer Partners, L.P., our sole
shareholder until December 2, 2009. These advances were made to these
individuals as reimbursement for certain advances made by them in 2002 and 2003
to a switchgear manufacturing company that was owned by Provident Pioneer
Partners, L.P. at the time and which was subsequently sold. This write-down
resulted in the recognition of a non-operating loss of $0.7 million in
2008.
Mr.
Mazurek and Mr. Landes provided the advances to the switchgear company in order
to provide it with funds at a time when neither the other limited partners of
Provident Pioneer Partners, L.P. nor we desired or were capable of funding the
switchgear company directly. In 2007 and 2008, when we had sufficient funds to
repay Mr. Mazurek and Mr. Landes, Mr. Mazurek, as our controlling shareholder at
the time, caused us to reimburse him and Mr. Landes. We recorded this
reimbursement as an advance with no terms, security or requirements of
repayment. Upon further review during the third quarter of 2008, our
management determined that the advances were unlikely to be repaid, served no
purpose in the conduct of our business and should therefore be written-off as a
non-operating expense. As a consequence of the write-down, there are
no longer any advances of any kind outstanding from us to any limited partners
of Provident Pioneer Partners, L.P., to any of our stockholders or to third
parties. We have no intention of making similar advances in the
future.
Interest and Factoring
Fees. During 2009, interest and factoring fees were
approximately $311,000 for 2009, down 39.2% from approximately $512,000 in 2008.
The decrease was primarily a result of lower average borrowings and interest
rates during 2009.
Provision for Income
Taxes. Our provision for income taxes reflects an effective
tax rate on earnings before income taxes of 32.7% in 2009, as compared to 38.8%
in 2008. The decrease in our effective tax rate is primarily attributable to the
non-deductible write-down of advances that was recognized in the third quarter
of 2008.
Net Earnings. We
generated net earnings of $5.1 million in 2009, or $0.22 per basic
and diluted share, compared to $2.1 million, or $0.09 per basic
and diluted share, in 2008. The significant increase in our net earnings
during 2009 was due to several factors including a favorable product mix that
generated higher gross margins, relatively stable operating expenses, the
absence of any significant write-downs and lower debt service
costs.
Backlog. The order
backlog at December 31, 2009 was $16.5 million, down 16.6% (or 28.1% on a
constant currency basis) as compared to $19.8 million at December 31, 2008. New
orders placed during 2009 were $35.0 million, a decrease of 12.9% (or 6.8% on a
constant currency basis) compared to new orders of $40.1 million that were
placed during 2008.
Liquidity
and Capital Resources
General. At
December 31, 2009, we had cash and cash equivalents of approximately
$1.6 million. We have historically met our cash needs through a
combination of cash flows from operating activities and bank borrowings. Our
cash requirements are generally for operating activities, debt repayment and
capital improvements. We believe that working capital, funds available under our
credit facilities, and funds generated from operations should be sufficient to
finance our cash requirements for anticipated operational activities, capital
improvements, repayment of debt and possible future acquisitions through the
next 12 months.
Our
operating activities generated cash flow of approximately $4.3 million in 2009,
compared to $0.3 million in 2008. The principal elements of cash flow from
operations in 2009 included net income of $5.1 million and depreciation of $0.3
million, offset by investment in operating working capital of $1.0
million.
13
Cash used
in our financing activities was $2.5 million in 2009, compared to cash generated
of approximately $0.2 million in 2008. In conjunction with the share exchange on
December 2, 2009, we completed a private placement of our common stock raising
gross proceeds of $5.0 million before expenses. Our primary uses of cash for
financing activities in 2009 consisted of $4.5 million to repay debt and $2.7
million to make dividend payments to Provident Pioneer Partners, L.P.,
previously the sole stockholder of Pioneer Transformers Ltd.
Cash used
in investing activities during 2009 was approximately $334,000 which amount
consisted entirely of additions to property and equipment. In 2008, cash used in
investing activities was $650,000, which amount consisted of approximately
$222,000 in additions to property and equipment and $427,000 in advances to
companies controlled by certain of the limited partners of our former sole
stockholder. This
$427,000 advance constituted part of the $700,000 in advances,
as described above, that were made to certain limited partners of Provident
Pioneer Partners, L.P. in 2007 and 2008 as reimbursement for certain
advances made by these limited partners to a switchgear manufacturing
company in 2002 and 2003 that was owned by Provident Pioneer
Partners, L.P. at that time and that was subsequently sold.
As of
December 31, 2009, current assets exceeded current liabilities by 2.9 times.
Current assets increased by $2.9 million during the year while current
liabilities were reduced by $4.4 million during the same period. As a result,
our working capital increased by $7.2 million to $9.0 million during the year
ended December 31, 2009. This increase in working capital was due primarily to
the repayment of our bank indebtedness, together with increases in our operating
assets, particularly accounts receivable and inventories. The increase in
accounts receivable and inventories was due, in large part, to the significant
increase in the value of the Canadian dollar relative to the U.S. dollar (from
CAD 1.2180 on December 31, 2008 to 1.0510 on December 31, 2009). This
fluctuation in the exchange rate had the effect of creating a large increase in
our accounts receivable and inventories.
Credit
Facilities. In October 2009, we entered into a financing
arrangement with a new primary lender that replaced our previous credit
facility. The new $9.5 million credit agreement consists of a $7.4 million
demand revolving credit facility, a $1.7 million term loan facility and a $0.5
million foreign exchange settlement risk facility. The credit facilities are
secured by a first-ranking lien in the amount of $9.5 million on all of our
assets, as well as a collateral mortgage of $9.5 million on our land and
buildings. As of December 31, 2009, we had no outstanding debt borrowed against
our credit facilities.
The
credit facilities require us to comply with various financial covenants
including maintaining a minimum debt service coverage ratio of 1.25, a minimum
current ratio of 1.20 and a maximum total debt to tangible net worth ratio of
3.0 in 2009 and 2.50 in future periods. The demand revolving credit
facility is subject to margin criteria and borrowings bear interest at the
bank's prime rate per annum on amounts borrowed in Canadian dollars, or the U.S.
base rate plus 0.75% per annum on amounts borrowed in U.S. dollars. Borrowings
under the term loan facility bear interest at the bank's prime rate plus 1.0%
per annum.
Equipment
Loans. As of December 31, 2009, we had equipment loans with an
aggregate principal amount outstanding of approximately $134,000, compared to
approximately $260,000 outstanding as of December 31, 2008. These equipment
loans bear interest at rates varying from 5.93% to 9.93% and are repayable in
monthly installments of approximately $14,000 including interest, with a final
payment due in December 2010.
Loans from Stockholders.
Certain limited partners of Provident Pioneer Partners, L.P. previously advanced
us an aggregate $150,000 at an interest rate of 12% per annum with no
specific terms of repayment.
Capital
Expenditures. In September 2009, we commenced a plant
expansion that will increase our manufacturing facilities by approximately 6,000
square feet. The capital budget for the project is approximately $1.7 million,
including machinery and equipment, and is scheduled for completion by November
2010. The cost of the project, most of which will be incurred during 2010, will
be funded through cash flow from operations and our $1.7 million term loan
facility with our primary lender that was established for this specific
purpose.
Factors
That May Affect Future Operations
We
believe that our future operating results will continue to be subject to
quarterly variations based upon a wide variety of factors, including the
cyclical nature of the transformer industry and the markets for our products.
Our operating results could also be impacted by a weakening of the Canadian
dollar, changing customer requirements and exposure to fluctuations in prices of
important raw supplies, such as copper, steel and aluminum. We
attempt to minimize these increases through the inclusion of escalation clauses
with respect to commodities in our customer contracts. In addition to these
measures, we attempt to recover other cost increases through improvements to our
manufacturing efficiency and through increases in prices where competitively
feasible. Lastly, other economic conditions we cannot foresee may affect
customer demand. We predominately sell to customers in the utility market.
Accordingly, changes in the condition of any of our customers may have a greater
impact than if our sales were more evenly distributed between different end
markets.
Off
Balance Sheet Transactions and Related Matters
We
have no off-balance sheet transactions, arrangements, obligations (including
contingent obligations), or other relationships with unconsolidated entities or
other persons that have, or may have, a material effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
14
Recent
Accounting Pronouncements
In June
2009, the FASB issued FAS No. 166, Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140 as codified in FASB ASC 860, Transfer and
Servicing (“ASC 860”), which amends the derecognition guidance in FASB Statement
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities-a replacement of FASB Statement No. 125, and
eliminates the exemption from consolidation for qualifying special-purpose
entities. This statement is effective for financial asset transfers occurring
after the beginning of an entity's first fiscal year that begins after November
15, 2009. The adoption of ASC 860 is not expected to have a material effect on
our financial position or results of operations.
In June
2009, the FASB issued FAS No. 167, Amendments to FASB Interpretation No. 46(R),
as codified in FASB ASC 810, Consolidation (“ASC 810”) which amends the
consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51. This statement is effective as of the
beginning of the first fiscal year that begins after November 15, 2009. The
adoption of ASC 810 is not expected to have a material effect on our financial
position or results of operations.
In
October 2009, the FASB issued Update No. 2009-13, Revenue Recognition (Topic
605) — Multiple-Deliverable Revenue Arrangements — a consensus of the
FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides amendments
to the criteria in ASC 605-25 for separating consideration in
multiple-deliverable arrangements. As a result of those amendments,
multiple-deliverable arrangements will be separated in more circumstances than
under existing U.S. GAAP. ASU 2009-13: (i) establishes a selling price hierarchy
for determining the selling price of a deliverable, (ii) eliminates the residual
method of allocation and requires that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling
price method, (iii) requires that a vendor determine its best estimate of
selling price in a manner that is consistent with that used to determine the
price to sell the deliverable on a standalone basis and (iv) significantly
expands the disclosures related to a vendor’s multiple-deliverable revenue
arrangements. ASU 2009-13 is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010. We are currently evaluating the impact of adopting ASU
2009-13.
In
October 2009, the FASB issued Update No. 2009-14, Software (Topic 985) — Certain
Revenue Arrangements That Include Software Elements — a consensus of the FASB
Emerging Issues Task Force (“ASU 2009-14”). ASU 2009-14 changes the accounting
model for revenue arrangements that include both tangible products and software
elements and provides additional guidance on how to determine which software, if
any, relating to tangible product would be excluded from the scope of the
software revenue guidance. In addition, ASU 2009-14 provides guidance on how a
vendor should allocate arrangement consideration to deliverables in an
arrangement that includes both tangible products and software. ASU 2009-14 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The adoption of
ASU 2009-14 is not expected to have a material effect on our financial position
or results of operations.
BUSINESS
Corporate
History
We were
organized in the State of Nevada on September 16, 2008 as Sierra Concepts, Inc.
for the purpose of providing individuals with financial counseling services
through the Internet. On November 30, 2009, Sierra Concepts, Inc. merged with
and into Pioneer Power Solutions, Inc., a Delaware corporation and wholly owned
subsidiary of Sierra Concepts, Inc., for the sole purpose of changing our state
of incorporation from Nevada to Delaware and changing our name from “Sierra
Concepts, Inc.” to “Pioneer Power Solutions, Inc.” On December 2, 2009, we
entered into a share exchange agreement with Pioneer Transformers Ltd., a
company incorporated under the Canada Business Corporations Act, and Provident
Pioneer Partners, L.P., a Delaware limited partnership and the sole stockholder
of Pioneer Transformers Ltd. Pursuant to the share exchange
agreement, on December 2, 2009, Provident Pioneer Partners, L.P. transferred all
of the issued and outstanding capital stock of Pioneer Transformers Ltd. to us
in exchange for (i) 22,800,000 newly issued shares of our common stock and (ii)
a five-year warrant to purchase up to 1,000,000 shares of our common stock at an
exercise price of $3.25 per share. As a result of this share exchange, Pioneer
Transformers Ltd. became our wholly owned subsidiary.
Immediately
following the share exchange, we transferred all of our pre-share exchange
operating assets and liabilities to our wholly owned subsidiary, Sierra Concepts
Holdings, Inc., a Delaware corporation, and transferred all of Sierra Concepts
Holdings, Inc.’s outstanding capital stock to our then-majority stockholder in
exchange for cancellation of shares of our common stock held by such
stockholder.
15
After the
share exchange and the divestiture of our pre-share exchange operating assets
and liabilities we succeeded to the business of Pioneer Transformers Ltd. as our
sole line of business, and all of our then-current officers and directors
resigned and were replaced by Nathan J. Mazurek and four new
directors.
Overview
We are a
North American designer, developer and manufacturer of liquid-filled power,
distribution and specialty electric transformers. We have been in the
transformer business for over 50 years and distinguish ourselves by
manufacturing a wide range of customized, engineered-to-order equipment for our
customers. We serve Canadian and U.S. customers in a variety of industries with
particular emphasis on the electric utility, industrial and commercial
construction markets.
An
electric transformer is used to reduce or increase the voltage of electricity
traveling through a wire. This is accomplished by transferring electric energy
from one coil or winding to another coil through electromagnetic induction.
Electric power plants use generator transformers to “step-up,” or increase,
voltage that is transferred through power lines in order to transmit the
electricity more efficiently and over long distances. When the high voltage
electricity reaches a community, a “step-down” transformer reduces its voltage.
A distribution transformer makes a final step-down in voltage by diminishing the
force of the electricity to a level usable in homes and businesses. Some
electrical devices, such as doorbells and small appliances, use additional
step-down transformers to decrease voltage even further.
Transformers
are integral to any electrical transmission and distribution system. Electric
utilities use transformers for the construction and maintenance of their power
networks, industrial firms use transformers to supply factories with electricity
and to distribute power to production machinery and the construction industry
uses transformers to connect new homes and buildings to the electricity
grid.
The
Industry
Demand
for our electrical power and distribution transformers results primarily from
spending by electric utilities for replacements, expansions and efficiency
improvements. Demand is also sensitive to overall economic conditions,
particularly with respect to the level of industrial production and investment
in commercial and residential construction. Other market factors include voltage
conversion, voltage unit upgrades, electrical equipment failures, higher energy
costs and stricter environmental regulations.
According
to The Freedonia Group, a market research firm, U.S. demand for electrical
transmission and distribution equipment, which includes switchgear,
transformers, pole/line hardware and meters, was $20.8 billion in 2008. Of this
amount, approximately 38%, or $7.9 billion, was comprised of demand for
transformers. Together with Canadian demand for transformers, we believe that
the North American market currently exceeds $8.5 billion annually. The value of
transformer shipments in the U.S. has grown 10.6% per annum since 2003 due to
capital spending increases by utilities and due to recent price increases of key
material inputs such as steel and copper. Assuming more stable prices, The
Freedonia Group expects transformer demand to increase 2.3% annually through
2013, accelerating to 3.4% per annum thereafter through 2018.
This
prediction of accelerating growth is consistent with the need to upgrade the
U.S. power grid and is supported by regulatory initiatives intended to improve
system stability and promote growth in electric power generation by independent
producers and in renewable energy sources such as wind power. For example,
according to The Brattle Group, a consulting firm, 70% of all power transformers
are currently over 25 years old. Including other major equipment components of
the U.S. power grid also operating at, close to or past their planned service
lives, The Brattle Group estimates $1.5 trillion of capital investment will be
required in the U.S. electrical infrastructure by 2030 in order to meet growing
demand and targets for efficiency, emissions and renewable sources. A
majority of these expenditures, or approximately $900 billion, is expected by
The Battle Group to be for transmission and distribution equipment, with the
remainder being spent on increasing generation capacity.
The
transformer market is very fragmented due to the range of sizes, voltages and
technological standards required by different categories of end-users. This
diversity of manufacturers also reflects the fact that many orders are
custom-engineered and tend to be very time-sensitive since other critical work
is frequently being coordinated around the customer’s transformer installation.
As a result of these and other factors, the vast majority of North American
demand for transformers is satisfied from producers in the U.S. and Canada.
According to the U.S. Census Bureau, there are over 250 transformer
manufacturers in the U.S. and at least 50 that manufacture larger power and
distribution transformers such as those produced by us.
Products
16
We
design, develop, manufacture and sell a wide range of liquid-filled electrical
power and distribution transformers. Power transformers are designed for utility
and industrial customers to be installed in substations or commercial electric
power centers for apartment complexes, shopping centers, factories and other
high load users of electrical power. Distribution transformers are used to
step-down high voltage electrical transmissions to usable levels (typically to
120 or 240 volts) for use in homes, offices and factories. Distribution
transformers may be mounted on utility poles, or increasingly, they are placed
at ground level on a concrete pad or in underground vaults.
Our
transformer products are manufactured in electrical power ranges from 25 kVA
(kilovolt amperes) to 10 MVA (megavolt amperes) and at up to 44 kV (kilovolts)
in voltage. In recent years, we have focused primarily on the small power
market, generally considered to include transformers between 1 MVA and 10 MVA,
as well as on specialty transformers such as network and other highly-engineered
models. We sell our products to electrical utilities, independent power
providers, electrical co-ops, industrial companies, commercial users and to
electric equipment wholesalers. Our primary product categories are as
follows:
Transformer
Type
|
Range
of Sizes
|
Applications
|
||
Small
Power
|
300
kVA to 10 MVA
|
Power
conversion for the utility and industrial/commercial market, typically
found in substations
|
||
Network
|
300
kVA to 3.75 MVA
|
Subway
and vault-type transformers designed to withstand harsh environments and
typically used by utilities and municipal power authorities to ensure
reliability of service
|
||
Pad-Mount
|
75
kVA to 10 MVA
|
Distribution
transformers commonly used in underground power or distribution
systems
|
||
Unitized
Pad-Mount
|
Up
to 5 MVA
|
Combines
pad-mounts with other equipment in a product that can be substituted for
conventional unit substations at apartment complexes, shopping centers,
hospitals and similar commercial facilities
|
||
Mini-Pad
|
25
kVA to 167 kVA
|
Single
phase, low profile pad-mounted distribution transformers for residential
and underground distribution
|
||
Platform-Mount
|
250
kVA to 2.5 MVA
|
Single
phase units from 250 kVA to 1,000 kVA, also supplied for substation
installation up to 2,500 kVA
|
The
transformers we manufacture are typically shell-type, composed of steel cores
surrounding wound coils and mounted inside tanks made of hot rolled steel that
are filled under vacuum with oil or another liquid with similar cooling and/or
dielectric properties such as silicone or FR3. We manufacture the cores from
non-aging, grain-oriented silicon steel strip. Stresses that develop in cutting
and forming the core are relieved by batch annealing in our nitrogen atmosphere
ovens. We wind the coils on thermally upgraded heavy board forms to provide high
mechanical strength and basic insulation to ground. Layer insulation consists of
adhesive coated thermally upgraded paper of several different thicknesses. Our
core/coil/frame mounting system is designed to assure a relatively stress free
assembly resulting in consistently low core loss (i.e., high efficiency) and low
sound level. Many of our products adhere to standards developed by
Underwriters Laboratories Inc., the American National Standards Institute and
the Canadian Standards Association.
Business
Strategy
The
foundation of our strategy is to build upon the core strengths that we believe
have led to our growth and increasing profitability in recent years -- our
engineering and manufacturing capabilities, our product quality and our highly
flexible, individualized and responsive standards for customer service. The
combination of these strengths enables us to consistently deliver high volumes
of custom-engineered transformers. Our strategy is to continually seek ways to
broaden our capabilities to serve our customers more completely and directly, an
approach we believe will maximize our market penetration, increase our revenues
more profitably and we hope will create barriers to entry for our
competitors.
We intend
to expand rapidly over the next several years by adhering to this strategy in
the execution of our internal growth and acquisition plans.
Internal
Growth
We intend
to build our revenue and profit margins at rates exceeding industry norms
primarily by continuing our sales and product mix migration towards more
highly-engineered, value-added products. We intend to accomplish this goal by
emphasizing the sale of more power, network and subsurface transformers to new
and existing utility customers, particularly in the U.S. To increase our
manufacturing capacity for these products, which are among the largest we
produce, in September 2009 we commenced a plant expansion that will increase our
facility by approximately 6,000 square feet.
17
This
expansion will alleviate production scheduling conflicts and increase
utilization of our existing floor space, while establishing the potential to
produce still larger, more high-powered transformers in the future. The project
capital budget is approximately $1.7 million, including machinery and equipment,
and is scheduled for completion by November 2010. Due to long lead times
associated with our larger transformer products, we expect the first shipments
of products manufactured in the new space to occur during the second half of
2011.
Acquisitions
We intend
to pursue opportunities to acquire businesses that increase our market share in
transformers or expand our geographic reach. We also intend to consider
acquiring manufacturers of other highly engineered and customized ancillary or
complementary products that will further our penetration of markets and
customers served. We favor candidates that have competencies and business
characteristics similar to our own, and those that we expect will benefit from
some of the major trends affecting our industry.
China
Expansion
We place
a high priority on entering the Chinese market for transmission and distribution
equipment, either by way of a plant or company acquisition. According to The
Freedonia Group, the 2008 market for transmission and distribution equipment in
China was ¥179.1 billion ($25.8 billion), of which ¥53.2 billion ($7.7 billion)
was for transformers, a market segment that is expected to grow 10.5% annually
through 2013. Based on reports by the China National Transformer Association and
on our management’s own knowledge and experience with respect to doing business
in China, we believe the Chinese market is far more fragmented than the North
American market and that there are many potential candidates for a business
combination that would benefit from our experience and access to the U.S. public
capital markets.
Customers
We sell
our products principally to Canadian customers, who presently account for more
than 90% of our sales. Our customers include a majority of Canada’s electrical
utilities, several U.S. utilities and municipal power systems, large industrial
companies, engineering and construction firms and a number of electrical
distributors. During the past five years approximately 70% of our sales have
been directly to utilities, with the remainder being sold primarily to
industrial companies and electrical distributors.
Approximately
39.6% and 26.3% of our sales in 2009 and 2008, respectively, were made to
Hydro-Quebec Utility Company, a government-owned utility in the Province of
Quebec, Canada. The majority of our sales to Hydro-Quebec Utility Company are
made pursuant to a long-term contract for the supply of pad-mount
transformers that expired and was replaced in 2010. In 2010 we were
awarded an additional contract by Hydro-Quebec Utility Company for the supply of
submersible transformers. Both contracts have initial terms expiring during the
second quarter of 2012 and two one-year renewal options providing for a maximum
term of four years. The contracts set forth the terms, conditions and rights of
the parties with respect to the supply of the subject products including:
ordering and delivery procedures, required technical specifications, minimum
performance standards, product pricing and price adjustment mechanisms, terms of
payment and rights of termination. The contracts do not require Hydro-Quebec
Utility Company to order any minimum quantity of products from us and do not
grant us any form of supply exclusivity. Hydro-Quebec Utility Company has been a
customer of ours and our predecessors for approximately 40 years, over which
time we have been party to consecutive long-term contracts for an uninterrupted
period spanning several decades. We believe the status of our business
relationship with Hydro-Quebec Utility Company to be good. In 2009, no other
customer accounted for 10% or more of our sales. Aside from Hydro-Quebec Utility
Company, we do not believe that the loss of any specific customer would have a
material adverse effect on our business.
Competition
We
experience competition from a large number of transformer manufacturers. The
number and size of our competitors varies considerably by product line, with
many of our competitors tending to be small, highly specialized or focused on a
certain geographic market area or customer. However, several of our competitors
have substantially greater financial and technical resources than us, including
some of the world’s largest electrical products companies such as ABB Ltd.,
Carte International, Inc., Cooper Industries plc, General Electric Company,
Groupe Schneider, Howard Industries, Inc., Partner Technologies, Inc. and
Siemens AG.
We
believe that we compete primarily on the basis of product quality, product
innovation, service and price. We have established a niche in the manufacture
and design of small power and distribution electrical transformers and, in
particular, custom transformers requiring specialized and complex applications.
As a result of our long-time presence in the industry, we possess a number of
special transformer designs that we have engineered and developed specifically
for our customers. We believe these designs give us a competitive advantage and
that they are a major contributor to our high frequency of repeat customer
orders; repeat customers typically account for over 75% of our sales from year
to year.
18
Raw
Materials and Suppliers
The
principal raw materials purchased by us are core steel, copper wire, aluminum
strip and insulating materials including transformer oil. We also purchase
certain electrical components from a variety of suppliers including bushings,
switches, fuses and protectors. These raw materials and components are available
from and supplied by numerous sources at competitive prices, although there are
more limited sources of supply for electrical core steel and transformer oil.
Unanticipated increases in raw material prices or disruptions in supply could
increase production costs and adversely affect our profitability. We attempt to
minimize the effect on our profit margins of unanticipated changes in the prices
of raw materials by including escalation clauses in our customer contracts that
allow us to increase or reduce our fees if the costs of raw materials
unexpectedly rise or decrease. Approximately 40% of our annual sales
are made pursuant to contracts that contain such escalation clauses, which,
subject to various formulae and limitations, permit us to adjust the final
prices we charge. We anticipate no significant difficulty fulfilling
our raw material purchase requirements and have not experienced any such
difficulty in the past several years. Our largest suppliers include
Cogent Power, Inc., Itochu Corporation and Rea Magnet Wire Company.
Marketing,
Sales and Distribution
A
substantial portion of the transformers manufactured by us are sold to customers
by our direct sales force of full-time sales personnel operating either from our
two offices in Canada or our office in the U.S. Our products are also
sold through our network of independent sales agents throughout North
America. Our direct sales force markets to end users and to third
parties, such as engineering firms, that prescribe the specifications and
parameters that control the applications of our products.
Facilities
We have one manufacturing facility
located in Granby, Quebec, Canada, which was built in 1962 and consists of
approximately 38,000 square feet. The facility sits on approximately
25 acres in the town of Granby which is located approximately 40 miles east of
Montreal. We own both the facility and the land through Granby
Realty. We believe the facility has been well maintained and is in
proper condition necessary to operate at current levels. Our primary lender has
a collateral mortgage on the facility and the land in order to secure up to $9.5
million of indebtedness that we have the right to draw down upon under our
existing credit facilities. In order to increase the manufacturing capacity of
our facility, in September 2009 we commenced a plan to expand its size by
approximately 6,000 square feet by building onto land that we already own. We
expect this expansion project to be completed in November 2010.
We lease
office space for our engineering and marketing office in Mississauga near
Toronto, Ontario, Canada. Our monthly rent is $3,065 and the lease
expires in 2011. We also pay $6,500 per month for use of office space
for our executive management and sales office in New York City.
Sales
Backlog
Backlog
reflects the amount of revenue we expect to realize upon the shipment of
customer orders for products that are not yet complete or for which work has not
yet begun. Our sales backlog as of December 31, 2009 was
approximately $16.5 million, as compared to $19.8 million at December 31, 2008.
We anticipate that substantially all of our current backlog will be delivered
during 2010. Orders included in our sales backlog are represented by customer
purchase orders and contracts that we believe to be firm.
Employees
At
December 31, 2009, we had 53 employees consisting of 22 salaried staff and 31
hourly workers. We had no part-time employees. Our hourly
employees, all located at our plant in Granby, are covered by a collective
bargaining agreement with the United Steel Workers of America Local 9414 that
expires in May 2010. We consider our relationship with our employees to be
good.
Environmental
We are
subject to numerous environmental laws and regulations concerning, among other
areas, air emissions, discharges into waterways and the generation, handling,
storing, transportation, treatment and disposal of waste materials. These laws
and regulations are constantly changing and it is impossible to predict with
accuracy the effect they may have on us in the future. Like many other
industrial enterprises, our manufacturing operations entail the risk of
noncompliance, which may result in fines, penalties and remediation costs, and
there can be no assurance that such costs will be insignificant. To our
knowledge, we are in substantial compliance with all federal, state, provincial
and local environmental protection provisions, and believe that the future cost
of fines, penalties and remediation protection provisions, if any, should not
have a material adverse effect on our capital expenditures, earnings or
competitive position. However, legal and regulatory requirements in these areas
have been increasing and there can be no assurance that significant costs and
liabilities will not be incurred in the future due to regulatory
noncompliance.
19
Legal
Proceedings
There are
currently no pending legal proceedings and, as far as we are aware, no
governmental authority is contemplating any proceeding to which we are a party
or to which any of our properties is subject.
MANAGEMENT
The
following table sets forth information regarding the members of our board of
directors and our sole executive officer. All directors hold office for one-year
terms until the election and qualification of their successors. Officers are
elected by the board of directors and serve at the discretion of the
board.
Name
|
Age
|
Position
|
Nathan
J. Mazurek
|
47
|
Chief
Executive Officer, President, Chairman of the Board of Directors, Chief
Financial Officer, Secretary and Treasurer
|
Yossi
Cohn
|
31
|
Director
|
David
J. Landes
|
53
|
Director
|
David
Tesler
|
36
|
Director
|
Jonathan
Tulkoff
|
45
|
Director
|
Nathan J. Mazurek, President, Chief
Executive Officer, Chairman of the Board of Directors, Chief Financial
Officer, Secretary and Treasurer. Mr. Mazurek has served as
our chief executive officer, president, chairman of the board of directors,
chief financial officer, secretary and treasurer since December 2,
2009. Mr. Mazurek has over 20 years of experience in the electrical
equipment and components industry. Mr. Mazurek has served as the
chief executive officer, president, vice president, sales and marketing and
chairman of the board of directors of Pioneer Transformers Ltd. since
1995. Mr. Mazurek has served as the president of American Circuit
Breaker Corp., a manufacturer and distributor of circuit breakers, since 1988
and as a director of Empire Resources, Inc., a distributor of semi-finished
aluminum products, since 1999. From 2002 through 2007, Mr. Mazurek
served as president of Aerovox, Inc., a manufacturer of AC film
capacitors. Mr. Mazurek received his BA from Yeshiva College in 1983
and his JD from Georgetown University Law Center in 1986.
Yossi Cohn, Director. Mr. Cohn
has served as a director since December 2, 2009. Mr. Cohn founded YY
Capital Partners, LLC, an investment firm, in 2007 and has served as its
co-managing partner since its inception. Mr. Cohn has
also served as a member of L3G Partners, LLC since June 2009. Mr.
Cohn served as a director of investor relations at IDT Corporation, a NYSE
listed telecommunications company, from September 2005 through May
2007. Prior to joining IDT Corporation, Mr. Cohn was a director of
research at SAGEN Asset Management, an asset manager of funds of hedge funds,
from January 2005 through May 2005. Mr. Cohn started his career as an
analyst in the funds-of-funds investment group of Millburn Ridgefield
Corporation, where he worked from March 2001 through January 2005.
David J. Landes, Director. Mr.
Landes has served as a director since December 2, 2009. Mr. Landes
has served as president of Provident Sunnyside, LLC, and as president of CYMA
Investments LLC, for over the past five years and as president of 516 Churchill
Associates, LLC since 2005. Mr. Landes received his BA from Columbia
University and his JD from the University of Chicago.
David Tesler, Director. Mr.
Tesler has served as a director since December 2, 2009. Mr. Tesler
has served as chief executive officer of LeaseProbe, LLC, a provider of lease
abstracting services, since 2004 and as chief executive officer of
RealDiligence, LLC, a financial due diligence company, since 2007. Prior to
founding LeaseProbe, LLC, Mr. Tesler practiced law at Skadden Arps Slate Meager
& Flom LLP and at Jenkens & Gilchrist, Parker Chapin LLP. Mr.
Tesler received his BA from Yeshiva College, a Master’s degree in Medieval
History from Bernard Revel Graduate School and a JD from Benjamin A. Cardozo
School of Law.
Jonathan Tulkoff, Director.
Mr. Tulkoff has served as director since December 2, 2009. Mr.
Tulkoff has served as president of Uniwire International, Ltd., a steel trading
and marketing company, since 1995.
There are
no family relationships among any of our directors and executive
officers.
Board
Committees
20
Audit Committee. We intend to
establish an audit committee of the board of directors once we have satisfied
the other initial listing standards for listing our common stock on the Nasdaq
Stock Market or another national exchange. The audit committee will
consist of independent directors, of which at least one director will qualify as
a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
The audit committee’s duties will be to recommend to our board of directors the
engagement of independent auditors to audit our financial statements and to
review our accounting and auditing principles. The audit committee will review
the scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee will at all times be composed
exclusively of directors who are, in the opinion of our board of directors, free
from any relationship that would interfere with the exercise of independent
judgment as a committee member and who possess an understanding of financial
statements and generally accepted accounting principles.
Compensation Committee. We
intend to establish a compensation committee of the board of directors once we
have satisfied the other initial listing standards for listing our common stock
on the Nasdaq Stock Market or another national exchange. The compensation
committee will review and approve our salary and benefits policies, including
compensation of executive officers. The compensation committee will also
administer our stock option plans and recommend and approve grants of stock
options under such plans.
Compensation
Committee Interlocks and Insider Participation
During
the fiscal year ended December 31, 2009, all executive officer compensation was
determined by Nathan J. Mazurek, our chief executive officer, president,
chairman of the board of directors, chief financial officer, secretary and
treasurer.
Code
of Ethics
We intend
to adopt a code of ethics that applies to our officers, directors and employees,
including our chief executive officer and chief financial officer, but have not
done so to date due to our relatively small size.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table summarizes the
annual and long-term compensation paid to Nathan J. Mazurek, our principal
executive officer, Raymond Haddad, the vice president, operations of Pioneer
Transformers Ltd. and James Wilkins, the vice president, finance of Pioneer
Transformers Ltd., whom we refer to collectively in this prospectus as the
“named executive officers”. During the year ended December 31, 2009, except for
named executive officers, no executive officer of ours or Pioneer Transformers
Ltd. received annual remuneration in excess of
$100,000.
Name
and Principal Position
|
Year
|
Salary
($)(1)
|
Bonus
($)(1)
|
All
Other Compensation
($)(1)
|
Total
($)(1)
|
||||||||||||
Nathan
J. Mazurek
|
2009
|
--
|
--
|
250,000(2)
|
250,000
|
||||||||||||
President,
Chief Executive Officer, Chief Financial Officer, Chairman of the Board of
Directors, Secretary and Treasurer
(principal
executive officer)
|
2008
|
--
|
--
|
150,511(2)
|
150,511
|
||||||||||||
Raymond
Haddad
|
2009
|
228,646
|
35,918
|
24,022(3)
|
288,459
|
||||||||||||
Vice
President, Operations of Pioneer Transformers Ltd.
|
2008
|
228,345
|
38,422
|
25,209(4)
|
291,976
|
||||||||||||
James
Wilkins
|
2009
|
101,037
|
9,636
|
19,530(5)
|
130,203
|
||||||||||||
Vice
President, Finance of Pioneer Transformers Ltd.
|
2008
|
100,194
|
10,308
|
20,872(6)
|
131,374
|
||||||||||||
(1)
|
Compensation
amounts received in non-U.S. currency have been converted into U.S.
dollars using the average exchange rate for the applicable
year.
|
(2)
|
Represents
fees earned for consulting
services.
|
(3)
|
Represents
car benefits of $14,277 and pension benefits of
$9,745.
|
21
(4)
|
Represents
car benefits of $15,799 and pension benefits of
$9,410.
|
(5)
|
Represents
vacation pay of $1,887, car benefits of $13,349 and pension benefits of
$4,294.
|
(6)
|
Represents
vacation pay of $2,441, car benefits of $14,393 and pension benefits of
$4,038.
|
Agreements with Executive
Officers
Nathan
J. Mazurek
We
have entered into an employment agreement with Mr. Mazurek to serve as our chief
executive officer and chief financial officer for a term of three years.
Pursuant to this employment agreement, Mr. Mazurek is entitled to receive an
annual base salary of $250,000, which shall be increased to $275,000 and
$300,000 on December 2, 2010 and December 2, 2011, respectively. Mr.
Mazurek is entitled to receive an annual cash bonus at the discretion of our
board of directors, or a committee thereof, of up to 50% of his annual base
salary. The bonus shall be prorated for any fiscal year that is less than
12 months due to a change in the fiscal year. In the event that Mr.
Mazurek is terminated without cause, Mr. Mazurek shall be entitled to receive
his base salary for the balance of the term of this agreement. This
agreement prohibits Mr. Mazurek from competing with us for a period of four
years following the date of termination; provided however, that he is prohibited
from competing with us for a period of two years in the event he is terminated
without cause or due to disability or he voluntarily resigns following a breach
by us of this agreement.
In 2008
and 2009, Mr. Mazurek provided Pioneer Transformers Ltd. with executive
services and served as its chief executive officer, president and vice
president, sales and marketing. Mr. Mazurek had all of the duties,
authorities, powers and responsibilities commensurate with all of the duties,
authorities, powers and responsibilities of a chief executive officer, a
president and a vice president, sales and marketing. Pioneer
Transformers Ltd. paid an aggregate of $150,000 and $250,000 in 2008
and 2009, respectively, to Provident Management, Inc. and Provident Canada
Corp., each of which is controlled by Mr. Mazurek, as consideration for Mr.
Mazurek’s services.
Outstanding
Equity Awards at Fiscal Year-End
There
were no outstanding equity awards held by our named executive officers as of
December 31, 2009.
2009
Equity Incentive Plan
On
December 2, 2009, our board of directors and stockholders adopted the 2009 Stock
Incentive Plan, pursuant to which 1,600,000 shares of our common stock are
reserved for issuance as awards to employees, directors, consultants and other
service providers. The purpose of the 2009 Stock Incentive Plan is to provide an
incentive to attract and retain directors, officers, consultants, advisors and
employees whose services are considered valuable, to encourage a sense of
proprietorship and to stimulate an active interest of such persons in our
development and financial success. Under the 2009 Stock Incentive Plan, we are
authorized to issue incentive stock options intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended, non-qualified stock
options, restricted stock, stock appreciation rights, performance unit awards
and stock bonus awards. The 2009 Stock Incentive Plan will be administered by
our board of directors until such time as such authority has been delegated to a
committee of the board of directors. No awards have been granted to date under
the 2009 Stock Incentive Plan.
Retirement
Savings Plan
We
provide retirement benefits to each of our salaried employees whom we
permit to participate in our Retirement Savings Plan, which is registered as a
retirement savings plan, or RSP, under the Income Tax Act
(Canada). An employee must have been employed by us for a period of
at least one continuous year to be eligible to participate. An employee may
contribute up to 2.5% of his or her salary into an individual retirement account
and we contribute 3.6% of the employee’s salary into his or her
account. The employees invest the monies in their respective accounts
in one or more investment funds managed by The Standard Life Assurance Company
and its subsidiary, the Standard Life Assurance Company of
Canada. The monies in the retirement accounts are to be used to
purchase annuities or registered retirement income funds no later than the end
of the year of retirement. Employees may select annuities that will
continue for their lives only, for the lives of their spouses in the event they
die before the spouse, or for a specific period of time.
There
is no mandatory age of retirement and employees are entitled to receive their
pension benefits upon retirement, without reference to the number of years of
employment. If an employee dies before receiving pension benefits, a
refund of the value in his funds will be paid to the employee’s beneficiary or
estate.
Raymond Haddad,
the vice president, operations of Pioneer Transformers Ltd., received
pension benefits of approximately $9,745 and approximately $9,410, respectively,
in the fiscal years ended December 31, 2009 and 2008, respectively. James
Wilkins, the vice president, finance of Pioneer Transformers Ltd., received
pension benefits of approximately $4,294 and approximately $4,038, respectively,
in the fiscal years ended December 31, 2009 and 2008.
Pension
Plan for Hourly Employees
22
Each
of our hourly employees at our manufacturing facility located in Granby, Quebec,
Canada, participates in our Pension Plan for Hourly Employees. They
are typically eligible to receive retirement benefits at age 65 as set forth
below:
Retirement
on or After
|
Amount
of Pension per Month of Credited Service
|
|
June
1, 2004
|
$24
|
|
June
1, 2007
|
$25
|
|
June
1, 2008
|
$26
|
|
June
1, 2009
|
$27
|
The
maximum age of retirement is 69 and employees who are employed past age 65
receive the actuarial equivalent of the pension accrued to age
65. The pension is normally payable for the lifetime of the
employee. For employees who have a spouse at retirement, the pension
will continue from the date of death for the spouse’s lifetime, at the rate of
60% of the employee’s pension.
Assets
held by our Pension Plan for Hourly Employees are invested in accordance with
the provisions of our approved investment policy. The Pension Plan for Hourly
Employees’ strategic asset allocation was structured to reduce volatility
through diversification and enhance return to approximate the amounts and timing
of the expected benefit payments.
Director
Compensation
In
addition to any compensation received for services performed as an executive
officer, we intend to pay each director $1,000 per meeting for each board
meeting attended and reimbursement for expenses incurred in connection with
their service as directors. We also intend to grant to each
director annual options to purchase 2,000 shares of our common stock at an
exercise price per share equal to the fair market value price per share of our
common stock on the grant date. These options will vest on the one
year anniversary of their grant date. No options, however, have been granted to
date to our directors and during the fiscal years ended December 31, 2009
and 2008, our directors did not receive any compensation from us for their
services in such capacity.
Equity
Compensation Plan Information
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||
(a)
|
(b)
|
(c)
|
||||
Equity
compensation plans approved by security holders
|
--
|
--
|
1,600,000
|
|||
Equity
compensation plans not approved by security holders
|
--
|
--
|
--
|
|||
Total
|
--
|
--
|
1,600,000
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
December 2, 2009, we entered into a share exchange agreement with Pioneer
Transformers Ltd. and Provident Pioneer Partners, L.P., the sole stockholder of
Pioneer Transformers Ltd. Pursuant to the share exchange agreement,
on December 2, 2009, Provident Pioneer Partners, L.P. transferred all of the
issued and outstanding capital stock of Pioneer Transformers Ltd. to us in
exchange for (i) 22,800,000 newly issued shares of our common stock and (ii) a
five-year warrant to purchase up to 1,000,000 shares of our common stock at an
exercise price of $3.25 per share. Nathan J. Mazurek, our chief
executive officer, president, chairman of the board of directors, chief
financial officer, secretary and treasurer, is the control person of Provident
Canada Corp., the general partner of Provident Pioneer Partners,
L.P.
23
Immediately
following the share exchange, we transferred all of our pre-share exchange
operating assets and liabilities to our wholly owned subsidiary, Sierra Concepts
Holdings, Inc. and transferred all of Sierra Concepts Holdings, Inc.’s
outstanding capital stock to David Davis, our sole officer, director and
majority stockholder prior to the share exchange, as consideration for Mr. Davis
consenting to the cancellation of 7,200,000 shares of our common stock held by
Mr. Davis.
In 2008
and 2009, we paid Provident Pioneer Partners, L.P. cash dividends of $450,000
and $2,706,000, respectively.
In 2008
and 2009, we paid $124,000 and $152,000, respectively, to Provident Management,
Inc., a company with respect to which Nathan J. Mazurek is the sole shareholder,
as reimbursement for rent, office services, and travel and entertainment
expenses. In 2008 and 2009, we paid an aggregate of $150,000 and
$250,000, respectively, to Provident Management, Inc., and Provident Canada
Corp. as consideration for Mr. Mazurek providing executive services to us, along
with serving as our chief executive officer, president and vice president, sales
and marketing.
Between
1996 and 2005, each of Mr. Mazurek and David J. Landes, our director and a
limited partner of Provident Pioneer Partners, L.P., made cash advances to a
switchgear company that was a wholly owned subsidiary of Provident Pioneer
Partners, L.P. in the aggregate principal amount of approximately $800,000.
These advances were made without any terms of repayment or interest
rate. Mr. Mazurek and Mr. Landes provided the advances to the
switchgear company in order to provide it with funds at a time when none of the
other limited partners of Provident Pioneer Partners, L.P. nor Pioneer
Transformers Ltd., which was wholly owned by Provident Pioneer Partners, L.P. at
the time. desired or were capable of funding the switchgear company directly. As
reimbursement for these advances to the switchgear company, between 2006 and
2008, Provident Pioneer Partners, L.P. caused Pioneer Transformers Ltd. to
advance an aggregate of $700,335 to Messrs. Mazurek and Landes. In 2008, Pioneer
Transformers Ltd. forgave these advances to Messrs. Mazurek and Landes in full.
We do not intend to engage in similar transactions in the future.
In 1997,
two limited partners of Provident Pioneer Partners, L.P., the Isaac Landes
Revocable Trust, controlled by our director, David J. Landes, and the Naomi S.
Landes Revocable Trust, controlled by Ms. Landes, advanced $100,000 and $50,000,
respectively, to us, with such amounts accruing interest at the rate
of 12% per annum and no specific terms of repayment or maturity date. Since
1997, we have been paying interest on these advances, though we have
not yet repaid any principal amounts.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of March 9, 2010 by:
·
|
each
person known by us to beneficially own more than 5.0% of our common
stock;
|
·
|
each
of our directors;
|
·
|
each
of the named executive officers;
and
|
·
|
all
of our directors and executive officers as a
group.
|
The
percentages of common stock beneficially owned are reported on the basis of
regulations of the Securities and Exchange Commission governing the
determination of beneficial ownership of securities. Under the rules of the
Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the
power to vote or to direct the voting of the security, or investment power,
which includes the power to dispose of or to direct the disposition of the
security. Except as indicated in the footnotes to this table, each beneficial
owner named in the table below has sole voting and sole investment power with
respect to all shares beneficially owned and each person’s address is c/o
Pioneer Power Solutions, Inc., 9 West 57th Street, 26th Floor, New York, New
York 10019. As of March 9, 2010, we had 29,000,000 shares
outstanding.
Name
and Address of Beneficial Owner
|
Number
of Shares Beneficially Owned(1)
|
Percentage
Beneficially Owned(1)
|
||
5%
Owners
|
||||
Provident
Pioneer Partners, L.P.
|
23,800,000(2)(3)
|
79.3%
|
||
Officers
and Directors
|
||||
Nathan
J. Mazurek
|
23,800,000(2)(3)
|
79.3%
|
||
Raymond
Haddad
|
--
|
--
|
||
James
Wilkins
|
--
|
--
|
||
Yossi
Cohn
|
--
|
--
|
||
David
J. Landes
|
--
|
--
|
||
David
Tesler
|
--
|
--
|
||
Jonathan
Tulkoff
|
--
|
--
|
||
All
directors and executive officers as a group (7
persons)
|
23,800,000(2)(3)
|
79.3%
|
||
24
(1)
|
Shares
of common stock beneficially owned and the respective percentages of
beneficial ownership of common stock assumes the exercise of all options,
warrants and other securities convertible into common stock beneficially
owned by such person or entity currently exercisable or exercisable within
60 days of March 9, 2010. Shares issuable pursuant to the exercise of
stock options and warrants exercisable within 60 days are deemed
outstanding and held by the holder of such options or warrants for
computing the percentage of outstanding common stock beneficially owned by
such person, but are not deemed outstanding for computing the percentage
of outstanding common stock beneficially owned by any other
person.
|
(2)
|
Includes
(i) 22,800,000 shares of common stock held by Provident Pioneer Partners,
L.P. and (ii) a currently exercisable warrant to purchase up to 1,000,000
shares of common stock at an exercise price of $3.25 per share held by
Provident Pioneer Partners, L.P.
|
(3)
|
Nathan
J. Mazurek is the majority stockholder and a control person of Provident
Canada Corp., the general partner of Provident Pioneer Partners, L.P.,
and, as such, has sole voting and investment power over the 22,800,000
shares of common stock held by Provident Pioneer Partners, L.P. and the
currently exercisable warrant to purchase up to 1,000,000 shares of common
stock at an exercise price of $3.25 per share held by Provident Pioneer
Partners, L.P.
|
SELLING
STOCKHOLDERS
Up to
7,000,000 shares of common stock are being offered by this prospectus, all of
which are being registered for sale for the accounts of the selling stockholders
and include the following:
·
|
5,000,000
shares of common stock that were issued to investors in connection with a
private placement on December 2,
2009;
|
·
|
1,000,000
shares of common stock underlying a five-year warrant exercisable at $2.00
per share that we allowed Genesis Capital Advisors LLC to purchase from us
for $10,000 on December 2, 2009 in consideration for WEC Partners, LLC, an
affiliate of Genesis Capital Advisors LLC, serving as our lead investor in
our December 2, 2009 private placement;
and
|
·
|
1,000,000
shares of common stock underlying a five-year warrant exercisable at $3.25
per share that was issued to Provident Pioneer Partners, L.P. pursuant to
a share exchange agreement on December 2,
2009.
|
Each of
the transactions by which the selling stockholders acquired their securities
from us was exempt under the registration provisions of the Securities Act of
1933, as amended.
The
shares of common stock referred to above are being registered to permit public
sales of the shares, and the selling stockholders may offer the shares for
resale from time to time pursuant to this prospectus. The selling
stockholders may also sell, transfer or otherwise dispose of all or a portion of
their shares in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended, or pursuant to another effective
registration statement covering those shares. We may from time to time include
additional selling stockholders in supplements or amendments to this
prospectus.
The table
below sets forth certain information regarding the selling stockholders and the
shares of our common stock offered by them in this prospectus. The selling
stockholders have not had a material relationship with us within the past three
years other than as described in the footnotes to the table below or as a result
of their acquisition of our shares or other securities. To our knowledge,
subject to community property laws where applicable, each person named in the
table has sole voting and investment power with respect to the shares of common
stock set forth opposite such person’s name.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
selling stockholder and the percentage of ownership of that selling stockholder,
shares of common stock underlying warrants held by that selling stockholder that
are exercisable within 60 days of March 9, 2010 are included. Those shares,
however, are not deemed outstanding for the purpose of computing the percentage
ownership of any other selling stockholder. Each selling stockholder’s
percentage of ownership of our outstanding shares in the table below is based
upon 29,000,000 shares of common stock outstanding as of March 9, 2010. With
respect to the warrant held by Genesis Capital Advisors LLC,
25
there
exists a contractual provision limiting exercise to the extent such exercise
would cause Genesis Capital Advisors LLC, together with its affiliates or
members of a “group”, to beneficially own a number of shares of common
stock that would exceed 4.99% of our then outstanding shares of common
stock following such exercise. The shares and percentage ownership of our
outstanding shares indicated in the table below do not give effect to this
limitation.
Ownership
Before Offering
|
Ownership
After Offering(1)
|
|||||||||||||||
Selling
Stockholder
|
Number
of
shares
of
common
stock
beneficially
owned
|
Number
of
shares
offered
|
Number
of
shares
of
common
stock
beneficially
owned
|
Percentage
of
common
stock
beneficially
owned
|
||||||||||||
A.
Lawrence Carroll Trust(2)
|
2,100,000
|
2,100,000
|
--
|
--
|
||||||||||||
Dene
LLC(3)
|
130,000
|
130,000
|
--
|
--
|
||||||||||||
Ronald
Gurman
|
150,000
|
150,000
|
--
|
--
|
||||||||||||
Josef
Hartman
|
50,000
|
50,000
|
--
|
--
|
||||||||||||
Eli
Lerner
|
400,000
|
400,000
|
--
|
--
|
||||||||||||
Andrew
Minkow(4)
|
10,000
|
10,000
|
--
|
--
|
||||||||||||
Jules
Nordlicht
|
500,000
|
500,000
|
--
|
--
|
||||||||||||
Sergio
Oberlander
|
50,000
|
50,000
|
--
|
--
|
||||||||||||
Michael
Raskas
|
150,000
|
150,000
|
--
|
--
|
||||||||||||
Stanley
Raskas
|
100,000
|
100,000
|
--
|
--
|
||||||||||||
A
George Saks and Stephanie Saks JTWROS(5)
|
150,000
|
150,000
|
--
|
--
|
||||||||||||
David
Saks
|
60,000
|
60,000
|
--
|
--
|
||||||||||||
Sami
Shemtov
|
50,000
|
50,000
|
--
|
--
|
||||||||||||
Stephen
Sundheimer
|
100,000
|
100,000
|
--
|
--
|
||||||||||||
WEC
Partners LLC(6)
|
2,934,300
|
(7)
|
750,000
|
1,184,300
|
3.82
|
%
|
||||||||||
Dov
Wiener
|
50,000
|
50,000
|
--
|
--
|
||||||||||||
Margaret
Y. Wong
|
150,000
|
150,000
|
--
|
--
|
||||||||||||
Alex
Ping Zhang
|
50,000
|
50,000
|
--
|
--
|
||||||||||||
Genesis
Capital Advisors, LLC(8)
|
2,934,300
|
(9)
|
1,000,000
|
(10)
|
1,184,300
|
3.82
|
%
|
|||||||||
Provident
Pioneer Partners, L.P.(11)
|
23,800,000
|
(12)
|
1,000,000
|
(12)
|
22,800,000
|
73.55
|
%
|
(1)
|
Represents
the amount of shares that will be held by the selling stockholders after
completion of this offering based on the assumptions that (a) all shares
registered for sale by the registration statement of which this prospectus
is part will be sold and (b) that no other shares of our common stock
beneficially owned by the selling stockholders are acquired or are sold
prior to completion of this offering by the selling
stockholders. However, the selling stockholders may sell all,
some or none of the shares offered pursuant to this prospectus and may
sell other shares of our common stock that they may own pursuant to
another registration statement under the Securities Act of 1933 or sell
some or all of their shares pursuant to an exemption from the registration
provisions of the Securities Act of 1933, as amended, including under Rule
144. To our knowledge there are currently no agreements, arrangements or
understanding with respect to the sale of any of the shares that may be
held by the selling stockholders after completion of this offering or
otherwise.
|
26
(2)
|
A.
Lawrence Carroll is the trustee of the A. Lawrence Carroll Trust and, in
such capacity, has voting and dispositive power over the securities held
for the account of this selling
stockholder.
|
(3)
|
Naomi
Saks is the managing member of Dene, LLC and, in such capacity, has voting
and dispositive power over the securities held for the account of this
selling stockholder.
|
(4)
|
We
have agreed to issue Mr. Minkow a five year warrant to purchase up to an
aggregate of 150,000 shares of common stock at an exercise price of $2.00
per share as compensation for consulting
services.
|
(5)
|
Each
of A. George Saks and Stephanie Saks have dispositive power over the
securities held for the account of this selling
stockholder.
|
(6)
|
Each
of Daniel Saks, Jaime Hartman and Ethan Benovitz are principals of WEC
Partners LLC and, as such may be deemed to have voting and
dispositive power over the securities held for the account of this selling
stockholder.
|
(7)
|
Includes
1,000,000 shares of common stock issuable upon the exercise of a warrant
currently held by Genesis Capital Advisors LLC, with respect to which each
of Daniel Saks, Jaime Hartman and Ethan Benovitz are principals, and
1,184,300 shares of common stock held by certain affiliates of WEC
Partners LLC and Genesis Capital Advisors
LLC.
|
(8)
|
Each
of Daniel Saks, Jaime Hartman and Ethan Benovitz are principals of Genesis
Capital Advisors LLC and, as such may be deemed to have voting
and dispositive power over the securities held for the account of this
selling stockholder.
|
(9)
|
Includes
750,000 shares of common stock held by WEC Partners LLC, with respect to
which each of Daniel Saks, Jaime Hartman and Ethan Benovitz are
principals, and 1,184,300 shares of common stock held by certain
affiliates of Genesis Capital Advisors LLC and WEC Partners
LLC.
|
(10)
|
Includes
1,000,000 shares of common stock issuable upon the exercise of a
warrant.
|
(11)
|
Nathan
J. Mazurek is the majority stockholder and a control person of Provident
Canada Corp., the general partner of Provident Pioneer Partners, L.P.,
and, as such, has sole voting and investment power over the securities
held for the account of this selling stockholder. Nathan J. Mazurek is our
chief executive officer, president, chairman of the board of directors,
chief financial officer, secretary and treasurer. In addition, prior to
December 2, 2009, Provident Pioneer Partners, L.P. was the sole
stockholder of Pioneer Transformers Ltd., our wholly owned
subsidiary.
|
(12)
|
Includes
1,000,000 shares of common stock issuable upon the exercise
of a warrant.
|
DESCRIPTION
OF SECURITIES
We are
authorized to issue 75,000,000 shares of common stock and 5,000,000 shares of
preferred stock. On March 9, 2010, there were 29,000,000 shares of
common stock issued and outstanding and no shares of preferred stock issued and
outstanding.
Common
Stock
The
holders of common stock are entitled to one vote per share. Our
certificate of incorporation does not provide for cumulative
voting. The holders of our common stock are entitled to receive
ratably such dividends, if any, as may be declared by the board of directors out
of legally available funds. Upon liquidation, dissolution or
winding-up, the holders of our common stock are entitled to share ratably in all
assets that are legally available for distribution. The holders of
our common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of our
common stock are subject to, and may be adversely affected by, the rights of the
holders of any series of preferred stock, which may be designated solely by
action of the board of directors and issued in the future.
Preferred
Stock
The board
of directors is authorized, subject to any limitations prescribed by law,
without further vote or action by the stockholders, to issue from time to time
shares of preferred stock in one or more series. Each such series of
preferred stock shall have such number of shares, designations, preferences,
voting powers, qualifications, and special or relative rights or privileges as
shall be determined by the board of directors, which may include, among others,
dividend rights, voting rights, liquidation preferences, conversion rights and
preemptive rights.
Warrants
27
$2.00
Warrant
On
December 2, 2009, we sold a warrant to purchase up to an aggregate of 1,000,000
shares of common stock for a price of $0.01 per warrant. Such warrant provides
for the purchase of shares of common stock for five years at an exercise price
of $2.00 per share. We are prohibited from effecting the exercise of the warrant
to the extent that as a result of such exercise the holder of the exercised
warrant would beneficially own more than 4.99% (or, if such limitation is
waived by the holder upon no less than 61 days prior notice to us, 9.99%) in the
aggregate of our issued and outstanding shares of common stock,
as calculated immediately after giving effect to the issuance of shares of
our common stock upon the exercise of the warrant. The warrant contains
provisions that protect its holder against dilution by adjustment of the
purchase price in certain events such as stock dividends, stock splits and other
similar events. If at any time after the one year anniversary of the
issuance date of such warrant there is no effective registration statement, or
no current prospectus available for the resale of the shares of common stock
underlying the warrant, then the holder of such warrant has the right to
exercise the warrant by means of a cashless exercise.
$3.25
Warrant
In
connection with our acquisition of Pioneer Transformers Ltd., we issued a
warrant to purchase up to 1,000,000 shares of common stock to Provident Pioneer
Partners, L.P. Such warrant provides for the purchase of shares of common stock
for five years at an exercise price of $3.25 per share. This warrant contains
provisions that protect its holder against dilution by adjustment of the
purchase price in certain events such as stock dividends, stock splits and other
similar events. If at any time after the one year anniversary of the issuance
date of such warrant there is no effective registration statement registering,
or no current prospectus available for, the resale of the shares of common stock
underlying such warrant, then the holder shall have the right to exercise this
warrant by means of a cashless exercise.
Consultant
Warrant
We have
agreed to issue a five year warrant to a consultant to purchase up to an
aggregate of 150,000 shares of common stock at an exercise price of $2.00 per
share. This warrant will contain provisions that protect its holder against
dilution by adjustment of the purchase price in certain events such as stock
dividends, stock splits and other similar events. In addition, if at any time
after the one year anniversary of the issuance date of the warrant there is no
effective registration statement registering, or no current prospectus available
for, the resale of the shares of common stock underlying the warrant, then the
holder of this warrant will have the right to exercise the warrant by means of a
cashless exercise.
Registration
Rights
In
connection with our $5 million private placement of common stock on December 2,
2009, we agreed to use our best efforts to file a registration statement with
the Securities and Exchange Commission on or before February 1, 2010 covering
the resale of the shares of common stock issued in such private placement, and
to cause such registration statement to be declared effective by the Securities
and Exchange Commission on or before May 31, 2010. If (i) the registration
statement is not filed on or before February 1, 2010 or (ii) the registration
statement is not declared effective by the Securities and Exchange Commission on
or before May 10, 2010, then we are subject to liquidated damage payments to the
holders of the shares of common stock issued in such private placement in an
amount equal to 1.0% of aggregate amount paid for the shares pro rata for every
30 days of delinquency.
We
granted the holders of our $3.25 warrant and $2.00 warrant piggyback
registration rights, pursuant to which we agreed to register the shares of
common stock issuable upon the exercise of these warrants in the event that we
determined to prepare and file a registration statement with the Securities and
Exchange Commission relating to an offering of any of our equity securities for
our own account or the account of others under the Securities Act of 1933, as
amended, subject to certain exemptions.
Lock-up
Agreements
On
December 2, 2009, Provident Pioneer Partners, L.P. entered into a lock-up
agreement pursuant to which Provident Pioneer Partners,
L.P. agreed not to, subject to certain exemptions, sell or transfer
any of the 22,800,000 shares of common stock it received in connection with our
acquisition of Pioneer Transformers Ltd. until June 3, 2011.
Anti-Takeover
Effect of Delaware Law, Certain Charter and Bylaw Provisions
Our
certificate of incorporation and bylaws contain provisions that could have the
effect of discouraging potential acquisition proposals or tender offers or
delaying or preventing a change of control of our company. These provisions are
as follows:
·
|
they
provide that special meetings of stockholders may be called only by our
chairman, our president or by a resolution adopted by a majority of our
board of directors;
|
·
|
they
do not include a provision for cumulative voting in the election of
directors. Under cumulative voting, a minority stockholder holding a
sufficient number of shares may be able to ensure the election of one or
more directors. The absence of cumulative voting may have the effect of
limiting the ability of minority stockholders to effect changes in our
board of directors; and
|
·
|
they
allow us to issue, without stockholder approval, up to 5,000,000 shares of
preferred stock that could adversely affect the rights and powers of the
holders of our common stock.
|
28
We are
subject to the provisions of Section 203 of the General Corporation Law of the
State of Delaware, an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a “business combination” includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
“interested stockholder” is a person who, together with affiliates and
associates, owns, or within three years prior did own, 15% or more of the voting
stock of a corporation.
Indemnification
of Directors and Officers
Section
145 of the General Corporation Law of the State of Delaware provides, in
general, that a corporation incorporated under the laws of the State of
Delaware, as we are, may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than a derivative action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person’s conduct was
unlawful. In the case of a derivative action, a Delaware corporation may
indemnify any such person against expenses (including attorneys’ fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification will be made in
respect of any claim, issue or matter as to which such person will have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses.
Our
certificate of incorporation and bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the General Corporation Law of the State of
Delaware, as amended from time to time, subject to any permissible expansion or
limitation of such indemnification, as may be set forth in any stockholders’ or
directors’ resolution or by contract. Any repeal or modification of these
provisions approved by our stockholders will be prospective only and will not
adversely affect any limitation on the liability of any of our directors or
officers existing as of the time of such repeal or modification.
We are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or not
the General Corporation Law of the State of Delaware would permit
indemnification.
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to our directors, officers and persons controlling us,
we have been advised that it is the Securities and Exchange Commission’s opinion
that such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore,
unenforceable.
PLAN
OF DISTRIBUTION
The
selling stockholders may, from time to time, sell any or all of their shares of
common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales;
|
29
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the selling stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions
involved. Any profits on the resale of shares of common stock by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act of 1933, as
amended. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares if liabilities are imposed on that person under the Securities Act
of 1933, as amended.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time under this
prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933, as
amended, supplementing or amending the list of selling stockholders to include
the pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933, as amended,
supplementing or amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act of 1933, as amended, in connection with such
sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares of common stock purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act of 1933, as amended.
We are
required to pay all fees and expenses incident to the registration of the shares
of common stock. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933, as amended.
The
selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are
notified by any selling stockholder that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock, if
required, we will file a supplement to this prospectus. If the
selling stockholders use this prospectus for any sale of the shares of common
stock, they will be subject to the prospectus delivery requirements of the
Securities Act of 1933, as amended.
The
anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934, as amended, may apply to sales of our common stock and activities of the
selling stockholders.
LEGAL
MATTERS
Haynes
and Boone, LLP, New York, New York, will pass upon the validity of the shares of
our common stock offered by the selling stockholders under this
prospectus.
EXPERTS
30
The
financial statements as of December 31, 2008 and 2009 and for the years ended
December 31, 2008 and 2009 included in this prospectus have been audited by RSM
Richter S.E.N.C.R.L./LLP, an independent registered public accounting firm, as
stated in their report appearing herein and elsewhere in the registration
statement, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have
filed with the Securities and Exchange Commission a registration statement on
Form S-1, together with any amendments and related exhibits, under the
Securities Act of 1933, as amended, with respect to our shares of common stock
offered by this prospectus. The registration statement contains additional
information about us and our shares of common stock that the selling
stockholders are offering in this prospectus.
We file
annual, quarterly and current reports and other information with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Our Securities and Exchange Commission filings are available to the public over
the Internet at the Securities and Exchange Commission’s website at
http://www.sec.gov. You may also read and copy any document we file at the
Securities and Exchange Commission’s public reference room located at 100 F
Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms and their copy charges. In addition, through our website,
http://www.pioneerpowersolutions.com, you can access electronic copies of
documents we file with the Securities and Exchange Commission, including our
Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K and any amendments to those reports. Information on our
website is not incorporated by reference in this prospectus. Access to those
electronic filings is available as soon as practicable after filing with the
Securities and Exchange Commission. You may also request a copy of those
filings, excluding exhibits, from us at no cost. Any such request should be
addressed to us at: 9 West 57th Street, 26th Floor, New York, New York 10019,
Attention: Nathan J. Mazurek, Chief Executive Officer.
31
PIONEER
POWER SOLUTIONS, INC.
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting
Firm
|
F-1
|
Consolidated
Balance Sheet as at December 31, 2009 and 2008
|
F-2
|
Consolidated
Statement of Shareholders’ Equity for the Year Ended December 31, 2009 and
2008
|
F-3
|
Consolidated
Statements of Earnings and Comprehensive Income for the Year Ended
December 31, 2009 and 2008
|
F-4
|
Consolidated
Statement of Cash Flows for the Years Ended December 31, 2009 and
2008
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-7
|
RSM Richter Chamberland S.E.N.C.R.L./LLP | |
Comptables
agréés
Chartered
Accountants
2,
Place Alexis Nihon
Montréal
(Québec) H3Z 3C2
Téléphone
/ Telephone : 514-934-3400
Télécopieur
/ Facsimile : 514-934-3408
www.rsmrch.com
|
Report
of Independent Registered Public Accounting Firm
To the
Shareholders and Board of Directors of
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
We have
audited the accompanying consolidated balance sheets of Pioneer Power Solutions,
Inc. (Formerly Sierra Concepts Holdings, Inc.) as at December 31, 2009 and 2008
and the related consolidated statements of earnings and comprehensive income,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2009 and 2008
and the results of its operations, comprehensive income and its cash flows for
the years then ended in accordance with accounting principles generally accepted
in the United States.
We were
not engaged to examine management's assertion about the effectiveness of the
Company's internal control over financial reporting as at December 31, 2009 and,
accordingly, we do not express an opinion thereon.
Signed
RSM Richter Chamberland LLP 1
Chartered
Accountants
Montreal,
Quebec
March 8,
2010
1CA
auditor permit n* 13997
F-1
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Consolidated
Balance Sheets
As
At December 31, 2009 and 2008
(Expressed
in U.S. Funds)
2009
$
|
2008
$
|
|||||||
Assets | ||||||||
Current | ||||||||
Cash
and cash equivalents
|
1,560,229 | 367,668 | ||||||
Accounts
receivable
|
5,491,886 | 4,837,256 | ||||||
Inventories
(note 5)
|
6,432,897 | 5,474,384 | ||||||
Prepaid
expenses and deposits
|
103,101 | 47,631 | ||||||
13,588,113 | 10,726,939 | |||||||
Property, plant and equipment
(note 6)
|
987,261 | 827,672 | ||||||
Deferred income tax
asset (note 12)
|
20,171 | - | ||||||
14,595,545 | 11,554,611 |
See
accompanying notes
F-2
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Consolidated Balance Sheets
As
At December 31, 2009 and 2008
(Expressed
in U.S. Funds)
2009
$
|
2008
$
|
|||||||
Liabilities | ||||||||
Current | ||||||||
Bank
indebtedness (note 7)
|
- | 4,116,452 | ||||||
Accounts
payable and accrued liabilities
|
2,567,715 | 3,880,345 | ||||||
Current
maturity of long-term debt (note 8)
|
133,505 | 148,168 | ||||||
Income
taxes payable
|
1,775,516 | 854,844 | ||||||
Advances
from limited partners of a shareholder (note 16)
|
150,000 | - | ||||||
4,626,736 | 8,999,809 | |||||||
Pension deficit (note
14)
|
361,751 | 109,442 | ||||||
Deferred income tax liability
(note 12)
|
- | 68,473 | ||||||
Long-term debt (note
8)
|
- | 111,519 | ||||||
Advances from limited partners
of a shareholder (note 16)
|
- | 150,000 | ||||||
|
4,988,487 | 9,439,243 |
Commitments (note
9)
Shareholders'
equity
Capital stock (note 10) | ||||||||
Authorized 75,000,000 common shares at $0.001 par value and | ||||||||
5,000,000
preferred shares at $0.001 par value
|
29,000 | 22,800 | ||||||
Additional paid-up capital
(note 11)
|
5,364,548 | 567,333 | ||||||
Accumulated
other comprehensive loss
|
(690,698 | ) | (969,663 | ) | ||||
Accumulated
retained earnings
|
4,904,208 | 2,494,898 | ||||||
9,607,058 | 2,115,368 | |||||||
14,595,545 | 11,554,611 |
See
accompanying notes
F-3
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Consolidated Statement of Shareholders' Equity
For
the Years Ended December 31, 2009 and 2008
(Expressed
in U.S. Funds)
|
Accumulated
|
|||||||||||||||||||||||
Additional
|
other
|
Total
|
||||||||||||||||||||||
Capital
stock
|
paid-in
|
comprehensive
|
Retained
|
shareholders'
|
||||||||||||||||||||
number
|
amount
|
capital
|
loss
|
earnings
|
equity
|
|||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Balance - December 31, 2007
(adjusted to reflect the effect of the recapitalization on December
2, 2009)
|
22,800,000 | 22,800 | 567,333 | (586,225 | ) | 806,756 | 810,664 | |||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | (462,719 | ) | - | (462,719 | ) | ||||||||||||||||
Pension
adjustment, net of taxes of $34,673
|
- | - | - | 79,281 | - | 79,281 | ||||||||||||||||||
Dividends
paid
|
- | - | - | - | (449,817 | ) | (449,817 | ) | ||||||||||||||||
Net
earnings
|
- | - | - | - | 2,137,959 | 2,137,959 | ||||||||||||||||||
Balance
- December 31, 2008
|
22,800,000 | 22,800 | 567,333 | (969,663 | ) | 2,494,898 | 2,115,368 | |||||||||||||||||
Dividends
paid
|
- | - | - | - | (2,705,882 | ) | (2,705,882 | ) | ||||||||||||||||
Issuance
of shares net of transaction costs relating to the issuance and the
recapitalization (note 1)
|
1,200,000 | 1,200 | (249,125 | ) | - | - | (247,925 | ) | ||||||||||||||||
Issuance
of shares, net of transaction costs (note 1)
|
5,000,000 | 5,000 | 4,729,400 | - | - | 4,734,400 | ||||||||||||||||||
Warrant
issued for consulting services rendered (note 1)
|
- | - | 275,600 | - | - | 275,600 | ||||||||||||||||||
Warrant
issued for consulting services to be rendered in the
future
|
- | - | 41,340 | - | - | 41,340 | ||||||||||||||||||
Foreign
currency translation adjustment
|
- | - | - | 487,463 | - | 487,463 | ||||||||||||||||||
Pension
adjustment, net of taxes of $93,736
|
- | - | - | (208,498 | ) | - | (208,498 | ) | ||||||||||||||||
Net
earnings
|
- | - | - | - | 5,115,192 | 5,115,192 | ||||||||||||||||||
Balance
- December 31, 2009
|
29,000,000 | 29,000 | 5,364,548 | (690,698 | ) | 4,904,208 | 9,607,058 |
See
accompanying notes
F-4
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Consolidated Statements of Earnings and Comprehensive Income
For
the Years Ended December 31, 2009 and 2008
(Expressed
in U.S. Funds)
2009
$
|
2008
$
|
|||||||
Sales
|
40,598,576 | 43,884,261 | ||||||
Cost of goods sold (including depreciation of $139,463; 2008
- $117,566)
|
28,733,839 | 34,895,796 | ||||||
Gross
margin
|
11,864,737 | 8,988,465 | ||||||
Expenses | ||||||||
Selling,
general and administrative
|
4,052,459 | 4,205,135 | ||||||
Depreciation
|
167,614 | 174,043 | ||||||
Foreign exchange gain | (272,026 | ) | (98,428 | ) | ||||
3,948,047 | 4,280,750 | |||||||
Operating
income
|
7,916,690 | 4,707,715 | ||||||
Interest
and factoring fees
|
(311,498 | ) | (512,421 | ) | ||||
Write-down
of advances to limited partners of a shareholder
|
- | (700,335 | ) | |||||
Earnings
before income taxes
|
7,605,192 | 3,494,959 | ||||||
Income
taxes
|
||||||||
Current
income taxes
|
2,488,000 | 1,265,000 | ||||||
Deferred
income taxes
|
2,000 | 92,000 | ||||||
2,490,000 | 1,357,000 | |||||||
Net
earnings
|
5,115,192 | 2,137,959 | ||||||
Other
comprehensive income
|
||||||||
Foreign currency translation
adjustments
|
487,463 | (462,719 | ) | |||||
Pension adjustment, net of
taxes $93,736 (2008 - $34,673)
|
(208,498 | ) | 79,281 | |||||
Comprehensive
income
|
5,394,157 | 1,754,521 | ||||||
Basic
and diluted weighted average number of common shares
outstanding
|
23,292,603 | 22,800,000 | ||||||
Basic
and diluted earnings per common share
|
0.22 | 0.09 |
See
accompanying notes
F-5
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2009 and 2008
(Expressed
in U.S. Funds)
2009
$
|
2008
$
|
|||||||
Operating activities
|
||||||||
Net
earnings
|
5,115,192 | 2,137,959 | ||||||
Depreciation
|
307,077 | 291,609 | ||||||
Deferred income
taxes
|
2,000 | 92,000 | ||||||
Accrued
pension
|
(85,940 | ) | (112,173 | ) | ||||
Write-down of
advances to limited partners of a shareholder
|
- | 700,335 | ||||||
5,338,329 | 3,109,730 | |||||||
Changes
in non-cash operating elements of working capital (note
13)
|
(1,026,369 | ) | (2,857,833 | ) | ||||
4,311,960 | 251,897 | |||||||
Financing activities | ||||||||
Increase (decrease) in bank indebtedness | (4,392,325 | ) | 776,766 | |||||
Dividends paid | (2,705,882 | ) | (449,817 | ) | ||||
Repayment of long-term debt | (154,170 | ) | (152,736 | ) | ||||
Advances from limited partners of a shareholder | - | 31,867 | ||||||
Issuance of shares | 5,000,000 | - | ||||||
Transaction costs | (247,925 | ) | - | |||||
Issuance of warrant | 10,000 | - | ||||||
(2,490,302 | ) | 206,080 | ||||||
Investing activities | ||||||||
Additions to property, plant and equipment | (333,939 | ) | (222,213 | ) | ||||
Advances to limited partners of a shareholder | - | (427,407 | ) | |||||
(333,939 | ) | (649,620 | ) | |||||
Increase
(decrease) in cash and cash equivalents
|
1,487,719 | (191,643 | ) | |||||
Effect
of foreign exchange on cash and cash equivalents
|
(295,158 | ) | (98,857 | ) | ||||
Cash
and cash equivalents
|
||||||||
Beginning
of year
|
367,668 | 658,168 | ||||||
End of year | 1,560,229 | 367,668 |
See
accompanying notes
F-6
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
1.
|
Organization
and basis of presentation
|
Basis
of presentation
The
Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States ("U.S.GAAP"). This basis of
accounting involves the application of accrual accounting and consequently,
revenues and gains are recognized when earned, and expenses and losses are
recognized when incurred.
Management
has performed an evaluation of the Company’s activities through the date and
time these financial statements were issued and concluded that there are no
additional significant events requiring recognition or disclosure.
The
consolidated financial statements include the accounts of Pioneer Power
Solutions, Inc. (the parent, formerly Sierra Concepts, Inc. the "Company") and
Pioneer Transformers Ltd. (the Company's subsidiary "PT"). On consolidation, all
material inter-entity transactions and balances have been
eliminated.
The
financial statements are expressed in U.S. funds.
Reorganization
of the corporation
On
December 2, 2009, PT entered into a share exchange agreement with the Company,
an inactive public shell company, for the acquisition by the Company of all the
issued and outstanding shares of PT, in a transaction that has been accounted
for as a recapitalization of PT.
Under
accounting principles generally accepted in the United States, the share
exchange is considered to be a capital transaction in substance, rather than a
business combination. That is, the share exchange is equivalent to the issuance
of stock by PT for the net monetary assets of the Company accompanied by a
recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the share exchange is identical to that
resulting from a reverse acquisition, except no goodwill is recorded. Under
reverse takeover accounting, the post reverse acquisition comparative historical
financial statements of the legal acquirer, the Company, are those of the legal
acquiree, PT, which is considered to be the accounting acquirer. Further, PT’s
historical shareholders’ equity prior to the recapitalization has been
retroactively restated for the equivalent number of shares received in the share
exchange. Earnings per share calculations have also been retroactively restated
to give effect to the recapitalization for all periods presented.
All of
PT’s shares were exchanged for 22,800,000 newly issued shares of common stock of
the Company and a five-year warrant to purchase up to 1,000,000
shares of common stock of the Company at an exercise price of $3.25 per share.
The five-year warrant has a fair value of $167,500 which was determined using
the Black-Scholes Merton option pricing model. The transaction costs relating to
the share exchange amounted to $247,925 were charged to additional paid-in
capital.
F-7
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
1.
|
Organization
and basis of presentation
(continued)
|
Reorganization
of the corporation (continued)
In
conjunction with the closing of the share exchange, the Company issued 5,000,000
shares of its common stock at a purchase price of $1.00 per share, in a private
placement, resulting in aggregate gross proceeds of $5,000,000. After allowing
for transaction costs relating to the private placement, net proceeds of
$4,734,400 were credited to shareholders' equity. These transaction costs were
paid by way of issuing a five-year warrant to purchase an aggregate of 1,000,000
shares of common stock of the Company at an exercise price of $2.00 per share,
for aggregate gross proceeds of $10,000. The five-year warrant has a fair value
of $275,600, which was determined using the Black-Scholes Merton option pricing
model.
Following
the closing of the share exchange and the private placement, the Company
transferred all of its pre-share exchange and pre-private placement, assets and
liabilities to a wholly owned subsidiary, Sierra Concepts Holdings, Inc., and
immediately thereafter, transferred its investment in common stock of Sierra
Concepts Holdings, Inc., to a shareholder of the Company in exchange for certain
indemnifications, waivers and releases along with the cancellation of an
aggregate 7,200,000 common shares of the Company which were owned by that
shareholder, leaving 1,200,000 shares of common stock outstanding held by
persons who were shareholders of the Company prior to the share
exchange.
These
financial statements reflect the accounts of the balance sheet, the results of
operations and the cash flows of PT at their carrying amounts, since it is
deemed to be the accounting acquirer.
The
results of operations, the cash flows and the assets and liabilities of the
Company have been included in these consolidated financial statements since
December 2, 2009, the acquisition date. Amounts reported for the periods prior
to December 2, 2009 are those of PT.
2.
|
Nature
of business
|
The
Company is a manufacturer of liquid-filled electrical transformers ranging in
various sizes and voltage selling primarily to utility companies in North
America.
F-8
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
|
Use
of estimates
The
preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the 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. The financial statements include estimates
based on currently available information and management's judgment as to the
outcome of future conditions and circumstances. Significant estimates in these
financial statements include inventory provision, useful lives and impairment of
long-lived assets, determination of fair values of warrants, allowance for
doubtful accounts and cost of pension benefits.
Changes
in the status of certain facts or circumstances could result in material changes
to the estimates used in the preparation of the financial statements and actual
results could differ from the estimates and assumptions.
Revenue
recognition
Revenue
is recognized when (1) persuasive evidence of an arrangement exists, (2)
delivery occurs, (3) the sales price is fixed or determinable, (4)
collectibility is reasonably assured and (5) customer acceptance criteria, if
any, has been successfully demonstrated. Revenue is recognized on the sale of
goods, when the significant risks and rewards of ownership have been transferred
to the buyer upon delivery, provided that the Company maintains neither
managerial involvement to the degree usually associated with ownership, nor
effective control over the goods sold. There are no further obligations on the
part of the Company subsequent to revenue recognition, except when
customers have the right of return or when the Company warrants the product. The
Company records a provision for future returns, based on historical experience
at the time of shipment of products to customers. The Company warrants some of
its products against defects in design, materials and workmanship for periods
ranging from one to three years depending on the model. The Company records a
provision for estimated future warranty costs based on historical relationship
of warranty claims to sales at the time of shipment of products to customers.
The Company periodically reviews the adequacy of its product warranties and
adjusts, if necessary, the warranty percentage and accrued warranty reserve for
actual experience.
F-9
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
(continued)
|
The
following table provides the detail of the change in the Company's product
warranty provision, which is a component of accrued liabilities on the
consolidated balance sheets for the years ended December 31, 2009 and
2008.
2009
$
|
2008
$
|
|||||||
Warranty
provision, beginning of year
|
165,846 | 26,228 | ||||||
Charged
to cost of goods sold relating to new sales
|
166,622 | 276,299 | ||||||
Costs
of product warranty claims
|
(124,572 | ) | (111,366 | ) | ||||
Foreign
exchange adjustment
|
29,973 | (25,315 | ) | |||||
Warranty
provision, end of year
|
237,869 | 165,846 |
Financial
instruments
The
Company estimates the fair value of its financial instruments based on current
interest rates, market value and pricing of financial instruments with
comparable terms. Unless otherwise indicated, the carrying value of these
financial instruments approximates their fair market value.
Cash
and cash equivalents
Cash and
cash equivalents comprise cash on hand, demand deposits and investments with an
original maturity at the date of purchase of three months or less.
Accounts
receivable
The
Company accounts for trade receivables at original invoice amount less an
estimate made for doubtful receivables based on a review of all outstanding
amounts on a monthly basis. Management determines the allowance for doubtful
accounts by regularly evaluating individual customer receivables and considering
a customer's financial condition, credit history and current economic
conditions. The Company writes off trade receivables when they are deemed
uncollectible. The Company records recoveries of trade receivables previously
written off when they receive them. Management considers allowance for doubtful
accounts of $43,000 (2008 - $Nil) is sufficient to cover any exposure to loss in
its December 31, 2009 and 2008 accounts receivable.
F-10
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
(continued)
|
Property,
plant and equipment
Property,
plant and equipment are recorded at cost. Provisions for depreciation are based
on their estimated useful lives using the declining balance or straight-line
method as follows:
On the declining balance method - | ||
Building | 4% | |
Furniture and fixtures | 20% | |
On the straight-line method - | ||
Leasehold improvements | over the term of the lease | |
Machinery and equipment | 20% | |
Computer hardware and software | 33.3% |
Upon
retirement or disposal, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in income. Expenditures for repairs and maintenance are expensed as
incurred.
Impairment
of long-lived assets
Long-lived
assets held and used by the Company are reviewed for possible impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the estimated
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset exceeds the fair value
thereof.
Foreign
currency translation
The
Company's reporting currency is the United States dollar. The Canadian dollar is
the functional currency of the Company's Canadian operations which is translated
to the United States dollar using the current rate method. Under this
method, accounts are translated as follows:
Assets and liabilities - at exchange
rates in effect at the balance sheet date;
Revenue and expenses - at average
exchange rates prevailing during the year.
Gains and
losses arising from foreign currency translation are included in other
comprehensive income.
F-11
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
(continued)
|
Income
taxes
The
Company accounts for income taxes in accordance with FASB ASC 740 "Income
Taxes". Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. 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 be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Unrecognized
tax benefits
The
Company accounts for unrecognized tax benefits in accordance with FASB ASC 740
"Income Taxes" ("ASC 740"). ASC 740 prescribes a recognition threshold that a
tax position is required to meet before being recognized in the financial
statements and provides guidance on de-recognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition
issues. ASC 740 contains a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained upon ultimate
settlement with a taxing authority, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as
the largest amount that is more than 50% likely of being realized upon ultimate
settlement.
Additionally,
ASC 740 requires the Company to accrue interest and related penalties, if
applicable, on all tax positions for which reserves have been established
consistent with jurisdictional tax laws.
Sales
tax
A Company
should disclose the amount of those taxes that is recognized on a gross basis in
interim and annual financial statements for each period for which an income
statement is presented if those amounts are significant. While the
amounts are not material, the Company's policy is to present such taxes on a net
basis in the consolidated statements of earnings.
F-12
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
(continued)
|
Share-based
payments
The
Company will account for share based payments in accordance with the provisions
of FASB ASC 718 "Compensation - Stock Compensation" and accordingly will
recognize in its financial statements share based payments at their fair value.
In addition, it will recognize in the financial statements an expense based on
the grant date fair value of stock options granted to employees. The expense
will be recognized on a straight line basis over the vesting period and the
offsetting credit will be recorded in additional paid-in capital. Upon exercise
of options, the consideration paid together with the amount previously recorded
as additional paid-in capital will be recognized as capital stock. The Company
estimates its forfeiture rate in order to determine its compensation expense
arising from stock based awards. The Company will use the Black-Scholes Merton
option pricing model to determine the fair value of the options.
Employee
benefit plan
The
Company sponsors a defined benefit plan as described in note 14. The cost of
pension benefits earned by employees is actuarially determined using the
accumulated benefit method and a discount rate, used to measure interest cost on
the accrued employee future benefit obligation, based on market interest rates
on high-quality debt instruments with maturities that match the timing and
benefits expected to be paid by the plan. Plan assets are valued using current
market values and the expected return on plan assets is based on the fair value
of the plan assets.
The costs
that relate to employees' current service are charged to income
annually.
The
transitional obligation created upon adoption of the FASB ASC 715 "Compensation
- Retirement Benefits" is amortized over the average remaining service period of
employees. For a given year, unrecognized actuarial gains or losses are
recognized into income if the unamortized balance at the beginning of the year
is more than 10% of the greater of the plan asset or liability balance. Any
unrecognized actuarial gain or loss in excess of this threshold is recognized in
income over the remaining service period of the employees.
The
Company reflects the funded status of its defined pension plans as a net asset
or net liability in its balance sheet, with and offsetting amount in a
accumulated other comprehensive income, and recognizes changes in that funded
status in the year in which the changes occur through comprehensive
income.
F-13
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
(continued)
|
Inventory
valuation
Inventories
are priced at the lower of cost or market value. Cost is determined on a
first-in first-out (FIFO) basis. Raw materials and purchased finished
goods are valued at purchase cost. The cost of work-in-process and manufactured
finished goods comprises materials, direct labour and attributable production
overheads based on normal levels of activity.
Periodical
reviews of the inventory are performed for excess inventory, obsolescence and
declines in market value below cost and allowances are recorded against the
inventory balance for any such declines. The Company writes down the value of
ending inventory for obsolete and unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value. These reviews
require management to estimate future demand for products and
evaluate market conditions. Possible changes in these estimates could result in
a write down of inventory. If actual market conditions are less favorable than
those projected, additional inventory write-downs may be required.
Earnings
per share
Basic
earnings per share is computed by dividing the earnings for the period by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing the earnings for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Potentially dilutive securities composed of incremental
common shares issuable upon the exercise of warrants were excluded from the
diluted earnings per share since the exercise price is not in the
money.
Recent
accounting pronouncements
In June
2009, the FASB issued FAS 166, "Accounting for Transfers of Financial Assets an
amendment of FASB Statement No. 140" ("FAS 166") as codified in FASB ASC 860
"Transfer and Servicing", which amends the derecognition guidance in FASB
Statement No. 140 and eliminates the exemption from consolidation for qualifying
special-purpose entities. This statement is effective for financial asset
transfers occurring after the beginning of an entity's first fiscal year that
begins after November 15, 2009. The adoption of ASC 860 is not expected to have
a material effect on the Company’s financial position or results of
operations.
F-14
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
3.
|
Summary
of significant accounting policies
(continued)
|
Recent
accounting pronouncements (continued)
In June
2009, the FASB issued FAS 167, "Amendments to FASB Interpretation No. 46(R)"
("FAS 167"), as codified in FASB ASC 810 "Consolidation" which amends the
consolidation guidance applicable to variable interest entities. The amendments
will significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R). This statement is effective as of the beginning of the
first fiscal year that begins after November 15, 2009. The adoption of ASC 810
is not expected to have a material effect on the Company’s financial position or
results of operations.
In
October 2009, the FASB issued Update No. 2009-13, “Revenue Recognition (Topic
605)—Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging
Issues Task Force” ("ASU 2009-13"). ASU 2009-13 provides amendments to the
criteria in ASC 605-25 for separating consideration in multiple-deliverable
arrangements. As a result of those amendments, multiple-deliverable arrangements
will be separated in more circumstances than under existing U.S. GAAP. ASU
2009-13: 1) establishes a selling price hierarchy for determining the selling
price of a deliverable, 2) eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method, 3)
requires that a vendor determine its best estimate of selling price in a manner
that is consistent with that used to determine the price to sell the deliverable
on a standalone basis, 4) significantly expands the disclosures related to a
vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. The Company is currently
evaluating the impact of adopting ASU 2009-13.
In
October 2009, the FASB issued Update No. 2009-14, “Software (Topic 985) -
Certain Revenue Arrangements That Include Software Elements a consensus of the
FASB Emerging Issues Task Force” ("ASU 2009-14"). ASU 2009-14 changes the
accounting model for revenue arrangements that include both tangible products
and software elements and provides additional guidance on how to determine which
software, if any, relating to tangible product would be excluded from the scope
of the software revenue guidance. In addition, ASU 2009-14 provides guidance on
how a vendor should allocate arrangement consideration to deliverables in an
arrangement that includes both tangible products and software. ASU 2009-14 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The adoption of
ASU 2009-14 is not expected to have a material effect on the Company’s financial
position or results of operations.
F-15
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
4.
|
Adoption
of new accounting standards
|
Subsequent
events
FASB ASC
855, "Subsequent Events" ("ASC 855"), which established principles and
requirements for subsequent events is effective for interim or annual reporting
periods ending after June 15, 2009. The statement details the period after the
balance sheet date during which the Company should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which the Company should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the required disclosures for such events. Since ASC 855 at most
requires additional disclosures, the adoption of ASC 855 did not have a material
impact on its consolidated financial statements.
FASB
Codification
On July
1, 2009, the FASB released the final version of its new Accounting Standards
Codification (the “Codification”) as the single authoritative source for U.S.
GAAP. The Codification replaces all previous U.S. GAAP accounting standards as
described in FAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. While not intended to
change U.S. GAAP, the Codification significantly changes the way in which the
accounting literature is organized. It is structured by accounting topic to help
accountants and auditors more quickly identify the guidance that applies to a
specific accounting issue. The Company has applied the Codification for the
first time for its interim financial statements for the nine months ending
September 30, 2009. The adoption of the Codification did not have an effect on
the Company’s financial position and results of operations. However, because the
Codification completely replaces existing standards, it affects the way U.S.
GAAP is referenced in the Company's consolidated financial statements and
accounting policies.
Fair
value measurements
SFAS
No.157 as codified in FASB ASC 820 "Fair Value Measurement and Disclosures"
("ASC 820") is effective for financial assets and liabilities in fiscal years
beginning after November 15, 2007, and for non-financial assets and liabilities
in fiscal years beginning after November 15, 2008. The Company adopted ASC 820
for financial assets and liabilities in the first quarter of fiscal 2008 with no
material impact to the consolidated financial statements. The Company adopted
ASC 820 for non-financial assets and liabilities in the first quarter of fiscal
2009 with no material impact to the consolidated financial
statements.
F-16
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
4.
|
Adoption
of new accounting standards
(continued)
|
Fair
value measurements (continued)
ASC 820
applies to all assets and liabilities that are being measured and reported on a
fair value basis. ASC 820 requires new disclosure that establishes a framework
for measuring fair value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial statements to
assess the inputs used to develop those measurements by establishing a hierarchy
for ranking the quality and reliability of the information used to determine
fair values. The statement requires that assets and liabilities carried at fair
value be classified and disclosed in one of the following three
categories:
Level
1: Quoted market prices in active
markets for identical assets or liabilities.
Level
2: Observable market based inputs or
unobservable inputs that are corroborated by market data.
Level
3: Unobservable inputs that are not
corroborated by market data.
In
determining the appropriate levels, the Company performs a detailed analysis of
the assets and liabilities that are subject to ASC 820. At each reporting
period, all assets and liabilities for which the fair value measurement is based
on significant unobservable inputs are classified as Level 3. There are no
assets or liabilities measured at fair value as at December 31,
2009.
Fair
value of financial instruments
The fair
value represents management’s best estimates based on a range of methodologies
and assumptions. The carrying value of receivables and payables arising in the
ordinary course of business approximate fair value because of the relatively
short period of time between their origination and expected
realization.
F-17
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
5.
|
Inventories
|
2009
$
|
2008
$
|
|||||||
Raw
materials
|
2,344,010 | 2,713,644 | ||||||
Work-in-process
|
2,400,712 | 1,956,021 | ||||||
Finished
goods
|
1,688,175 | 804,719 | ||||||
6,432,897 | 5,474,384 |
Included
in raw materials are goods in transit of approximately $242,000 (2008 -
$394,000).
The
write-down of inventories to their market value amounted to approximately
$89,000 (2008 - $217,000) and related to finished goods. There were no reversals
of write-down from previous year.
6.
|
Property,
plant and equipment
|
Cost
$
|
Accumulated
depreciation
$
|
2009
Net
carrying
amount
$
|
2008
Net
carrying
amount
$
|
|||||||||||||
Land
|
7,136 | - | 7,136 | 6,158 | ||||||||||||
Building
|
474,111 | 118,654 | 355,457 | 168,315 | ||||||||||||
Machinery
and equipment
|
2,527,725 | 2,128,324 | 399,401 | 331,754 | ||||||||||||
Furniture
and fixtures
|
126,275 | 113,032 | 13,243 | 7,955 | ||||||||||||
Computer
hardware and software
|
564,946 | 355,243 | 209,703 | 311,040 | ||||||||||||
Leasehold
improvements
|
38,135 | 35,814 | 2,321 | 2,450 | ||||||||||||
3,738,328 | 2,751,067 | 987,261 | 827,672 |
F-18
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
6.
|
Property,
plant and equipment (continued)
|
Cost
$
|
Accumulated depreciation$
|
2008 Net
carrying$
|
2007 Net
carrying$
|
|||||||||||||
Land
|
6,158 | - | 6,158 | 7,566 | ||||||||||||
Building
|
263,255 | 94,940 | 168,315 | 213,195 | ||||||||||||
Machinery
and equipment
|
2,049,559 | 1,717,805 | 331,754 | 329,487 | ||||||||||||
Furniture
and fixtures
|
103,953 | 95,998 | 7,955 | 8,331 | ||||||||||||
Computer
hardware and software
|
462,026 | 150,986 | 311,040 | 529,641 | ||||||||||||
Leasehold
improvements
|
32,906 | 30,456 | 2,450 | 3,436 | ||||||||||||
2,917,857 | 2,090,185 | 827,672 | 1,091,656 |
7.
|
Credit
facility
|
In 2008,
the Company's $5,747,000 credit facility consisted of a revolving loan bearing
interest at prime plus 1.5% per annum. The terms of the banking agreement
required the Company to maintain minimum earnings before interest, taxes,
depreciation and amortization. As at December 31, 2008, the Company was in
compliance therewith. During 2009, this credit facility was fully
repaid.
During
2009, the Company obtained a new $9,500,000 credit facility which is subject to
review annually consisting of an operating demand line of credit, a demand term
loan, and foreign exchange contracts which are limited to $7,375,000, $1,650,000
and $475,000 respectively. Borrowings under the operating demand line of credit
bear interest at the bank's prime rate per annum on Canadian dollar borrowings
or the US base rate plus 0.75% per annum on US dollar borrowings. Borrowings
under term loans bear interest at the bank's prime rate plus 1% per annum. As at
December 31, 2009, the Company had no outstanding borrowings and no contractual
obligations through foreign exchange contracts under the credit
facility.
As
security for the credit facility, the bank has a first ranking deed on all
present and future movable and immovable property of the Company for the amount
of $9,500,000. The bank also has a first ranking collateral on the land and
building of the Company for the amount of $9,500,000. The land and building of
the Company have a carrying value of $362,593 as at December 31,
2009.
The terms
of the banking agreement require the Company to comply with certain financial
covenants. Under the terms of the agreement, the Company is required, amongst
other conditions, to maintain a minimum working capital ratio, a minimum debt
service coverage ratio and a maximum total debt to tangible net worth ratio. As
at December 31, 2009, the Company was in compliance with these
requirements.
F-19
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
8.
|
Long-term
debt
|
2009
$
|
2008
$
|
|||||||
Equipment
loans, bearing interest at rates varying from 5.93% to 9.93%, repayable in
monthly instalments of $14,326 including interest, with a final payment on
December 10, 2010, secured by liens on specific equipment having an
original cost of $491,000 and net carrying value of
$167,000
|
133,505 | 259,687 | ||||||
Current
maturity
|
133,505 | 148,168 | ||||||
- | 111,519 |
Interest
during the year amounted to approximately $18,000 (2008 - $28,000).
9.
|
Commitments
|
The
minimum annual rental payable under the leases for the Company's premises and
other operating leases expiring in 2011 are approximately as
follows:
$ | ||||
2010
|
31,000 | |||
2011
|
10,000 |
10.
|
Capital
stock
|
2009
$
|
2008
$
|
|||||
75,000,000 common
shares authorized, $0.001 par value
|
||||||
5,000,000 preferred
shares authorized, $0.001 par value
|
||||||
Issued
-
|
||||||
29,000,000
(2008 - 22,800,000 common shares)
|
29,000 | 22,800 |
F-20
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
10.
|
Capital
stock (continued)
|
The board
of directors is authorized, subject to any limitations prescribed by law,
without further vote or action by the shareholders, to issue from time to time
shares of preferred stock in one or more series. Each such series of preferred
stock shall have such number of shares, designations, preferences, voting
powers, qualifications, and special or relative rights or privileges as shall be
determined by the board of directors, which may include, among others, dividend
rights, voting rights, liquidation preferences, conversion rights and preemptive
rights.
11.
|
Additional
paid-in capital
|
Warrants
On
December 2, 2009, the Company granted two five-year warrants, each exercisable
to purchase up to 1,000,000 shares of common stock at $3.25 and $2.00 per share
respectively. The warrant exercisable at $3.25 per share was issued in
conjunction with the share exchange and the warrant exercisable at $2.00 per
share was issued in payment of consulting services received (see note 1). On the
same day, the Company granted a five-year warrant exercisable to purchase up to
150,000 shares of common stock at $2.00 per share in payment of consulting fees
to be rendered. The warrants were accounted for at their fair value amounting to
$167,500, $275,600 and $41,340 respectively, as determined by the
Black-Scholes-Merton valuation model, using the following
assumptions:
Expected
volatility
|
51.35%
|
Expected
life
|
5
years
|
Risk-free
interest rate
|
2.15%
|
Dividend
yield
|
Nil
|
The
expected life represents the period of time the options are expected to be
outstanding. Furthermore, the Company cannot provide historical stock price data
for a period equal to the expected life of the warrants; therefore, the expected
volatility assumptions were calculated by averaging the historical volatility of
a peer group of publicly-traded companies manufacturing electrical transformers.
The risk-free interest rate reflects the yield on a zero-coupon U.S. Treasury
bond over the expected term of the warrants granted. Using different
weighted-average assumptions could significantly impact the estimated grant date
fair value of the warrants.
F-21
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
11.
|
Additional
paid-in capital (continued)
|
The
following table summarizes the continuity of the Company's
warrants:
Number of shares |
Weighted
average
exercise
price
$
|
Expiry date | |||||||
Balance,
December 31, 2008
|
- | - | |||||||
Granted
-
|
|||||||||
December
2, 2009
|
1,000,000 | 3.25 |
December
2, 2014
|
||||||
December
2, 2009
|
1,000,000 | 2.00 |
December
2, 2014
|
||||||
December
2, 2009
|
150,000 | 2.00 |
December
2, 2014
|
||||||
Balance,
December 31, 2009
|
2,150,000 | 2.58 |
As at
December 31, 2009, the exercisable warrants amounted to 2,150,000 and none were
exercised.
Stock
option
On
December 2, 2009, the Company adopted the 2009 Stock Incentive plan ("Plan") for
the purpose of issuing incentive stock options intended to qualify under Section
422 of the Code, non-qualified stock options, restricted stock, stock
appreciation rights, performance unit awards and stock bonus awards to
employees, directors, consultants and other service providers. A total of
1,600,000 shares of common stock are reserved for issuance under this Plan.
Options may be granted under the Plan on terms and at prices as determined by
the Board of Directors or by the plan administrators appointed by the Board of
Directors. As at December 31, 2009, no stock options were granted.
F-22
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
12.
|
Income
taxes
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes. Significant changes of the Company's
deferred tax liability and asset as at December 31, 2009 and 2008 are as
follows:
2009
$
|
2008
$
|
|||||||
Property,
plant and equipment
|
(92,293 | ) | (102,627 | ) | ||||
Pension
plan deficit
|
112,464 | 34,154 | ||||||
20,171 | (68,473 | ) | ||||||
Valuation
allowance
|
- | - | ||||||
Net
deferred tax asset (liability)
|
20,171 | (68,473 | ) |
The
reconciliation of the effective income tax rate, to the statutory rates in
effect in Canada for the years ended December 31, 2009 and 2008 is as
follows:
2009
$
|
2008
$
|
|||||||
Statutory
income taxes
|
2,486,000 | 1,126,000 | ||||||
Write-down
of advances to limited partners of a shareholder
|
- | 248,000 | ||||||
Other
|
4,000 | (17,000 | ) | |||||
Effective
income taxes
|
2,490,000 | 1,357,000 |
In 2007,
the Company received notices of reassessments from the Federal and Provincial
governments amounting to approximately $2,030,000 including interest and
penalties of approximately $400,000. A portion of the reassessed taxes, interest
and penalties, approximately $860,000, related to withholding taxes and have
been expensed in 2007. The remaining taxes, interest and penalties relate to a
transfer pricing adjustment and although they have been expensed in 2007, the
Company has filed a notice of objection against the said reassessments.
Management believes that the success of the appeal on the transfer pricing
adjustment is unknown.
F-23
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
12.
|
Income
taxes (continued)
|
Unrecognized
tax benefits and interest and penalties
The
Company does not expect its unrecognized tax benefits to change significantly
over the next twelve months. The interest and penalties for the years ended
December 31, 2009 and 2008 were $Nil.
The
Company files tax returns in each jurisdiction in which it is registered to do
business. For each jurisdiction a statute of limitations period exists. After a
statute of limitations period expires, the respective tax authorities may no
longer assess additional income tax for the expired period. Similarly, the
Company is no longer eligible to file claims for refund for any tax that it may
have overpaid. The following table summarizes the Company’s major tax
jurisdictions and the tax years that remain subject to examination by these
jurisdictions as of December 31, 2009:
Tax jurisdictions | Tax years | |
Federal
- Canada
|
2006
and onward
|
|
Provincial
- Quebec
|
2006
and onward
|
|
Provincial
- Ontario
|
2006
and onward
|
13.
|
Statement
of cash flows information
|
2009
$
|
2008
$
|
|||||||
Accounts
receivable
|
104,955 | 224,142 | ||||||
Inventories
|
(81,624 | ) | (411,218 | ) | ||||
Prepaid
expenses
|
(6,041 | ) | 34,691 | |||||
Income
taxes recoverable
|
722,869 | - | ||||||
Accounts
payable and accrued liabilities
|
(1,766,528 | ) | (521,244 | ) | ||||
Income
taxes payable
|
- | (2,184,204 | ) | |||||
Changes
in non-cash operating elements of working capital
|
(1,026,369 | ) | (2,857,833 | ) |
F-24
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
13.
|
Statement
of cash flows information
(continued)
|
2009
$
|
2008
$
|
|||||||
Supplemental
disclosure of cash flows information:
|
||||||||
Interest
paid
|
190,797 | 285,373 | ||||||
Income
taxes paid
|
1,765,131 | 3,448,911 | ||||||
Supplemental
disclosure of non-cash financing activity
|
||||||||
Warrant
issued in connection with the share exchange (note 1)
|
167,500 | - | ||||||
Warrant
issued for consulting services rendered (note 1)
|
265,600 | - | ||||||
Warrant
issued for consulting services to be rendered in the
future
|
41,340 | - |
14.
|
Pension
plan
|
The
Company sponsors a defined benefit pension plan in which a majority of its
employees are members. The employer contributes 100% to the plan. The benefits,
or the rate per year of credit service, are established by the Company and
updated at its discretion.
Cost
of benefits:
The
components of the expense the Company incurred under the pension plan is as
follows:
2009
$
|
2008
$
|
|||||||
Current
service cost, net of employee contributions
|
35,392 | 62,037 | ||||||
Interest
cost on accrued benefit obligation
|
135,261 | 129,885 | ||||||
Actual
loss (return) on plan assets
|
(195,795 | ) | 323,868 | |||||
Actuarial
loss (gain) on plan assets
|
86,816 | (457,221 | ) | |||||
Amortization
of transitional obligation
|
11,739 | 12,557 | ||||||
Amortization
of past service costs
|
5,344 | 5,716 | ||||||
Amortization
of net actuarial gain
|
20,061 | 16,493 | ||||||
Total
cost of benefit
|
98,818 | 93,335 |
F-25
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
14.
|
Pension
plan (continued)
|
Benefit
obligation:
Our
obligation for the pension plan is valued annually as of the beginning of each
fiscal year. The projected benefit obligation represents the present value of
benefits ultimately payable to plan participants for both past and future
services expected to be provided by the plan participants.
The
Company's obligations pursuant to the pension plan is as follows:
2009
$
|
2008
$
|
|||||||
Projected
benefit obligation, at beginning of year
|
1,794,417 | 2,523,858 | ||||||
Current
service cost
|
35,392 | 62,037 | ||||||
Interest
cost
|
135,261 | 129,885 | ||||||
Actuarial
loss (gain)
|
297,328 | (536,407 | ) | |||||
Benefits
paid
|
(169,339 | ) | (89,776 | ) | ||||
Amendment | - | 137,850 | ||||||
Foreign
exchange adjustment
|
310,842 | (433,030 | ) | |||||
Projected
benefit obligation, at end of year
|
2,403,901 | 1,794,417 |
A summary
of expected benefit payments related to the pension plan is as
follows:
Pension
plan
$
|
||||
Fiscal
year 2010
|
100,900 | |||
Fiscal
year 2011
|
121,900 | |||
Fiscal
year 2012
|
137,100 | |||
Fiscal
year 2013
|
153,900 | |||
Fiscal
year 2014 - 2020
|
1,224,300 |
F-26
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
14.
|
Pension
plan (continued)
|
Other
changes in plan assets and benefit obligations recognized in other comprehensive
income is as follows:
2009
$
|
2008
$
|
|||||||
Amortization
of past service cost
|
5,344 | 5,716 | ||||||
Amortization
of net actuarial gain
|
20,061 | 16,494 | ||||||
Amortization
of transitional obligation
|
11,739 | 12,557 | ||||||
Net
actuarial loss adjustment
|
(210,512 | ) | 79,187 | |||||
Total
recognized in other comprehensive income
|
(173,368 | ) | 113,954 |
The
estimated net loss (gain) amortized from accumulated other comprehensive income
into net periodic benefit cost over the next fiscal year amounts to
$16,495. The estimated prior service cost amortized from accumulated
other comprehensive income into net periodic benefit cost over the next fiscal
year amounts to $5,715. The estimated transitional asset amortized from
accumulated other comprehensive income into net periodic benefit cost over the
next fiscal year amounts to $12,555.
The
accumulated other comprehensive loss includes of the following amounts that have
not yet been recognized as components of net benefit cost:
2009
$
|
2008
$
|
|||||||
Unrecognized
prior service cost
|
90,076 | 95,420 | ||||||
Unrecognized
net actuarial loss
|
123,532 | 423,425 | ||||||
Unrecognized
transitional obligation
|
742,742 | 135,271 | ||||||
Deferred
income taxes
|
(290,028 | ) | (196,292 | ) | ||||
666,322 | 457,824 |
F-27
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
14.
|
Pension
Plan (continued)
|
Plan
assets
Assets
held by the pension plan are invested in accordance with the provisions of our
approved investment policy. The pension plan’s strategic asset allocation was
structured to reduce volatility through diversification and enhance return to
approximate the amounts and timing of the expected benefit payments. The asset
allocation for the pension plan at the end of fiscal years 2009 and 2008 and the
target allocation for fiscal year 2010, by asset category, are as
follows:
Pension
plan
|
||||||||||||
Allocation
at December 31, 2009
%
|
Allocation
at December 31, 2008
%
|
2010
Target
allocation
%
|
||||||||||
Equity
securities
|
55 | 55 | 55 | |||||||||
Fixed
income securities
|
41 | 41 | 41 | |||||||||
Real
estate
|
4 | 4 | 4 | |||||||||
Total
|
100 | 100 | 100 |
Changes
in the assets held by the pension plan in fiscal 2009 and 2008 are as
follows:
2009
$
|
2008
$
|
|||||||
Fair
value of plan asset, at beginning of year
|
1,564,204 | 2,145,970 | ||||||
Actual
return on plan assets
|
195,795 | (323,868 | ) | |||||
Employer
contributions
|
184,757 | 205,510 | ||||||
Benefits
paid
|
(169,339 | ) | (89,776 | ) | ||||
Foreign
exchange adjustment
|
266,733 | (373,632 | ) | |||||
Fair
value of plan assets, at end of year
|
2,042,150 | 1,564,204 |
F-28
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
14.
|
Pension
Plan (continued)
|
Contributions
Our
policy is to fund the pension plan at or above the minimum required by law. The
Company made $185,000 (2008 - $205,000) of contributions to its defined benefit
pension plan during the year. The Company expects to make contributions of less
than $275,000 to the defined benefit pension plan in fiscal 2010. Changes in the
discount rate and actual investment returns which continue to remain lower than
the long-term expected return on plan assets could result in the Company making
additional contributions.
Funded
status:
The
funded status of the pension plan is as follows:
2009
$
|
2008
$
|
|||||||
Projected
benefit obligation
|
2,403,901 | 1,794,417 | ||||||
Fair
value of plan assets
|
2,042,150 | 1,564,204 | ||||||
Amendment
(net of foreign exchange adjustment)
|
- | (120,771 | ) | |||||
Accrued
obligation (long-term)
|
361,751 | 109,442 |
F-29
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
14.
|
Pension
Plan (continued)
|
Assumptions:
Assumptions
used in accounting for the pension plan is as follows:
2009
%
|
2008
%
|
|||||||
Weighted
average discount rate used to determine the accrued benefit
obligations
|
7.25 | 7.25 | ||||||
Discount
rate used to determine the net pension expense
|
5.50 | 5.50 | ||||||
Expected
long-term rate of return on plan assets
|
6.50 | 6.50 |
To
determine the expected long-term rate of return on pension plan assets, the
Company considers the current and expected asset allocations, as well as
historical and expected returns on various categories of plan assets. The
Company applies the expected rate of return to a market related value of the
assets which reduces the underlying variability in assets to which the Company
applies that expected return. The Company amortizes gains and losses as well as
the effects of changes in actuarial assumptions and plan provisions over a
period no longer than the average future service of employees.
Primary
actuarial assumptions are determined as follows:
The
expected long-term rate of return on plan assets is based on the Company’s
estimate of long-term returns for equities and fixed income securities weighted
by the allocation of assets in the plans. The rate is impacted by changes in
general market conditions, but because it represents a long-term rate, it is not
significantly impacted by short-term market swings. Changes in the allocation of
plan assets would also impact this rate.
The
assumed discount rate is used to discount future benefit obligations back to
today’s dollars. The discount rate is reflective of yield rates on U.S.
long-term investment grade corporate bonds on and around the December 31
valuation date. This rate is sensitive to changes in interest rates. A decrease
in the discount rate would increase the Company’s obligation and
expense.
F-30
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
15.
|
Major
customer
|
Sales to
one customer accounted for approximately 39% of sales in 2009 (26% in 2008).
Outstanding accounts receivable for this customer at December 31, 2009 accounted
for 45% (22% in 2008) of total trade receivables.
16.
|
Related
party transactions
|
The
following table summarizes the Company's related party transactions for the
years measured at the exchange amount which is the amount of the consideration
established and agreed to by the related parties:
2009
$
|
2008
$
|
|||||||
Companies
under common significant influence
|
||||||||
Consulting
and administration fee expenses
|
402,000 | 274,000 |
In 2008
and 2009, the Company paid $124,000 and $152,000, respectively, to a company
controlled by a limited partner of a shareholder of the Company, as
reimbursement for rent, office services, and travel and entertainment
expenses.
In 2008
and 2009, the Company paid an aggregate of $150,000 and $250,000, respectively,
to two companies controlled by a limited partner of a shareholder as
consideration for this limited partner providing executive services, along with
serving as the Company’s president and head of sales.
Between
2006 and 2008, the Partnership, sole shareholder of the Company before December
2, 2009, caused the Company to make non-interest bearing advances amounting to
$700,335 to limited partners of the shareholder as reimbursement for advances
made by these limited partners to a company controlled by the shareholder. In
2008, the Company forgave these advances in full and the said advances were
written off.
In 1997,
two limited partners of a shareholder, advanced $100,000 and $50,000,
respectively, to the Company, with such amounts accruing interest at the rate of
12% per annum and no specific terms of repayment or maturity date. Interest
incurred during the year amounted to approximately $18,000 (2008 -
$18,000).
F-31
Pioneer
Power Solutions, Inc.
(Formerly
Sierra Concepts, Inc.)
Notes
to Consolidated Financial Statements
December
31, 2009 and 2008
(Expressed
in U.S. Funds)
17.
|
Geographical
information
|
The
Company has one operating segment, being the sale of electrical transformers.
Revenues are attributable to countries based on the location of the Company's
customers.
2009
$
|
2008
$
|
|||||||
Canada
|
38,625,452 | 37,301,622 | ||||||
United
States
|
1,066,379 | 5,266,111 | ||||||
Others
|
906,745 | 1,316,528 | ||||||
Total
|
40,598,576 | 43,884,261 |
Substantially
all of the Company’s long-lived assets are located in Canada.
18.
|
Comparative
figures
|
Certain
reclassifications of 2008 amounts have been made to facilitate comparison with
the current year. The shareholder's equity for 2008 has been retroactively
restated for the equivalent number of shares received in the share exchange
resulting in a decrease of capital stock of 567,333 and an increase in
additional paid-in-capital of the same amount.
F-32
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
We are
paying all of the selling stockholders’ expenses related to this offering,
except that the selling stockholders will pay any applicable underwriting
discounts and commissions. The fees and expenses payable by us in connection
with this Registration Statement are estimated as follows:
SEC
Registration Fee
|
$
|
748.65
|
||
Accounting
Fees and Expenses
|
20,000.00
|
|||
Legal
Fees and Expenses
|
50,000.00
|
|||
Miscellaneous
Fees and Expenses
|
4,251.35
|
|||
Total
|
$
|
75,000.00
|
||
Item
14. Indemnification of Directors and Officers.
Section
145 of the Delaware General Corporation Law (the “DGCL”) provides, in general,
that a corporation incorporated under the laws of the State of Delaware, as we
are, may indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding
(other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Our
certificate of incorporation and bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the DGCL, as amended from time to time, subject
to any permissible expansion or limitation of such indemnification, as may be
set forth in any stockholders’ or directors’ resolution or by contract. In
addition, our director and officer indemnification agreements with each of our
directors and officers provide, among other things, for the indemnification to
the fullest extent permitted or required by Delaware law, provided that no
indemnitee will be entitled to indemnification in connection with any claim
initiated by the indemnitee against us or our directors or officers unless we
join or consent to the initiation of the claim, or the purchase and sale of
securities by the indemnitee in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended.
Any
repeal or modification of these provisions approved by our stockholders will be
prospective only and will not adversely affect any limitation on the liability
of any of our directors or officers existing as of the time of such repeal or
modification.
We are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or not
the DGCL would permit indemnification.
Item
15. Recent Sales of Unregistered Securities.
On
September 25, 2008, we sold 6,000,000 shares of common stock to David Davis, our
former president, chief executive officer, chief financial officer and
secretary-treasurer, in exchange for $6,000. These securities were offered and
sold to Mr. Davis in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. Mr. Davis qualified as an accredited investor (as
defined by Rule 501 under the Securities Act of 1933, as amended) at the time of
his acquisition of these shares.
II-1
On
December 2, 2009, we consummated a private placement pursuant to which we sold
an aggregate of 5,000,000 shares of common stock to 18 investors for aggregate
gross proceeds of $5,000,000. The securities were offered and sold to investors
in reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Each of
the persons and/or entities receiving our securities in this private placement
qualified as an accredited investor (as defined by Rule 501 under the Securities
Act of 1933, as amended) at the time of the private placement.
On
December 2, 2009, we entered into a share exchange agreement with Pioneer
Transformers Ltd., a company incorporated under the Canada Business Corporations
Act, and Provident Pioneer Partners, L.P., a Delaware limited
partnership and the holder of all of the outstanding capital stock of Pioneer
Transformers Ltd., pursuant to which Provident Pioneer Partners, L.P.
transferred all of the issued and outstanding capital stock of Pioneer
Transformers Ltd. to us in exchange for (i) 22,800,000 newly issued shares of
our common stock and (ii) a five-year warrant to purchase up to 1,000,000 shares
of our common stock at an exercise price of $3.25 per share. These securities
were offered and sold to Provident Pioneer Partners, L.P. in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder. Provident Pioneer
Partners, L.P. qualified as an accredited investor (as defined by Rule 501 under
the Securities Act of 1933, as amended) at the time of the share
exchange.
On
December 2, 2009, we sold Genesis Capital Advisors LLC a five-year warrant to
purchase up to an aggregate of 1,000,000 shares of our common stock at an
exercise price of $2.00 per share for aggregate gross proceeds of
$10,000. This warrant was offered and sold to Genesis Capital
Advisors LLC in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. Genesis Capital Advisors LLC qualified as an accredited investor (as
defined by Rule 501 under the Securities Act of 1933, as amended) at the time of
this warrant purchase.
Item
16. Exhibits and Financial Statement Schedules.
Exhibit
No.
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated December 2, 2009, by and among Pioneer Power
Solutions, Inc., Pioneer Transformers Ltd. and Provident Pioneer Partners,
L.P. (Incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and
Exchange Commission on December 7, 2009).
|
|
3.1
|
Certificate
of Incorporation (Incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 2, 2009).
|
|
3.2
|
Bylaws
(Incorporated by reference to Exhibit 3.2 to the Current Report on Form
8-K of Pioneer Power Solutions, Inc. filed with the Securities and
Exchange Commission on December 2, 2009).
|
|
4.1
|
Form
of Securities Purchase Agreement (Incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc.
filed with the Securities and Exchange Commission on December 7,
2009).
|
|
4.2
|
Form
of $2.00 Warrant (Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
4.3
|
Form
of $3.25 Warrant (Incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
4.4
|
Form
of Lock-up Agreement (Incorporated by reference to Exhibit 10.4 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
5.1*
|
Opinion
of Haynes and Boone, LLP.
|
|
10.1
|
Form
of Director and Officer Indemnification Agreement (Incorporated by
reference to Exhibit 10.6 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.2
|
Employment
Agreement, dated December 2, 2009, by and between Pioneer Power Solutions,
Inc. and Nathan J. Mazurek (Incorporated by reference to Exhibit 10.7 to
the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with
the Securities and Exchange Commission on December 7,
2009).
|
II-2
10.3
|
Pioneer
Power Solutions, Inc. 2009 Equity Incentive Plan (Incorporated by
reference to Exhibit 10.8 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.4
|
Form
of 2009 Incentive Stock Option Agreement (Incorporated by reference to
Exhibit 10.9 to the Current Report on Form 8-K of Pioneer Power Solutions,
Inc. filed with the Securities and Exchange Commission on December 7,
2009).
|
|
10.5
|
Form
of 2009 Non-Qualified Stock Option Agreement (Incorporated by reference to
Exhibit 10.10 to the Current Report on Form 8-K of Pioneer Power
Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.6
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumptions of
Obligations, dated December 2, 2009, by and between Pioneer Power
Solutions, Inc. and Sierra Concepts Holdings, Inc. (Incorporated by
reference to Exhibit 10.11 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.7
|
Stock
Purchase Agreement, dated December 2, 2009, by and between Pioneer Power
Solutions, Inc. and David Davis (Incorporated by reference to Exhibit
10.12 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc.
filed with the Securities and Exchange Commission on December 7,
2009).
|
|
10.8
|
Agreement
for Authorized Sales Representatives, dated March 1, 1995 by and between
Pioneer Transformers Ltd. and CHAZ Sales Corp. (Incorporated by reference
to Exhibit 10.13 to the Current Report on Form 8-K of Pioneer Power
Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.9
|
Agreement
for Authorized Sales Representatives, dated April 1, 1996, by and between
Pioneer Transformers Ltd. and Virelli & Associates, Inc. (Incorporated
by reference to Exhibit 10.14 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.10
|
Agreement
for Authorized Sales Representatives, dated September 19, 2003, by and
between Pioneer Transformers Ltd. and AESCO Associates Ltd. (Incorporated
by reference to Exhibit 10.15 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.11
|
Collective
Labour Agreement, dated June 1, 2005, by and between Pioneer Transformers
Ltd. and The Steelworkers Union on behalf of Local 9414 (Incorporated by
reference to Exhibit 10.16 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.12
|
Agreement
for Authorized Sales Representatives, dated May 11, 2006, by and between
Pioneer Transformers Ltd. and Techno-Contact, Inc. (Incorporated by
reference to Exhibit 10.17 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.13
|
Lease
Amending Agreement, dated August 1, 2006, by and between Pioneer
Transformers Ltd. and 2600 Skymark Investments Inc. (Incorporated by
reference to Exhibit 10.18 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.14**
|
Agreement
dated September 1, 2006, by and among Pioneer Transformers Ltd.,
Newfoundland Power, Inc., Maritime Electric Company, Limited,
Fortisalberta Inc. and Fortisbc Inc. (Incorporated by reference to Exhibit
10.19 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc.
filed with the Securities and Exchange Commission on December 7,
2009).
|
|
10.15
|
License
and Services Agreement, dated May 4, 2007, by and between Pioneer
Transformers Ltd. and Oracle Corporation Canada Inc. (Incorporated by
reference to Exhibit 10.20 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.16
|
ValuePlan
Lease, dated September 27, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.21 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
II-3
10.17
|
ValuePlan
Lease, dated November 22, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.22 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.18
|
ValuePlan
Lease, dated December 11, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.23 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.19
|
ValuePlan
Lease, dated December 19, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.24 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.20**
|
Agreement
dated August 5, 2009, by and between Pioneer Transformers Ltd. and Toronto
Hydro-Electric System Limited (Incorporated by reference to Exhibit 10.25
to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed
with the Securities and Exchange Commission on December 7,
2009).
|
|
10.21**
|
Agreement
dated April 1, 2006, by and between Pioneer Transformers Ltd. and
Hydro-Quebec Utility Company (Incorporated by reference to Exhibit 10.26
to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed
with the Securities and Exchange Commission on December 7,
2009).
|
|
10.28
|
Commitment
Letter, dated July 9, 2009, by and between Pioneer Transformers Ltd. and
the Bank of Montreal (Incorporated by reference to Exhibit 10.27 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.29***
|
Indemnification
Agreement, dated December 2, 2009, by and between Pioneer Power Solutions,
Inc. and Nathan J. Mazurek.
|
|
10.30***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and Yossi Cohn.
|
|
10.31***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and David J. Landes.
|
|
10.32***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and
David Tesler.
|
|
10.33***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and Jonathan Tulkoff.
|
|
10.34***+
|
Agreement
dated January 1, 2010, by and between Pioneer Transformers Ltd. and
Hydro-Quebec Utility Company.
|
|
10.35***+
|
Agreement
dated January 8, 2010, by and between Pioneer Transformers Ltd. and
Hydro-Quebec Utility Company.
|
|
10.36***
|
Description
of Consulting Services Provided by Nathan J. Mazurek to Pioneer
Transformers Ltd.
|
|
21.1
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form S-1of Pioneer Power Solutions, Inc. filed
with the Securities and Exchange Commission on January 25,
2010).
|
|
23.1***
|
Consent
of RSM Richter S.E.N.C.R.L./LLP.
|
|
23.2*
|
Consent
of Haynes and Boone, LLP (Included in Exhibit 5.1).
|
|
24.1
|
Power
of Attorney (Included on signature page).
|
|
__
* To be
filed by amendment.
**
Confidential treatment has been granted with respect to certain portions of this
exhibit.
*** Filed
herewith.
II-4
+
Confidential treatment has been requested for this exhibit and confidential
portions have been filed with the SEC.
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
|
|
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in
the effective registration statement;
and
|
|
|
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
|
|
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered that remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability of the undersigned registrant under the
Securities Act to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424 (§
230.424 of this chapter);
|
|
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
II-5
In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
For the
purpose of determining liability under the Securities Act to any purchaser, each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A (§ 230.430A of this
chapter), shall be deemed to be part of and included in the registration
statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on March 10, 2010.
PIONEER
POWER SOLUTIONS, INC.
|
|
By:
|
/s/
Nathan J. Mazurek
|
Name:
Nathan J. Mazurek
|
|
Title:
Chief Executive Officer
|
|
POWER
OF ATTORNEY
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
Nathan J. Mazurek
|
President,
Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer
and
|
March
10, 2010
|
||
Nathan
J. Mazurek
|
Chairman of the Board of Directors (Principal Executive Officer and Principal Accounting Officer) | |||
*
|
Director
|
March
10, 2010
|
||
Yossi
Cohn
|
||||
*
|
Director
|
March
10, 2010
|
||
David
J. Landes
|
||||
*
|
Director
|
March
10, 2010
|
||
David
Tesler
|
||||
*
|
Director
|
March
10, 2010
|
||
Jonathan
Tulkoff
|
||||
*Signed
by Nathan J. Mazurek as attorney-in-fact.
II-7
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated December 2, 2009, by and among Pioneer Power
Solutions, Inc., Pioneer Transformers Ltd. and Provident Pioneer Partners,
L.P. (Incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K of Pioneer Power Solutions, Inc. filed with the Securities and
Exchange Commission on December 7, 2009).
|
|
3.1
|
Certificate
of Incorporation (Incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 2, 2009).
|
|
3.2
|
Bylaws
(Incorporated by reference to Exhibit 3.2 to the Current Report on Form
8-K of Pioneer Power Solutions, Inc. filed with the Securities and
Exchange Commission on December 2, 2009).
|
|
4.1
|
Form
of Securities Purchase Agreement (Incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc.
filed with the Securities and Exchange Commission on December 7,
2009).
|
|
4.2
|
Form
of $2.00 Warrant (Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
4.3
|
Form
of $3.25 Warrant (Incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
4.4
|
Form
of Lock-up Agreement (Incorporated by reference to Exhibit 10.4 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
5.1*
|
Opinion
of Haynes and Boone, LLP.
|
|
10.1
|
Form
of Director and Officer Indemnification Agreement (Incorporated by
reference to Exhibit 10.6 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.2
|
Employment
Agreement, dated December 2, 2009, by and between Pioneer Power Solutions,
Inc. and Nathan J. Mazurek (Incorporated by reference to Exhibit 10.7 to
the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with
the Securities and Exchange Commission on December 7, 2009).
|
|
10.3
|
Pioneer
Power Solutions, Inc. 2009 Equity Incentive Plan (Incorporated by
reference to Exhibit 10.8 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.4
|
Form
of 2009 Incentive Stock Option Agreement (Incorporated by reference to
Exhibit 10.9 to the Current Report on Form 8-K of Pioneer Power Solutions,
Inc. filed with the Securities and Exchange Commission on December 7,
2009).
|
|
10.5
|
Form
of 2009 Non-Qualified Stock Option Agreement (Incorporated by reference to
Exhibit 10.10 to the Current Report on Form 8-K of Pioneer Power
Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.6
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumptions of
Obligations, dated December 2, 2009, by and between Pioneer Power
Solutions, Inc. and Sierra Concepts Holdings, Inc. (Incorporated by
reference to Exhibit 10.11 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.7
|
Stock
Purchase Agreement, dated December 2, 2009, by and between Pioneer Power
Solutions, Inc. and David Davis (Incorporated by reference to Exhibit
10.12 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc.
filed with the Securities and Exchange Commission on December 7,
2009).
|
10.8
|
Agreement
for Authorized Sales Representatives, dated March 1, 1995 by and between
Pioneer Transformers Ltd. and CHAZ Sales Corp. (Incorporated by reference
to Exhibit 10.13 to the Current Report on Form 8-K of Pioneer Power
Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.9
|
Agreement
for Authorized Sales Representatives, dated April 1, 1996, by and between
Pioneer Transformers Ltd. and Virelli & Associates, Inc. (Incorporated
by reference to Exhibit 10.14 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.10
|
Agreement
for Authorized Sales Representatives, dated September 19, 2003, by and
between Pioneer Transformers Ltd. and AESCO Associates Ltd. (Incorporated
by reference to Exhibit 10.15 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.11
|
Collective
Labour Agreement, dated June 1, 2005, by and between Pioneer Transformers
Ltd. and The Steelworkers Union on behalf of Local 9414 (Incorporated by
reference to Exhibit 10.16 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.12
|
Agreement
for Authorized Sales Representatives, dated May 11, 2006, by and between
Pioneer Transformers Ltd. and Techno-Contact, Inc. (Incorporated by
reference to Exhibit 10.17 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.13
|
Lease
Amending Agreement, dated August 1, 2006, by and between Pioneer
Transformers Ltd. and 2600 Skymark Investments Inc. (Incorporated by
reference to Exhibit 10.18 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.14**
|
Agreement
dated September 1, 2006, by and among Pioneer Transformers Ltd.,
Newfoundland Power, Inc., Maritime Electric Company, Limited,
Fortisalberta Inc. and Fortisbc Inc. (Incorporated by reference to Exhibit
10.19 to the Current Report on Form 8-K of Pioneer Power Solutions, Inc.
filed with the Securities and Exchange Commission on December 7,
2009).
|
|
10.15
|
License
and Services Agreement, dated May 4, 2007, by and between Pioneer
Transformers Ltd. and Oracle Corporation Canada Inc. (Incorporated by
reference to Exhibit 10.20 to the Current Report on Form 8-K of Pioneer
Power Solutions, Inc. filed with the Securities and Exchange Commission on
December 7, 2009).
|
|
10.16
|
ValuePlan
Lease, dated September 27, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.21 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.17
|
ValuePlan
Lease, dated November 22, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.22 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.18
|
ValuePlan
Lease, dated December 11, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.23 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.19
|
ValuePlan
Lease, dated December 19, 2007, by and between Pioneer Transformers Ltd.
and IBM Canada Limited (Incorporated by reference to Exhibit 10.24 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.20**
|
Agreement
dated August 5, 2009, by and between Pioneer Transformers Ltd. and Toronto
Hydro-Electric System Limited (Incorporated by reference to Exhibit 10.25
to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed
with the Securities and Exchange Commission on December 7,
2009).
|
|
10.21**
|
Agreement
dated April 1, 2006, by and between Pioneer Transformers Ltd. and
Hydro-Quebec Utility Company (Incorporated by reference to Exhibit 10.26
to the Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed
with the Securities and Exchange Commission on December 7,
2009).
|
10.28
|
Commitment
Letter, dated July 9, 2009, by and between Pioneer Transformers Ltd. and
the Bank of Montreal (Incorporated by reference to Exhibit 10.27 to the
Current Report on Form 8-K of Pioneer Power Solutions, Inc. filed with the
Securities and Exchange Commission on December 7, 2009).
|
|
10.29***
|
Indemnification
Agreement, dated December 2, 2009, by and between Pioneer Power Solutions,
Inc. and Nathan J. Mazurek.
|
|
10.30***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and Yossi Cohn.
|
|
10.31***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and David J. Landes.
|
|
10.32***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and
David Tesler.
|
|
10.33***
|
Director
and Officer Indemnification Agreement, dated December 2, 2009, by and
between Pioneer Power Solutions, Inc. and Jonathan Tulkoff.
|
|
10.34***+
|
Agreement
dated January 1, 2010, by and between Pioneer Transformers Ltd. and
Hydro-Quebec Utility Company.
|
|
10.35***+
|
Agreement
dated January 8, 2010, by and between Pioneer Transformers Ltd. and
Hydro-Quebec Utility Company.
|
|
10.36***
|
Description
of Consulting Services Provided by Nathan J. Mazurek to Pioneer
Transformers Ltd.
|
|
21.1
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form S-1of Pioneer Power Solutions, Inc. filed
with the Securities and Exchange Commission on January 25,
2010).
|
|
23.1***
|
Consent
of RSM Richter S.E.N.C.R.L./LLP.
|
|
23.2*
|
Consent
of Haynes and Boone, LLP (Included in Exhibit 5.1).
|
|
24.1
|
Power
of Attorney (Included on signature page).
|
|
_________________
* To be
filed by amendment.
**
Confidential treatment has been granted with respect to certain portions of this
exhibit.
*** Filed
herewith.
+
Confidential treatment has been requested for this exhibit and confidential
portions have been filed with the SEC.