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EX-5.1 - PIONEER POWER SOLUTIONS, INC.e608399_ex5-1.htm
EX-23.1 - PIONEER POWER SOLUTIONS, INC.e608399_ex23-1.htm
 
As filed with the Securities and Exchange Commission on May 3, 2011

Registration No.  333-173629


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.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
3612
27-1347616
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
___________________________________________

One Parker Plaza
400 Kelby Street, 9th Floor
Fort Lee, New Jersey 07024
(212) 867-0700
(Address, including zip code, and telephone number,
 including area code, of principal executive offices)
___________________________________________

Nathan J. Mazurek
Chief Executive Officer
Pioneer Power Solutions, Inc.
One Parker Plaza
400 Kelby Street, 9th Floor
Fort Lee, New Jersey 07024
(212) 867-0700
(Address, including zip code, and telephone number,
 including area code, of agent for service)
___________________________________________

Copies of all communications, including communications sent to agent for service, should be sent to:

Rick A. Werner, Esq.
Haynes and Boone, LLP
30 Rockefeller Plaza, 26th Floor
New York, New York 10112
Tel. (212) 659-7300
Fax (212) 884-8234
 
Douglas S. Ellenoff, Esq.
Lawrence A. Rosenbloom, Esq.
Ellenoff Grossman & Schole LLP
150 East 42nd Street, 11th Floor
New York, NY 10017
Tel. (212) 370-1300
Fax (212) 370-7889
___________________________________________

Approximate date of proposed sale to public: As soon as practicable on or 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, as amended, check the following box. o

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company x
 
(Do not check if a smaller reporting company)
 
 
 

 
 
___________________________________________
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Securities to be Registered
Proposed Maximum Aggregate Offering Price (1)
Amount of Registration Fee (1)
Primary Offering:
   
     Common Stock, $0.001 par value per share
$17,250,000 (2)
$2,002.73 (3)
Secondary Offering:
   
     Common Stock, $0.001 par value per share
$5,000,000
$580.50 (3)

 
(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
(2)
Includes shares of our common stock that the underwriters have the option to purchase to cover overallotments, if any.
 
(3)
Previously paid.
 
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, as amended, 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 contained in this prospectus is not complete and may be changed.  These securities may not be sold 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 May 3, 2011
 
                         Shares
 

Pioneer Power Solutions, Inc.
 
Common Stock
$     per share
 
Pioneer Power Solutions, Inc. and the selling stockholders are offering           shares of our common stock.  Pioneer Power Solutions, Inc. is offering         shares and the selling stockholders identified in this prospectus are offering         shares.  Pioneer Power Solutions, Inc. will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
 
Our common stock is quoted on the OTC Bulletin Board under the symbol “PPSI.OB.”  The last reported market price of the common stock on the OTC Bulletin Board on May 2, 2011 was $2.95 per share.  This does not reflect a one-for-five reverse stock split that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
We anticipate that the offering price per share of our common stock will be between $    and $    . There is presently a limited market for our common stock, and the shares are being offered in anticipation of development of a secondary trading market. We have applied to list our shares of common stock for quotation on the Nasdaq Capital Market under the symbol “PPSI.”
 
Investing in the common stock is highly speculative and involves a high degree of risk.  See “Risk Factors” beginning on page 10 of this prospectus before making a decision to purchase our common stock.

 
Per Share
Total
Price to the public
$
$
Underwriting discount
$
$
Proceeds to us, before expenses
$
$
Proceeds to the selling stockholders
$
$

We have granted the underwriters an option to purchase up to      additional shares of common stock from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments, if any.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
The underwriters expect to deliver the shares of common stock to purchasers in the offering against payment in New York, New York on or about     , 2011.
___________________________________________
 
Sole Book-Running Manager

Oppenheimer & Co.

The date of this prospectus is                 , 2011

 
 

 

Table of Contents
 

 
You should rely only on the information contained in this prospectus.  We have not, the selling stockholders have not, and the underwriters have not, authorized any other person to provide you with information different from or in addition to that contained in this prospectus.  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 an 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.

Unless otherwise indicated, all information in this prospectus reflects a one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part, other than share and per share information in our consolidated financial statements and the related notes included in this prospectus.

For investors outside the United States:  We have not, the selling stockholders have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States.  You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

Industry and Market Data

In this prospectus, we rely on and refer to information and statistics regarding our industry.  We obtained this statistical, market and other industry data and forecasts from publicly available information.  While we believe that the statistical data, market data and other industry data and forecasts are reliable, we have not independently verified the data.

 
       
       
       
 
 
This summary highlights information contained in other parts of this prospectus.  Because it is a summary, it does not contain all of the information that you should consider in making your investment decision.  Before investing in our common stock, you should read the entire prospectus carefully, including our consolidated financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
When used herein, 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 company incorporated under the Canada Business Corporations Act that is now our wholly-owned subsidiary, and its subsidiaries.  For periods subsequent to the closing of the share exchange on December 2, 2009, references to the “Company,” “Pioneer,” “we,” “our” and “us” refer to Pioneer Power Solutions, Inc., a publicly traded company, and its subsidiaries, including Pioneer Transformers Ltd., Jefferson Electric, Inc., and Pioneer Wind Energy Systems Inc.
 
Unless otherwise indicated, all information in this prospectus reflects a one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part, other than share and per share information in our consolidated financial statements and the related notes included in this prospectus.
 
The Company
 
Overview
 
We are an owner and operator of specialty electrical equipment and service businesses which provide highly-engineered solutions for niche markets in the utility, industrial, commercial and wind energy sectors of the electrical transmission and distribution industry.  Our products include liquid-filled and dry-type (encapsulated and ventilated) transformers and, more recently, wind energy equipment and services.  We intend to grow our business by increasing our portfolio of specialty solutions for the markets we serve, both through acquisitions and internal product development.  Our management team has extensive industry experience and a significant track record of acquiring, integrating and operating companies.
 
We primarily serve the North American market and our broad customer base includes a number of recognized national and regional utility and industrial companies.  We currently have five locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales and administration.  In addition, we utilize a network of 21 independently-operated stocking locations in the U.S., including two regional distribution centers.
 
Financial Results and Guidance
 
We generated net revenue of $47.2 million and net earnings per diluted share of $0.50 in the year ended December 31, 2010 (as adjusted for the anticipated one-for-five reverse stock split).  Our non-GAAP net earnings per diluted share, adjusted to exclude certain non-cash expenses, nonrecurring costs and unusual gains or charges, were $0.43 in the year ended December 31, 2010.
 
We expect that our net revenue will increase to between $66 and $77 million in the year ending December 31, 2011, and that our non-GAAP net earnings per diluted share will be between $0.70 and $0.90.  For an explanation of non-GAAP net earnings per share, a reconciliation of GAAP net earnings to non-GAAP net earnings and a description of how management uses non-GAAP measures, please see page 8 of this prospectus.  With respect to factors that could impact our expected operating results, please see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 23 of this prospectus.
 
           
           
           
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Electrical Transmission and Distribution Equipment
 
Our electrical transformers segment designs and manufactures a full line of custom and standard liquid-filled, encapsulated and ventilated electrical transformers used in the control and conditioning of electrical current for critical processes.  Our operating companies within this segment, Pioneer Transformers Ltd. and Jefferson Electric, Inc., specialize in liquid-filled and dry-type transformers, respectively.  Each business offers a wide range of engineered-to-order and standard equipment, sold either directly to end users, through engineering and construction firms, or through wholesale distributors.  These operating companies serve customers in a variety of industries including electric utilities, industrial customers, commercial construction companies and renewable energy producers.
 
Wind Energy Equipment and Services
 
We are developing our wind energy business segment to target community and industrial wind customers seeking wind turbines with generation capacities of one to two megawatts (MW).  We believe this market is underserved by our larger wind industry competitors.  For this market, we intend to provide project integration solutions, including equipment sales, procurement, after-sales services and financing to customers.  Our wind energy operating company, Pioneer Wind Energy Systems Inc., was established through acquisitions that we completed in 2010.  Its predecessors have a 10-year history of developing, manufacturing, commissioning and servicing advanced wind turbine designs, principally the P-1650, which is a 1.65 MW wind turbine generator.  Although Pioneer Wind Energy Systems Inc. has generated immaterial revenue for us to date, the business previously completed power projects encompassing five wind turbine units commissioned between 2008 and 2010 in the Northeast U.S., California and for the U.S. military.  We intend to rely on Pioneer Wind Energy Systems Inc.’s portfolio of licensed technologies and expertise in engineering, procurement and field services to meet the specific challenges of each wind energy project.  In situations where the site characteristics and investment constraints of a project are not conducive to the deployment of our P-1650 unit, we intend to acquire and resell comparable units from other manufacturers that meet the project owner’s requirements.  We also intend to stimulate growth in this segment by offering customers equipment financing arrangements with extended payment terms and revenue-sharing features.  We intend to implement this strategy on a small number of projects using a portion of the proceeds of this offering.
 
Key Industry Trends
 
We believe that we are well positioned to capitalize on projected power transmission and distribution infrastructure related expenditures in the North American electric grid and on the projected expansion of North American wind power generation capacity.  We expect to benefit from the following industry trends:
 
Electrical Transmission and Distribution Equipment
 
           
   
·
Aging and Overburdened North American Power Grid — The aging and overburdened North American power grid is expected to require significant capital expenditures to upgrade the existing infrastructure over the next several years to maintain adequate levels of reliability and efficiency. According to the North American Electric Reliability Corp. (NERC), Level 5 Transmission Load Relief (TLR) events, which are triggered when power outages are imminent or in progress, have grown at a 60% compounded annual growth rate from 2002 to 2008.  These events demonstrate the current power grid’s inadequate transmission capacity to accommodate all requests for reliable power.  Significant capital investment will be required over the next several decades to relieve congestion, accommodate growth and replace components of the U.S. power grid operating at, near or past their planned service lives.  According to the consulting firm The Brattle Group, 70% of all power transformers in the U.S. are currently over 25 years old and $900 billion of capital investment will be required for transmission and distribution equipment by 2030 in order to meet growing demand and achieve targets for efficiency, emissions, renewable sources and infrastructure replacement.
 
           
   
·
Increasing Demand for Reliably Delivered Electricity — Increasing demand for reliably delivered electricity in North America will require substantial investment in the electric grid to expand capacity and improve efficiency.  The Department of Energy’s Energy Information Administration, or EIA, forecasts that total electricity use in the U.S. will increase by approximately 30% from 2008 to 2035.  This increase is driven by population growth, economic expansion, increasing dependence on computing power throughout the economy and the increased use of electrical devices in the home.  As an example, the power consumption of servers and data centers, one of the largest users of electricity in the U.S., doubled between 2000 and 2006 and is expected to double again by 2011 according to estimates by the U.S. Environmental Protection Agency.  Electric vehicles are another example of a new source of potentially significant increase in power consumption.  The expected increase in electricity demand will require considerable investment in the North American electric transmission and distribution infrastructure as well as specialized equipment to ensure the reliability and quality of electricity for critical applications such as servers and data centers.
 
           
           
           
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·
Strong Legislative Support — The U.S. government has directed significant resources towards the modernization and improvement of the U.S. electric grid.  The legislative developments continue to promote growth and investment in electric transmission and distribution infrastructure by encouraging electricity providers to expand capacity and relieve grid congestion.  The Energy Policy Act of 2005 established mandatory grid reliability standards and created incentives to increase electric transmission and distribution infrastructure investments.  Incentives associated with such law ensured that utilities (who represent our largest customer segment) are better positioned to finance and realize system enhancement projects.  In addition, the American Recovery and Reinvestment Act of 2009 allocated $4.5 billion to improve electricity delivery and energy reliability through modernization of the electric transmission and distribution infrastructure.
 
           
   
·
Mandates for Renewable Power Sources Leading to Grid Expansion — North American federal, state, provincial, and local governments have enacted and are considering legislation and regulations aimed at increasing energy efficiency and encouraging expansion of renewable energy generation.  We believe that the increased focus on renewable energy will drive investment growth in the electric transmission and distribution grid as additional infrastructure is developed to integrate renewable energy sources such as wind and solar with the existing electric power grid.  Many sources of renewable energy are not near key demand centers, and according to NERC and the Edison Electric Institute (EEI), significant infrastructure investments will be required to reliably transport and integrate electricity with the grid.  Power transformers will be a critical component of the additional infrastructure.  We also expect that the general upward trend in energy demand will push power suppliers toward renewable power sources, driving investment in new plant construction and significantly contributing to growth in the transmission and distribution industry over the next several years.  Renewable power development also benefits from strong regulatory support, with 29 states and the District of Columbia having adopted mandatory renewable portfolio standards, or RPS.  Seven other states have enacted non-binding RPS-like goals and the U.S. Congress is evaluating national renewable generation targets.
 
           
 
Wind Energy Equipment and Services
 
           
   
·
Wind Power Leading the Growth in Renewable Generation Capacity — Wind power generation is one of the more mature renewable energy technologies and one of the fastest growing renewable energy sources according to the Institute of Electrical and Electronics Engineers and the Global Wind Energy Council.  U.S. wind power generation capacity increased by 15% in 2010 and, according to the Department of Energy (DOE), U.S. wind power generation capacity has the potential to grow at a compounded annual rate in excess of 15% through 2020.  The 2008 DOE report, “20% Wind Energy by 2030”, published in a joint effort with industry and the nation’s leading laboratories, provides a potential framework for large scale integration of wind power in the U.S.  Among other considerations, this report stipulates that reaching the 20% wind energy level in the U.S. will require expansion of the nation’s transmission infrastructure to integrate wind energy into the grid.
 
           
   
·
Continued Support for Wind Power from Federal and State Governments — Wind power enjoys broad public support and can be a fundamental part of federal and state economic development strategies.  In the U.S., a number of federal and state legislative and regulatory activities influence the wind industry’s ability to compete in the electric market.  A federal-level income tax credit, the Production Tax Credit (PTC), is allowed for the production of electricity from utility-scale wind turbines.  Congress acted in 2009 to provide a three-year extension of the PTC through the end of 2012.  At the state level, a renewable portfolio standard is a policy that sets hard targets for renewable energy in the near- and long-term to diversify electricity supply, stimulate local economic development, reduce pollution and cut water consumption.
 
           
           
           
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Competitive Strengths
 
We believe we are well positioned for significant growth in the niche markets within the electrical transmission and distribution equipment industry in which we compete.  Our competitive strengths include:
 
           
   
·
Recurring Customer Base — We believe that our established, long-standing customer relationships provide us with a stable and recurring revenue base.  Approximately 90% of our electrical transformer revenue in each of 2010 and 2009, adjusted to include revenue from Jefferson Electric, Inc. during periods prior to its 2010 acquisition by us, originated from customers who had also ordered from us in the prior year.  We believe this customer continuity is a direct result of our deeply-rooted culture of uncompromising attention to detail, design and engineering expertise and consistently high customer service levels.  Our commitment to service is evident in our high supplier scorecard ratings with several of our largest customers.  We have found that our customers are typically reluctant to switch suppliers once a favorable service track record has been established, even in cases where orders for our products are routinely released for competitive bidding.
 
           
   
·
Focus on Attractive Niche Markets — We focus on niche markets in the utility, industrial, commercial and wind energy market sectors of the electrical transmission and distribution industry that we believe are underserved by our larger competitors and have either attractive growth or profitability characteristics.  Our key target markets are characterized by specialty applications of often customized products with particular electrical and mechanical attributes, which we frequently manufacture in low quantity production runs.  The transformer market we serve is very fragmented due to the range of sizes, voltages and technological standards required by different categories of end users.  We have developed a number of designs for specialty applications in niche markets, including: utility network failsafe planning, wind energy, elevators, and more recently, data centers.  Many orders are custom-engineered and tend to be time-sensitive as other critical work is frequently coordinated with the customer’s transformer installation schedule, or because our transformers are a key sub-component of the customer’s overall products being sold to end users.  We believe that the historical growth of our product range, end-markets and revenues is due in large part to close relationships with our customers.  Our strong customer relationships enable us to anticipate customers’ needs and collaborate with our customers to identify new, often highly-engineered applications.
 
           
   
·
Integration of Strategic Acquisitions — Our management team has a long track record of acquiring and integrating companies.  Our recent acquisitions have provided us with new products and services, additional sales channels and markets, manufacturing facilities, technical expertise, purchasing economies and administrative efficiencies.  We believe that our management’s ability to identify and integrate acquisitions will allow us to implement our growth plans and compete more effectively in the markets we serve.
 
           
   
·
Experienced Management Team — Our management team has extensive experience in the electrical equipment and components industry and has consummated a significant number of acquisitions, divestitures and joint ventures.  Our senior management team includes seasoned professionals with industry, finance, transaction and operational experience that averages over 20 years per person.  The prior companies owned by our chief executive officer, Nathan J. Mazurek, have been focused on transformer, circuit breaker and film capacitor products.  Mr. Mazurek has developed an extensive network of relationships with domestic and international companies in the electrical equipment and components industry.
 
           
 
Growth Strategy
 
We believe we have a stable platform from which to develop and grow our business lines, revenues and earnings.  We intend to grow our company through strategic acquisitions and organically, capitalizing on our existing competitive strengths to maximize stockholder value.  The key elements of our growth strategy are:
 
           
   
·
Pursue Targeted Strategic Acquisitions — We intend to accelerate our growth through a disciplined acquisition strategy to broaden and enhance our product and service offerings, technical expertise, customers, end-markets and sales channels.  The electrical transformer market is very fragmented with a large number of potential acquisition candidates who focus on highly-specialized applications, select end-markets or more regionally defined market areas.  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, such as companies that specialize in power quality and conditioning.  We intend to continually evaluate acquisition targets and our senior management team provides us with significant experience in integrating acquired companies.  Our 2010 acquisition of Jefferson Electric, Inc. is an example of our ability to implement this strategy.
 
           
           
           
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·
Expand Our Product and Service Offerings — We intend to grow and acquire businesses that expand our product and service offerings to both existing and new customers. We are focused on products and end-markets that we expect will benefit from an increase in the demand for substation-class and other transformers driven by rising electricity demand, the repair and replacement cycle of an aging electric transmission grid, rising electricity demand and the transition to renewable energy sources.  In anticipation of increased manufacturing volumes, each of our transformer business units completed expansions of their respective manufacturing capacities in the last two years.  We expect to continually evaluate opportunities to expand organically or through acquisitions to broaden our relationships with existing and new customers where we can leverage our manufacturing, design and engineering capabilities.  We also plan to introduce new products from companies we acquire into our existing sales channels in order to maximize the productivity of our distribution network.
 
           
   
·
Focus on Operating Efficiencies — We intend to continue to efficiently manage and invest in our assets and operations.  We are focused on improving product mix, enhancing our supply chain management, optimizing the use of our available capacity and continuing to manage project costs efficiently throughout their lifecycle.  We have demonstrated our ability to integrate new production facilities into our existing operations and will continue to examine joint purchasing and production capabilities between our companies to further improve our operating results.
 
           
 
Risks Associated with Our Business
 
Our ability to operate our business and achieve our goals and strategies is subject to numerous risks as discussed more fully in the section titled “Risk Factors,” including, without limitation:
 
           
   
·
our ability to expand our business through strategic acquisitions;
 
         
   
·
our ability to integrate acquisitions and related businesses;
 
         
   
·
competition within the electrical equipment manufacturing and service industry;
 
         
   
·
our dependence on Hydro-Quebec Utility Company and Siemens Industry, Inc. for a large portion of our business;
 
         
   
·
the potential loss or departure of key personnel, including Nathan J. Mazurek, our Chairman, President and Chief Executive Officer;
 
         
   
·
currency exchange rate risk;
 
         
   
·
our ability to generate internal growth;
 
         
   
·
market acceptance of our existing and new products and services;
 
         
   
·
operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk;
 
         
   
·
restrictive loan covenants or our ability to repay or refinance debt under our credit facilities that could limit our future financing options and liquidity position and may limit our ability to grow our business;
 
         
   
·
the continuation of government incentive programs promoting electrical equipment capital investment and development of renewable energy sources upon which our customers may rely;
 
           
           
           
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·
our ability to develop and grow our wind energy business;
 
         
   
·
control of us by our chairman through our majority stockholder; and
 
         
   
·
general economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries.
 
         
 
Any of the above risks as well as others discussed herein could materially and negatively affect our business, financial condition and operating results. Investing in our common stock involves a high degree of risk.  You should carefully consider the information set forth in “Risk Factors” and other information in this prospectus before making a decision to invest in our common stock.
 
Corporate and Other Information
 
Our principal executive offices are located at One Parker Plaza, 400 Kelby Street, 9th Floor, Fort Lee, New Jersey.  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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The Offering
 
       
 
Common stock offered by us
    shares
 
       
 
Common stock offered by the selling stockholders
    shares
 
       
 
Common stock outstanding before offering
5,907,255 shares1
 
       
 
Common stock to be outstanding after the offering
    shares
 
       
 
Offering price
$   to $   per share (estimate)
 
       
 
Use of proceeds
We intend to use the proceeds of this offering to fund new acquisitions, to offer extended purchase terms to future customers of our wind energy business, and for general corporate purposes, including working capital and the potential repayment of a portion of our indebtedness.  We will not receive any proceeds from the sale of shares by the selling stockholders.  See “Use of Proceeds” beginning on page 25 of this prospectus.
 
       
 
Risk factors
Investing in our common stock involves a high degree of risk.  See “Risk Factors” beginning on page 10 of this prospectus.
 
       
 
OTC Bulletin Board symbol
PPSI.OB
 
       
 
Proposed Nasdaq Capital Market symbol
PPSI
 
           
 
1 As adjusted for the anticipated one-for-five reverse stock split that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
The number of shares of common stock outstanding after this offering excludes:
 
           
   
·
              shares of common stock subject to the over-allotment option granted to the underwriters.
 
           
   
·
118,400 shares of common stock issuable upon the exercise of currently outstanding options at a weighted average exercise price of $15.07;
 
           
   
·
640,000 shares of common stock issuable upon the exercise of currently outstanding warrants at a weighted average exercise price of $14.00 per share; and
 
           
   
·
201,600 shares of common stock available for issuance under our 2009 Equity Incentive Plan.
 
           
 
Unless otherwise stated, all information contained in this prospectus assumes no exercise of the over-allotment option granted to the underwriters.
 
We intend to effectuate a one-for-five reverse stock split, in order to comply with the listing requirements of Nasdaq Capital Market. Such reverse stock split would immediately increase our stock price. In addition, such reverse stock split would reduce the number of shares of common stock outstanding and may affect the liquidity of our common stock. The reverse stock split is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
           
           
           
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Summary Consolidated Financial Information
(in thousands, except per share data)

The historical share and per share amounts set forth below reflect the anticipated one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
     
     
Years Ended December 31,
   
     
2008
   
2009
   
2010
   
 
Statement of Operations Data:
                   
 
Revenue
    $43,884       $40,599       $47,236    
 
Cost of goods sold
    34,896       28,734       35,637    
 
Gross profit
    8,988       11,865       11,599    
 
Operating expenses:
                         
 
Selling, general and administrative
    4,379       4,220       8,048    
 
Foreign exchange (gain) loss
    (98 )     (272 )     (139 )  
 
Total operating expenses
    4,281       3,948       7,909    
 
Operating income
    4,707       7,917       3,690    
 
Interest and bank charges
    512       312       183    
 
Other expense (income)
    700       -       884    
 
Gain on bargain purchase
    -       -       (650 )  
 
Earnings before income taxes
    3,495       7,605       3,273    
 
Provision for income taxes
    1,357       2,490       327    
 
Net earnings
    $2,138       $5,115       $2,946    
 
Earnings per diluted common share
    $0.47       $1.10       $0.50    
 
Weighted average number of common shares outstanding, diluted
    4,560       4,659       5,931    
                             
 
Other Data:
                         
 
Non-GAAP earnings per diluted common share
    $0.58       $1.10       $0.43    
 
Adjusted EBITDA
    $4,999       $8,224       $4,849    
 
Average exchange rate during period (CAD/USD)
    1.0671       1.1415       1.0301    
                             
 
Balance Sheet Data:
                         
 
Cash and cash equivalents
    $368       $1,560       $516    
 
Working capital
    1,727       8,962       2,033    
 
Total assets
    11,555       14,595       32,103    
 
Total debt
    4,228       134       6,080    
 
Total liabilities
    9,439       4,988       17,011    
 
Total shareholders’ equity
    2,115       9,607       15,092    
     
 
Use of Non-GAAP Financial Measures
 
We have presented non-GAAP measures such as non-GAAP net earnings and Adjusted EBITDA because many of our investors use these non-GAAP measures to monitor our performance. These non-GAAP measures should not be considered as an alternative to GAAP measures as an indicator of our operating performance.

Non-GAAP net earnings is defined by us as net earnings before amortization of acquisition-related intangibles, stock-based compensation, non-recurring acquisition costs and reorganization expense, impairments, other unusual gains or charges and any tax effects related to these items. We define Adjusted EBITDA as net earnings before interest, income tax expense, depreciation and amortization, non-cash compensation and non-recurring acquisition costs and reorganization expenses and other non-recurring or non-cash items.
 
     
     
     
  8  
     
 
     
     
     
 
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  The non-GAAP measures included below, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.  A reconciliation of non-GAAP to GAAP financial measures is set forth in the table below.

Reconciliation of GAAP Measures to Non-GAAP Measures
(In thousands, except per share data)
 
     
     
Years Ended December 31,
   
     
2008
   
2009
   
2010
   
 
Reconciliation to Non-GAAP Net Earnings and Diluted EPS
                   
 
Net Earnings Per Share (GAAP Measure)
    $0.47       $1.10       $0.50    
 
Net Earnings (GAAP Measure)
    $2,138       $5,115       $2,946    
 
Amortization of Acquisition Intangibles
    -       -       144    
 
Stock-Based Compensation Expense
    -       -       161    
 
Stock and Warrant Issuance Expense for Services
    -       -       232    
 
Non-Recurring Acquisition Costs and Reorganization Expense
    -       -       884    
 
Impairment Charges
    700       -       -    
 
Gain on Bargain Purchase
    -       -       (650 )  
 
Canadian Tax Recovery
    -       -       (831 )  
 
Tax Adjustments
    (209 )     -       (323 )  
 
Non-GAAP Net Earnings
    $2,629       $5,115       $2,562    
 
Non-GAAP Net Earnings Per Diluted Share
    $0.58       $1.10       $0.43    
 
Weighted Average Diluted Shares Outstanding
    4,560       4,659       5,931    
                             
 
Reconciliation to Adjusted EBITDA:
                         
 
Net Earnings (GAAP Measure)
    $2,138       $5,115       $2,946    
 
Interest and Bank Charges
    512       312       183    
 
Provision for Income Taxes
    1,357       2,490       327    
 
Depreciation and Amortization
    292       307       767    
 
Gain on Bargain Purchase
    -       -       (650 )  
 
Non-Recurring Acquisition Costs and Reorganization Expense
    -       -       884    
 
Impairment Charges
    700       -       -    
 
EBITDA
    4,999       8,224       4,457    
 
Adjustments to EBITDA:
                         
 
Stock-Based Compensation Expense
    -       -       161    
 
Stock and Warrant Issuance Expense for Services
    -       -       232    
 
Adjusted EBITDA (Non-GAAP Measure)
    $4,999       $8,224       $4,849    
                             
 
Note: Amounts may not foot due to rounding.
 
     
     
     
  9  
     
 

Risk Factors
 
Investing in our common stock involves a high degree of risk.  You should carefully consider the following factors and other information in this prospectus before making a decision to invest in our common stock.  Additional risks and uncertainties that we are unaware of may become important factors that affect us.  If any of the following events occur, our business, financial conditions and operating results may be materially and adversely affected.  In that event, the trading price of our common stock may decline, and you could lose all or part of your investment.
 
Risks Relating to Our Business
 
We may not be able to expand our business through strategic acquisitions, which could decrease our profitability.
 
A key element of our strategy is and a material portion of the proceeds of our offering is expected to be utilized to pursue strategic acquisitions that either expand or complement our business in order to increase revenue and earnings.  We may not be able to identify additional attractive acquisition candidates on terms favorable to us or in a timely manner.  We may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to us, if at all.  Moreover, we may not be able to integrate any acquired businesses into our business or to operate any acquired businesses profitably.  Acquired businesses (such as Jefferson Electric, Inc.) may operate at lower profit margins, which could negatively impact our results of operations.  Each of these factors may contribute to our inability to grow our business through strategic acquisitions, which could ultimately result in increased costs without a corresponding increase in revenues, which would result in decreased profitability.
 
Any acquisitions that we complete could disrupt our business and harm our financial condition and operations.
 
In an effort to effectively compete in the specialty electrical equipment manufacturing and service businesses, where increasing competition and industry consolidation prevail, we will seek to acquire complementary businesses in the future.  In the event of any future acquisitions, we could:
 
 
·
issue additional securities that would dilute our current stockholders’ percentage ownership or provide the purchasers of the additional securities with certain preferences over those of common stockholders, such as dividend or liquidation preferences;
 
 
·
incur debt and assume liabilities; and
 
 
·
incur large and immediate write-offs of intangible assets, accounts receivable or other assets.
 
These events could result in significant expenses and decreased revenue, which could adversely affect the market price of our common stock.
 
In addition, integrating product acquisitions and completing any future acquisitions could also cause significant diversions of management’s time and resources.  Managing acquired businesses entails numerous operational and financial risks.  These risks include difficulty in assimilating acquired operations, diversion of management’s attention, and the potential loss of key employees or customers of acquired operations.
 
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, Hammond Power Solutions Inc., Howard Industries, Inc., Partner Technologies, Inc. and Schneider Electric.  Many of these competitors, as well as other companies in the broader electrical equipment manufacturing and service industry where we expect to compete, 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 and services 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 market our business effectively in the face of competition or to maintain or enhance our competitive position within our industry, maintain our customer base at current levels or increase our customer base.  Our inability to manage our business in light of the competitive forces we face could have a material adverse effect on our results of operations.

 
Because we currently derive a significant portion of our revenues from two customers, any decrease in orders from these customers 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 entire company’s sales, approximately 36% and 40% of net sales in the years ended December 31, 2010 and 2009, respectively.  In addition, Siemens Industry, Inc. accounted for 9% of our entire company’s sales in the year ended December 31, 2010.  Aside from being a customer of ours, Siemens Industry, Inc. is also a manufacturer of transformers.  If either of these customers 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.  Moreover, although Jefferson Electric, Inc. has a pricing agreement for the sale of its products to Siemens Industry, Inc., the agreement does not obligate Siemens Industry, Inc. to purchase transformers from Jefferson Electric, Inc. in quantities consistent with the past or at all.  If either of these customers 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.
 
We are vulnerable to economic downturns in the commercial construction market, which may reduce the demand for some of our products and adversely affect our sales, earnings, cash flow or financial condition.
 
Portions of our business, in particular those of Jefferson Electric, Inc., involve sales of our products in connection with commercial real estate construction.  Our sales to this sector are affected by the levels of discretionary business spending.  During economic downturns in this sector, the levels of business discretionary spending may decrease.  This decrease in spending will likely reduce the demand for some of our products and may adversely affect our sales, earnings, cash flow or financial condition.
 
The commercial and industrial building and maintenance sectors began to experience a significant decline in 2008.  The downturn in these segments contributed to a decline in the demand for some of Jefferson Electric, Inc.’s products and adversely affected Jefferson Electric, Inc.’s sales and earnings in 2008 through 2010.  We cannot predict the duration or severity of the downturn in these segments.  Continued downturn in these segments could continue to reduce the demand for some of our products and may adversely impact sales, earnings and cash flow.
 
The departure or loss of key personnel could disrupt our business.
 
We depend heavily on the continued efforts of Nathan J. Mazurek, our principal executive officer, and on other senior officers who are responsible for the day-to-day management of our three operating subsidiaries.  In addition, we rely on our current electrical and mechanical design engineers, along with trained coil winders, many of whom are important to our operations and would be difficult to replace.  We cannot be certain that any of these individuals will continue in their respective capacities for any particular period of time.  The departure or loss of key personnel, or the inability to hire and retain qualified employees, could negatively impact our ability to manage our business.


Our revenue may be adversely affected by fluctuations in currency exchange rates.
 
A majority of our expenditures and revenue will be spent or derived in Canadian dollars.  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.
 
We may be unable to generate internal growth.
 
Our ability to generate internal growth will be affected by, among other factors, our ability to attract new customers, increase or decrease in the number or size of orders received from existing customers, hire and retain skilled employees and increase volume utilizing our existing facilities.  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 implemented with positive results or that we will be able to generate cash flow sufficient to fund our operations and to support internal growth.  If we do not achieve internal growth, our results of operations will suffer and we will likely not be able to expand our operations or grow our business.
 
Fluctuations in the price and supply of raw materials used to manufacture our products may reduce our profits.
 
Our raw material costs represented approximately 63% and 64% of our revenues for the years ended December 31, 2010 and 2009, respectively.  Although we anticipate that this percentage will be lower in the future due to our acquisition of Jefferson Electric, Inc., there is no guarantee that such result will be achieved.  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 cannot provide any assurances that we will not experience difficulties sourcing our raw materials in the future.
 
Jefferson Electric, Inc. may be unable to service, repay or refinance its debt and remain in compliance with its debt covenants, which could have a material adverse effect on our business.
 
Jefferson Electric, Inc. is highly leveraged, and its ability to repay its debt, substantially all of which is due to be repaid in October 2011, will depend on its financial and operating performance and on our ability to execute on our business strategy with respect to Jefferson Electric, Inc.  The financial and operational performance of Jefferson Electric, Inc. will depend on numerous factors, many of which are beyond our control, such as economic conditions and governmental regulation.  We cannot be certain that Jefferson Electric, Inc.’s cash flow will be sufficient to allow it to pay the principal and interest on its debt and meet other obligations.  If Jefferson Electric, Inc. does not generate enough cash flow to fully amortize its debt, it may be unable to refinance all or part of the existing debt or sell assets on terms acceptable to us, if at all.  Further, failing to comply with the financial and other restrictive covenants in its loan agreement could result in an event of default, which could result in acceleration of the payments due.  Because Jefferson Electric, Inc.’s debt is secured by substantially all of Jefferson Electric, Inc.’s assets, if Jefferson Electric, Inc. is unable to service, repay or refinance its debt and remain in compliance with its debt covenants, we could lose all of our investment in Jefferson Electric, Inc.
 
Our operating subsidiaries have, and are expected to continue to have, credit facilities with restrictive loan covenants that 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.
 
We rely on our Pioneer Transformers Ltd. and Jefferson Electric, Inc. subsidiaries for a significant portion of the cash flow to operate our business and execute our strategy.  Our credit facilities with our lenders contain certain covenants that restrict each of these subsidiaries’ ability to, among other things:
 
 
 
·
effect an amalgamation, merger or consolidation with any legal entity;
 
 
·
cause its subsidiaries to wind up, liquidate or dissolve their affairs, in the case of Pioneer Transformers Ltd, and permit any subsidiaries to exist, in the case of Jefferson Electric, Inc.;
 
 
·
change the nature of its core business;
 
 
·
in the case of Pioneer Transformers, Ltd., alter its capital structure in a manner that would be materially adverse to our Canadian lender and undergo a change of control and make investments or advancements to affiliated or related companies without our Canadian lender’s prior written consent; or
 
 
·
in the case of Jefferson Electric, Inc., recapitalize its corporate structure, acquire any business, acquire stock of any corporation, or enter into any partnership or joint venture.
 
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 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 require 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 in the case of Pioneer Transformers, Ltd. and a requirement to exceed minimum quarterly targets for tangible net worth, as defined, and maintain a minimum debt service coverage ratio in the case of Jefferson Electric, Inc.  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 lenders could institute foreclosure proceedings against the assets securing borrowings under those facilities, which would harm our business, financial condition and results of operations.
 
We may not be able to fully realize the revenue value reported in our backlog.
 
We routinely have a backlog of work to be completed on contracts representing a significant portion of our annual sales.  As of December 31, 2010, our order backlog was $18.7 million.  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.
 
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, Siemens Industry, Inc. or of any other major customers, could have a material adverse effect on our operating results and financial condition.
 
Our operating results may vary significantly from quarter to quarter.
 
Our quarterly results may be materially and adversely affected by:
 
 
·
the timing and volume of work under new agreements;
 
 
·
the spending patterns of customers;
 
 
·
customer orders received;
 
 
·
a change in the mix of our customers, contracts and business;
 
 
·
increases in design and manufacturing costs;
 
 
·
the length of our sales cycles;
 
 
·
the rates at which customers renew their contracts with us;
 
 
·
changes in pricing by us or our competitors, or the need to provide discounts to win business;
 
 
·
a change in the demand or production of our products caused by severe weather conditions;
 
 
·
our ability to control costs, including operating expenses;
 
 
·
losses experienced in our operations not otherwise covered by insurance;
 
 
·
the ability and willingness of customers to pay amounts owed to us;
 
 
·
the timing of significant investments in the growth of our business, as the revenue and profit we hope to generate from those expenses may lag behind the timing of expenditures;
 
 
·
costs related to the acquisition and integration of companies or assets;
 
 
·
general economic trends, including changes in equipment spending or national or geopolitical events such as economic crises, wars or incidents of terrorism; and
 
 
·
future accounting pronouncements and changes in accounting policies.
 
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 for key elements of our business whose operations are outside our control.
 
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 may face 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 businesses operate 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.
 
International expansion is one of our growth strategies, and international operations beyond our current markets will expose us to additional risks that we do not face in our current markets, which could have an adverse effect on our operating results.
 
We generate a significant portion of our revenue from operations in Canada and currently derive limited revenue from outside of North America.  However, international expansion is one of our growth strategies, including into Western Europe and to Asia, and we expect our revenue and operations outside of North America will expand in the future.  These operations will be subject to a variety of risks that we do not face in the U.S., and that we may face only to a limited degree in Canada, including:
 
 
·
building and managing highly experienced foreign workforces and overseeing and ensuring the performance of foreign subcontractors;
 
 
·
increased travel, infrastructure and legal and compliance costs associated with multiple international locations;
 
 
·
additional withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade or investment;
 
 
·
imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, many of which differ from those in the U.S.;
 
 
·
increased exposure to foreign currency exchange rate risk;
 
 
·
longer payment cycles for sales in some foreign countries and potential difficulties in enforcing contracts and collecting accounts receivable;
 
 
·
difficulties in repatriating overseas earnings;

 
·
general economic conditions in the countries in which we operate; and
 
 
·
political unrest, war, incidents of terrorism, or responses to such events.
 
Our ability to expand into international markets will depend, in part, on our ability to navigate differing legal, regulatory, economic, social and political conditions.  We may be unable to develop and implement policies and strategies that will be effective in managing these risks in each country where we do business.  Our failure to manage these risks could cause us to fail to reap our investments in developing these markets and could harm our international operations, reduce our international sales and increase our costs, thus adversely affecting our international and overall business, financial condition and operating results.
 
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, increased labor costs or loss of our most skilled workers 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.
 
Approximately 75% of our workforce is unionized.  Our current collective bargaining agreement with our unionized workforce in Canada expires in May 2015.  We have a similar agreement with our unionized workforce in Reynosa, Mexico that has an indefinite term, subject to annual review and negotiation of key provisions.  If we are unable to renew our agreements regarding the terms of these collective bargaining agreements, 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.
 
Our risk management activities may leave us exposed to unidentified or unanticipated risks.
 
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 and we may be unable to effectively anticipate or measure potential risks to our company.  If we suffer unexpected or uncovered losses, any of our insurance policies or programs are terminated for any reason or 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.
 
Regulatory, environmental, monetary and other governmental policies could have a material adverse effect on our profitability.
 
We are subject to international, federal, provincial, state 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 domestic or international financial crises 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 credit facilities with our lenders, amongst other avenues, to satisfy our liquidity needs.  Disruptions in the domestic or international credit markets or deterioration of the banking industry’s financial condition (such as occurred beginning in 2008), may discourage or prevent our lenders and other lenders from meeting their existing lending commitments, extending the terms of such commitments or agreeing to new commitments, such as for acquisitions or to refinance existing credit facilities.  Market disruptions may also limit our ability to issue debt securities in the capital markets.  We can provide no assurances that our lenders 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 domestic or international 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.
 
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.
 
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.
 
Risks Relating to Pioneer Wind Energy Systems Inc.
 
The wind turbine-related assets that we acquired from AAER Inc. were acquired pursuant to Canadian court proceedings in which AAER Inc. sought protection from its creditors after it failed to raise additional capital to fund losses from its wind turbine manufacturing and marketing business.  As such, no assurance can be given that we will be able to operate AAER Inc.’s former business at a profit, or that we will continue to provide for the funding needs of Pioneer Wind Energy Systems Inc. if it does not perform to our expectations.
 
All of our wind turbine assets were acquired from AAER Inc. in connection with the failure of AAER Inc. to raise sufficient capital to continue funding its wind turbine manufacturing and marketing business.  We are seeking a qualified third party to assemble our wind turbine model for us, but have so far been unable to establish such an arrangement.  While we believe this operating model for our Pioneer Wind Energy Systems Inc. business would entail less inventory risk and require less working capital than AAER Inc.’s operations, no assurance can be given that we will be able to monetize the wind turbine assets we purchased, and related products sold in the future, at a profit and succeed where AAER Inc. was unable to.  In particular, we have limited experience in working with wind turbines.  Moreover, the wind turbine business is highly competitive and dominated by a few much larger corporations with greater resources such as GE Energy, Siemens Wind Power A/S, Vestas Wind Systems A/S and Gamesa Corporation Tecnologica S.A.

 
We have significantly restructured the operations of the wind energy business we acquired and, as such, we consider Pioneer Wind Energy Systems Inc. to be a development stage business that is highly dependent on its senior management personnel.
 
The business of Pioneer Wind Energy Systems Inc. is highly dependent on the experience, reputation and knowledge of its senior managers in order to secure attractive wind energy project customers, including its president and manager of strategic procurement.  The loss of either of these individuals could significantly impair Pioneer Wind Energy Systems Inc.’s ability to identify and attract customers and adequately source and supply products and services that meet customers’ needs.
 
Our business strategy includes providing equipment financing assistance to our customers, a practice with which we have no experience to date.
 
Inherent in our strategy to provide financing in conjunction with sales of our wind turbine equipment is credit risk associated with our customers.  We intend to provide customers extended payment terms from the time of wind turbine delivery and installation.  If we are able to sell wind turbine equipment on this basis, we anticipate that each sale will create over $1.0 million of accounts receivable plus interest per customer per project and will provide for a payment schedule of up to, or exceeding, one year.  If customers responsible for a significant amount of accounts receivable become insolvent or otherwise unable to pay for our equipment and services, or become unwilling or unable to make payments in a timely manner, our operating results and financial condition could be adversely affected.  The creditworthiness of each customer and the rate of delinquencies, repossessions and net losses on customer obligations will be directly impacted by several factors, including relevant industry and economic conditions, the availability of capital, the experience and expertise of the customer’s management team, the sustained value of the underlying collateral and the overall performance of the customer’s power project.  In the event of delinquencies that might cause us to seek to take possession of our collateral, there can be no assurance that we will be able to sell such collateral at a price sufficient to recover our investment.
 
Our wind energy equipment and services business is highly dependent on our customers receiving regulatory incentives, subsidies and third party financing.
 
The wind energy industry is supported in many territories through a variety of financial incentives offered by government and regulatory bodies.  If the availability of such incentives was reduced or removed it would likely have an adverse effect on our business.  Such an incentive in the U.S. is the PTC, which is due to expire on December 31, 2012.  Without the PTC, the projected return on investment in an individual wind power facility may not be sufficient to attract investment capital in the amount necessary to fund the acquisition, development and construction of wind power projects in the U.S.
 
While the PTC has been in effect continuously since 1992 and most recently renewed in February 2009, there can be no assurance that the PTC will be renewed beyond its current expiration date of December 31, 2012.  The absence of the PTC could have a significant adverse effect on our growth potential.
 
The PTC will only be available for qualifying facilities that are placed in service while the PTC is in effect or through a retrospective application of the PTC.  The time required to identify potential wind power projects, and to then pursue them to completion and implementation, typically ranges from 18 to 36 months, although lesser periods are possible for smaller projects.  If the PTC is not extended beyond 2012, U.S. projects under development by us at that time and not completed by December 31, 2012 would not be eligible for the PTC.  Accordingly, our customers might have to reduce their project spending to offset the corresponding reduction in revenues from the sale of U.S. projects.
 
The wind energy industry in other jurisdictions in which we expect to have a market presence may also rely to some extent on financial incentives and/or penalties designed to support the wind energy industry in that jurisdiction.
 

Changes to, or the removal of such measures may have a significant adverse affect on our ability to compete in such jurisdictions.
 
Finally, in addition to regulatory incentives, some of our customers will rely on us or on third parties in connection with the financing of purchases of wind turbines from us.  Starting during the economic downturn of 2008, third party financing became very difficult to obtain for wind power projects and remains challenging to secure.  The absence of easily obtainable third party financing for wind power projects could materially reduce demand for our wind turbines.
 
Our customers may have difficulty in locating suitable project development sites, resulting in less demand for our wind turbines.
 
The development of new wind power generating projects requires the identification, acquisition and permit for viable wind resource land assets.  We believe that adequate wind resource land exists and can be acquired by our current and prospective customers on a reasonable cost basis.  However, management believes competition for wind resource sites is increasing and we believe developers in some areas have bid up site costs to levels that result in marginal project economics.  This trend may increase and spread to many wind regions, limiting demand for our wind turbines.  In some locations, residents and others have objected to wind projects based on noise, visual aesthetics or wildlife protection concerns.
 
Changes in tax laws may adversely affect our wind turbine business.
 
When the U.S. Congress renewed the PTC in 2004, it amended certain provisions of the Internal Revenue Code in a manner that resulted in wind energy property no longer qualifying as five-year depreciation property.  Congress restored the availability of accelerated 5-year depreciation as part of the Energy Policy Act of 2005, which also extended the PTC.  There can be no assurance, however, that future changes in U.S. tax laws will not require wind energy property to be depreciated over a longer period of time.  Such changes could force us to modify our pricing and could lead to a material adverse effect on our business.
 
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, chief executive officer, president and chairman of the board of directors, beneficially owns approximately 78% of our outstanding common stock and is expected to beneficially own   % of our outstanding common stock after the offering contemplated herein.  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.  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 requires us to conduct an annual management assessment of the effectiveness of our internal controls over financial reporting. These reporting and other obligations place significant demands on our management, administrative, operational, internal audit and accounting resources. We anticipate that we may 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 the fact that we became a public company 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.  Moreover, regulatory authorities such as the SEC and securities exchanges may subject us to heightened scrutiny because of the manner in which we became a public company, which could lead to increased compliance costs or delays in implementing transactions such as financings and acquisitions.
 
Risks Relating to this Offering and our Common Stock
 
Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
 
The public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock immediately after this offering.  Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $     (or        %) in net tangible book value per share from the price you paid, based on the public offering price of $    per share (as adjusted for the anticipated one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part).  The exercise of outstanding warrants and options may result in further dilution of your investment, but only if the public offering price is greater than $10.00 per share.  In addition, if we raise funds by issuing additional shares or convertible securities in the future, the newly issued shares may further dilute your ownership interest.
 
We may apply the proceeds of this offering to uses that ultimately do not improve our operating results or increase the value of your investment.
 
We intend to use the net proceeds from this offering to fund additional acquisition opportunities, offer equipment financing terms to customers of our wind energy subsidiary and for general corporate purposes, including working capital and the possible repayment of indebtedness. Depending on several factors, including the availability of alternate sources of capital and the possibility that the execution or timing of our business plans may change, management may use these proceeds in a manner different than originally intended.  These proceeds could be applied in ways that do not improve our operating results or otherwise increase the value of your investment.
 

There may be a limited market for our securities and we may fail to qualify for continued listing on Nasdaq, which could make it more difficult for investors to sell their shares.
 
We have submitted an initial listing application on The Nasdaq Capital Market in connection with this offering.  Our initial listing application may not be granted, as we may not meet the required listing criteria of Nasdaq Capital Market.  In the event the listing of our common stock is approved by Nasdaq Capital Market or other exchange, there can be no assurance that trading of our common stock on such market will be sustained or desirable.  At the present time, we do not qualify for certain of the initial listing requirements of Nasdaq Capital Market.  In the event that our common stock fails to qualify for initial or continued listing, our common stock could thereafter only be quoted on the OTC Bulletin Board or on what are commonly referred to as the “pink sheets” operated by OTC Markets Group, Inc.  Under such circumstances, you may find it more difficult to dispose of, or to obtain accurate quotations, for our common stock, and our common stock would become substantially less attractive to certain purchasers, such as financial institutions, hedge funds and other similar investors.
 
Our common stock may be affected by limited trading volume and price fluctuations, each of which could adversely impact the value of our common stock.
 
There has been very limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained.  Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance.  In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially.  These fluctuations may also cause short sellers to enter the market from time to time in the belief that we will have poor results in the future.  We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our stock will be stable or appreciate over time.
 
Our stock price may be volatile, which could result in substantial losses for investors.
 
The market price of our common stock is 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, 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;
 
 
·
our ability to manage the costs of maintaining adequate internal financial controls and procedures in connection with the acquisition of additional businesses; and
 

 
·
period-to-period fluctuations in our financial results.
 
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.
 
A significant number of our shares will be eligible for sale and their sale or potential sale may depress the market price of our common stock.
 
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock.  When this offering is completed, we will have a total of         shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding stock options (as adjusted for the anticipated one-for-five reverse stock split).  The        shares offered by this prospectus, assuming no exercise of the underwriters’ over-allotment option, will be freely tradeable unless they are purchased by our “affiliates,” as defined in Rule 144 under the Securities Act of 1933, as amended.  Pursuant to an effective registration statement, an additional 1,240,000 shares are currently freely tradeable unless they are purchased by our “affiliates,” as defined in Rule 144 under the Securities Act of 1933, as amended.  The remaining 107,255 shares outstanding may be resold only through registration under the Securities Act of 1933, as amended, or under an available exemption from registration, such as Rule 144.
 
In addition, 758,400 shares are issuable upon exercise of options and warrants.  Pursuant to an effective registration statement, 400,000 shares issuable upon exercise of outstanding warrants are freely tradeable unless they are purchased by our “affiliates,” as defined in Rule 144 under the Securities Act of 1933, as amended.  If any options or other warrants are exercised, the shares issued upon exercise will also be restricted, but may be sold under Rule 144 after the shares have been held for six months.  Sales under Rule 144 may be subject to volume limitations and other conditions.
 
The holders of            shares of common stock have agreed with the representative of the underwriters to a 180 day “lock-up” with respect to these shares.  This generally means that they cannot sell these shares during the 180 days following the date of this prospectus.  See “Underwriting” for additional details.  After the 180 day lock-up period, these shares may be sold in accordance with Rule 144 or pursuant to an effective registration statement.
 
In addition to the possibility that actual sales of significant amounts of our common stock in the public market could harm our common stock price, the fact that our stockholders have the ability to make such sales could create a circumstance commonly referred to as an “overhang,” 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.
 
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
 
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business.  We do not currently have research coverage by securities and industry analysts and you should not invest in our common stock in anticipation that we will obtain such coverage.  If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline.  If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
 

Cautionary Note Regarding Forward-Looking Statements
 
This prospectus contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, 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 may 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 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:
 
 
·
Our ability to expand our business through strategic acquisitions.
 
 
·
Our ability to integrate acquisitions and related businesses.
 
 
·
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.
 
 
·
We depend on Hydro-Quebec Utility Company and Siemens Industry, Inc. for a large portion of our business, and any change in the level of orders from Hydro-Quebec Utility Company or Siemens Industry, Inc. could have a significant impact on our results of operations.
 
 
·
The potential loss or departure of key personnel, including Nathan J. Mazurek, our Chairman, President and Chief Executive Officer.
 
 
·
A majority of our expenditures and revenue is spent or derived in Canadian dollars.  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.
 
 
·
Our ability to generate internal growth.
 
 
·
Market acceptance of existing and new products.
 
 
·
Operating margin risk due to competitive pricing and operating efficiencies, supply chain risk, material, labor or overhead cost increases, interest rate risk and commodity risk.
 
 
·
Restrictive loan covenants or our ability to repay or refinance debt under our credit facilities could limit our future financing options and liquidity position and may limit our ability to grow our business.
 
 
·
Our ability to develop and grow our wind energy business.
 
 
·
General economic and market conditions in the electrical equipment, power generation, commercial construction, industrial production, oil and gas, marine and infrastructure industries.
 
 
·
The impact of geopolitical activity on the economy, changes in government regulations such as income taxes, climate control initiatives, the timing or strength of an economic recovery in our markets and our ability to access capital markets.
 
 
·
Unanticipated increases in raw material prices or disruptions in supply could increase production costs and adversely affect our profitability.
 

 
·
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.
 
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking statements. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance. Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus are based on information available to us on the date of this prospectus. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this prospectus.
 

Common Stock Market Data
 
Our common stock was originally approved for quotation on the OTC Bulletin Board on February 2, 2009 and since January 7, 2010, our common stock has been quoted under the trading symbol PPSI.OB.  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.  The quotations are adjusted for the anticipated one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
Fiscal Year 2010
High
Low
First Quarter
$17.00
$7.50
Second Quarter
$15.45
$13.25
Third Quarter
$15.25
$10.00
Fourth Quarter
$15.00
$13.25

The last reported sales price of our common stock on the OTC Bulletin Board on May 2, 2011, was $14.75 per share, as adjusted for the anticipated one-for-five reverse stock split.  As of May 2, 2011, there were 24 holders of record of our common stock.
 
We intend to effectuate a one-for-five reverse stock split, in order to comply with the listing requirements of Nasdaq Capital Market that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part. Such reverse stock split would immediately increase our stock price. In addition, such reverse stock split would reduce the number of shares of common stock outstanding and may affect the liquidity of our common stock. The reverse stock split is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
Use of Proceeds
    
We estimate that the net proceeds from the sale of the shares of common stock we are offering will be approximately $    .  If the underwriters fully exercise the over-allotment option, the net proceeds of the shares we sell will be $    .  “Net proceeds” is what we expect to receive after paying the underwriting discount and other expenses of the offering.  For the purpose of estimating net proceeds, we are assuming that the public offering price will be $    per share.  We will not receive any proceeds from the sale of shares by the selling stockholders.
 
We intend to use the net proceeds as follows:
 
 
·
approximately $          million to fund new acquisition opportunities;
 
 
·
approximately $          million to offer extended equipment purchase terms to future customers of our wind energy business; and
 
 
·
the balance of the net proceeds for general corporate purposes, including working capital and, in the event we are unable to refinance a portion of our indebtedness on terms acceptable to us, for the repayment of $3 million of 7.27% fixed rate debt outstanding under Jefferson Electric, Inc.'s term credit facility maturing in October 2011.
 
Investors are cautioned, however, that expenditures may vary substantially from these estimates. Investors will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds of this offering. The amounts and timing of our actual expenditures will depend upon numerous factors, including our potential investments in new businesses, the amount of cash generated by our operations, the amount of competition and other operational factors.  We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.
 
From time to time, we evaluate these and other factors and we anticipate continuing to make such evaluations to determine if the existing allocation of resources, including the proceeds of this offering, is being optimized.
 

Circumstances that may give rise to a change in the use of proceeds include:
 
 
·
our ability to negotiate definitive agreements with acquisition candidates;
 
 
·
the availability and terms of debt financing to fund a portion of the purchase price(s) for potential acquisitions;
 
 
·
the status of our efforts to sell wind turbines with equipment financing terms acceptable to us;
 
 
·
the need or desire on our part to accelerate, increase or eliminate existing initiatives due to, among other things, changing market conditions and competitive developments; and
 
 
·
the availability of other sources of cash including cash flow from operations and new bank debt financing arrangements, if any.
 
Until we use the net proceeds of this offering, we will invest the funds in short-term, investment grade, interest-bearing securities.
 
Dividend Policy
 
We have never paid any cash dividends on our common stock.  We anticipate that we will retain earnings to support operations and to finance the growth and development of our business.  Therefore, we do not expect to pay cash dividends in the foreseeable 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 $2.7 million during 2009.
 

 
The following table summarizes our cash and cash equivalents and capitalization as of December 31, 2010:
 
 
·
on an actual basis; and
 
 
·
on a pro forma, as adjusted basis, giving effect to (1) the anticipated one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part, and (2) our receipt of the net proceeds from the sale by us in this offering of shares of common stock at an assumed public offering price of $    per share, the last reported sales price of our common stock shown on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (3) the application of the net proceeds we will receive from this offering in the manner described in “Use of Proceeds.”
 
   
December 31, 2010
 
   
Actual
   
As Adjusted
 
   
(in thousands)
 
Cash and cash equivalents
    $516       $  
                 
Short-term debt, including current portion of long-term debt
    $6,063       $6,063  
Long-term debt, less current portion
    17       17  
Stockholders’ equity (1):
               
Preferred stock, no par value; 5,000,000 shares authorized,
               
no shares issued and outstanding, actual; 5,000,000 authorized,
               
no shares issued and outstanding, as adjusted
    -       -  
Common stock; par value $0.001; 75,000,000 shares authorized,
               
29,536,275 shares issued and outstanding, actual;
               
18,750,000 shares authorized,      shares issued
               
and outstanding, as adjusted
    30          
Additional paid-in capital
    7,517          
Accumulated other comprehensive income (loss)
    (305 )     (305 )
Retained earnings
    7,850       7,850  
Total stockholders’ equity
    15,092          
Total capitalization
    $21,172       $  



 
The discussion below gives effect to the anticipated one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
Our net tangible book value on December 31, 2010 was approximately $5,120,956, or $0.87 per share. “Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share” is net tangible book value divided by the total number of shares outstanding.
 
After giving effect to adjustments relating to the offering, our pro forma net tangible book value on December 31, 2010, would have been $         or $         per share. The adjustments made to determine pro forma net tangible book value per share are the following:
 
 
·
An increase in total assets to reflect the net proceeds of the offering as described under “Use of Proceeds” (assuming that the public offering price will be $           per share).
 
 
·
The addition of the number of shares offered by this prospectus to the number of shares outstanding.
 
The following table illustrates the pro forma increase in net tangible book value of $    per share and the dilution (the difference between the offering price per share and net tangible book value per share) to new investors:
 
Assumed public offering price per share
$   
Net tangible book value per share as of December 31, 2010
$0.87
Increase in net tangible book value per share attributable to the offering
 
Pro forma net tangible book value per share as of December 31, 2010 after giving
 
effect to the offering
$   
Dilution per share to new investors in the offering
$   
 
The following table shows the difference between existing stockholders and new investors with respect to the number of shares purchased from us, the total consideration paid and the average price paid per share.  The table assumes that the public offering price will be $   per share.
 
   
Shares Purchased
   
Total Consideration
   
Average Price
 
   
Number
   
Percent
   
Amount
   
Percent
   
Per Share
 
Existing stockholders
    5,907,255    
%
    $ 7,546,550    
%
      $1.28  
New investors
         
%
           
%
         
Total
            100.0%     $         100.0%          
 
The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of December 31, 2010 and exclude:
 
 
·
              shares of common stock subject to the over-allotment option granted to the underwriters.
 
 
·
110,000 shares of common stock issuable upon the exercise of currently outstanding options at a weighted average exercise price of $15.28;
 
 
·
640,000 shares of common stock issuable upon the exercise of currently outstanding warrants at a weighted average exercise price of $14.00 per share; and
 
 
·
210,000 shares of common stock available for issuance under our 2009 Equity Incentive Plan.
 

To the extent any of these outstanding options or warrants is exercised, there will be further dilution to new investors. To the extent all of such outstanding options and warrants had been exercised as of December 31, 2010, the pro forma as adjusted net tangible book value per share after this offering would be $            , and total dilution per share to new investors would be $            .
 
The sale of             shares of our common stock by the selling stockholders in this offering will reduce the number of shares of our common stock held by existing stockholders to            shares, or          % of the total shares outstanding, and will increase the number of shares of our common stock held by new investors to             shares, or       % of total shares of our common stock outstanding.
 
If the underwriters exercise in full their option to purchase additional shares, the number of shares of our common stock held by existing stockholders will be reduced to              shares, or         % of the total shares outstanding, and the number of shares of our common stock held by new investors will be increased to            shares, or        % of total shares of our common stock outstanding.
 

Selected Consolidated Financial Data
 
This section presents our selected historical financial data.  You should read carefully the financial statements included in this prospectus, including the notes to the financial statements.  The selected data in this section is not intended to replace the financial statements.

We derived the statement of operations data for the years ended December 31, 2008, 2009 and 2010, and balance sheet data as of December 31, 2008, 2009 and 2010 from the audited financial statements in this prospectus.  Those financial statements were audited by RSM Richter S.E.N.C.R.L./LLP, independent auditors.  We derived the statement of operations data for the year ended December 31, 2008 and the balance sheet data as of December 31, 2008 from audited financial statements that are not included in the prospectus.  We derived the statement of operations data for the years ended December 31, 2009 and 2010 and balance sheet data as of December 31, 2009 and 2010 from the audited consolidated financial statements included in this prospectus.  Our management believes that the unaudited, non-GAAP historical financial statement information contains all adjustments needed to present fairly the information included in those statements, and that the adjustments made consist only of normal recurring adjustments.

The share and per share amounts set forth below reflect the anticipated one-for-five reverse stock split of our common stock.

Selected Consolidated Financial Data
 (In thousands, except per share data)

   
Years Ended December 31,
 
   
2008
   
2009
   
2010
 
Statement of Operations Data:
                 
Revenue
    $43,884       $40,599       $47,236  
Cost of goods sold
    34,896       28,734       35,637  
Gross profit
    8,988       11,865       11,599  
Operating expenses:
                       
Selling, general and administrative
    4,379       4,220       8,048  
Foreign exchange (gain) loss
    (98 )     (272 )     (139 )
Total operating expenses
    4,281       3,948       7,909  
Operating income
    4,707       7,917       3,690  
Interest and bank charges
    512       312       183  
Other expense (income)
    700       -       884  
Gain on bargain purchase
    -       -       (650 )
Earnings before income taxes
    3,495       7,605       3,273  
Provision for income taxes
    1,357       2,490       327  
Net earnings
    $2,138       $5,115       $2,946  
Earnings per diluted common share
    $0.47       $1.10       $0.50  
Weighted average number of common shares outstanding, diluted
    4,560       4,659       5,931  
                         
Other Data:
                       
Non-GAAP earnings per diluted common share
    $0.58       $1.10       $0.43  
Adjusted EBITDA
    $4,999       $8,224       $4,849  
Average exchange rate during period (CAD/USD)
    1.0671       1.1415       1.0301  
                         
Balance Sheet Data:
                       
Cash and cash equivalents
    $368       $1,560       $516  
Working capital
    1,727       8,962       2,033  
Total assets
    11,555       14,595       32,103  
Total debt
    4,228       134       6,080  
Total liabilities
    9,439       4,988       17,011  
Total shareholders’ equity
    2,115       9,607       15,092  
 
 
Use of Non-GAAP Financial Measures
 
We have presented non-GAAP measures such as non-GAAP net earnings and Adjusted EBITDA because many of our investors use these non-GAAP measures to monitor our performance.  These non-GAAP measures should not be considered as an alternative to GAAP measures as an indicator of our operating performance.

Non-GAAP net earnings is defined by us as net earnings before amortization of acquisition-related intangibles, stock-based compensation, non-recurring acquisition costs and reorganization expense, impairments, other unusual gains or charges and any tax effects related to these items. We define Adjusted EBITDA as net earnings before interest, income tax expense, depreciation and amortization, non-cash compensation and non-recurring acquisition costs and reorganization expenses and other non-recurring or non-cash items.
 
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  The non-GAAP measures included below, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.  A reconciliation of non-GAAP to GAAP financial measures is set forth in the table below.
 
   
Reconciliation of GAAP Measures to Non-GAAP Measures
(In thousands, except per share data)

   
Years Ended December 31,
 
   
2008
   
2009
   
2010
 
Reconciliation to Non-GAAP Net Earnings and Diluted EPS
                 
Net Earnings Per Share (GAAP Measure)
    $0.47       $1.10       $0.50  
Net Earnings (GAAP Measure)
    $2,138       $5,115       $2,946  
Amortization of Acquisition Intangibles
    -       -       144  
Stock-Based Compensation Expense
    -       -       161  
Stock and Warrant Issuance Expense for Services
    -       -       232  
Non-Recurring Acquisition Costs and Reorganization Expense
    -       -       884  
Impairment Charges
    700       -       -  
Gain on Bargain Purchase
    -       -       (650 )
Canadian Tax Recovery
    -       -       (831 )
Tax Adjustments
    (209 )     -       (323 )
Non-GAAP Net Earnings
    $2,629       $5,115       $2,562  
Non-GAAP Net Earnings Per Diluted Share
    $0.58       $1.10       $0.43  
Weighted Average Diluted Shares Outstanding
    4,560       4,659       5,931  
                         
Reconciliation to Adjusted EBITDA:
                       
Net Earnings (GAAP Measure)
    $2,138       $5,115       $2,946  
Interest and Bank Charges
    512       312       183  
Provision for Income Taxes
    1,357       2,490       327  
Depreciation and Amortization
    292       307       767  
Gain on Bargain Purchase
    -       -       (650 )
Non-Recurring Acquisition Costs and Reorganization Expense
    -       -       884  
Impairment Charges
    700       -       -  
EBITDA
    4,999       8,224       4,457  
Adjustments to EBITDA:
                       
Stock-Based Compensation Expense
    -       -       161  
Stock and Warrant Issuance Expense for Services
    -       -       232  
Adjusted EBITDA (Non-GAAP Measure)
    $4,999       $8,224       $4,849  
 
Note: Amounts may not foot due to rounding.
 

Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Consolidated Financial Data” and our financial statements and related notes appearing elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the section entitled “Risk Factors.”  See “Cautionary Note Regarding Forward-Looking Statements.”

Overview and Recent Events

We are an owner and operator of electrical equipment and service businesses headquartered in Fort Lee, New Jersey.  Our subsidiaries provide a range of products and services to the electrical transmission and distribution industry.  Our focus is on the electric utility, industrial, commercial and wind energy market segments and our customers are primarily located in North America.
 
On December 2, 2009, we completed a share exchange pursuant to which we acquired all of the issued and outstanding capital stock of Pioneer Transformers Ltd. in exchange for a controlling interest in us and our officers and directors at that time were replaced by designees of Pioneer Transformers Ltd.  In addition,  following the share exchange, we discontinued development of our former business and succeeded to the business of Pioneer Transformers Ltd.  As a result, the share exchange was accounted for as a reverse business combination in which Pioneer Transformers Ltd., rather than us, was deemed to be the accounting acquirer.  Accordingly, the historical financial statements presented and the discussion of financial condition and results of operations herein are those of Pioneer Transformers Ltd. and do not include historical financial results of our former business.
 
On April 30, 2010, we completed the acquisition of Jefferson Electric, Inc., a Wisconsin-based manufacturer and supplier of dry-type transformers.  In addition, through transactions completed in June and August 2010 we acquired substantially all the assets and the capital stock of AAER Inc. to form Pioneer Wind Energy Systems Inc.  AAER Inc. was formerly a manufacturer of wind turbines with generation capacities exceeding one megawatt based in Quebec, Canada.

We intend to effectuate a one-for-five reverse stock split, in order to comply with the listing requirements of Nasdaq Capital Market. Such reverse stock split would immediately increase our stock price. In addition, such reverse stock split would reduce the number of shares of common stock outstanding and may affect the liquidity of our common stock. The reverse stock split is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part.
 
Accounting for the Share Exchange

The share exchange on December 2, 2009 was accounted for as a recapitalization.  Pioneer Transformers Ltd. was the acquirer for accounting purposes and we were 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.  Therefore, results of 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.
 
 
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 largest operating subsidiary, Pioneer Transformers Ltd., is a Canadian entity and its functional currency is the Canadian dollar.  As such, its financial position, results of operations, cash flows and equity are initially consolidated in Canadian dollars.  The subsidiary's 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.
 
The financial position and operating results of Pioneer Transformers Ltd. 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:
 
 
2010
 
2009
 
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
$1.0158
$1.0409
$1.0409
 
$1.2613
$1.2453
$1.2453
June 30
$1.0646
$1.0276
$1.0343
 
$1.1630
$1.1672
$1.2062
September 30
$1.0290
$1.0391
$1.0359
 
$1.0707
$1.0974
$1.1700
December 31
$0.9946
$1.0128
$1.0301
 
$1.0510
$1.0563
$1.1415

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) collectability is reasonably assured and (5) customer acceptance criteria, if any, have 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 adjust, if necessary, the warranty percentage and accrued warranty reserve for actual experience.
  
Changes in Accounting Principles
 
No significant changes in accounting principles were adopted during 2009 and 2010, except for the following:

Fair Value Measurements.  In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820)” (“ASU 2010-06”).  ASU 2010-06 requires reporting entities to make more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, including information on purchases, sales, issuances, and settlements on a gross basis, and (4) the transfers between Levels 1, 2, and 3.  ASU 2010-06 is effective for fiscal years beginning on or after December 15, 2009, except for the disclosure regarding Level 3 activity, which is effective for fiscal years beginning after December 15, 2010.  The adoption of ASU 2010-06 for Levels 1 and 2 did not have a material impact on our consolidated financial statements, and we do not expect the adoption of the standard for Level 3 to have a material impact on our consolidated financial statements.
 
 
Results of Operations

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

Revenue.  For the year ended December 31, 2010, consolidated revenues increased 16.3% to $47.2 million, up from $40.6 million during the year ended December 31, 2009.  The acquisition of Jefferson Electric, Inc. on April 30, 2010 contributed approximately $13.2 million to our revenue during 2010, versus no contribution in 2009.  Revenue from Pioneer Transformers Ltd. decreased by approximately $6.5 million, or 16.1%, during the year ended December 31, 2010, as compared to 2009.  This decline was due to lower unit volume, attributed primarily to weakness in demand from industrial customers, as compared to the prior year.  Our wind energy business, which was established in June 2010, made no contribution to our total revenue in 2010 and 2009.

Gross Margin.  For the year ended December 31, 2010, our gross margin percentage decreased to 24.6% of revenues, compared to 29.2% during the year ended December 31, 2009.  This decrease was attributable primarily to less favorable product mix and lower unit volume experienced by our Pioneer Transformers Ltd. business during the year ended December 31, 2010, as compared to the prior year.  In addition, our new Jefferson Electric, Inc. subsidiary generally achieves a lower gross margin percentage as compared to Pioneer Transformers Ltd.  On a consolidated basis, approximately 3.1% of the gross margin decline was attributable to Pioneer Transformers Ltd. and 1.5% to Jefferson Electric, Inc.

Selling, General and Administrative Expense.  For the year ended December 31, 2010, selling, general and administrative expense increased by approximately $3.8 million, or 90.7%, to approximately $8.0 million, as compared to $4.2 million during the year ended December 31, 2009.  Approximately $1.5 million of the increase was due to higher corporate expenses mostly incurred in connection with being a public company, including $0.4 million for non-cash costs associated with the issuance of employee and director stock options and the issuance of stock and warrants to our investor relations firm.  The remaining $2.4 million net increase is attributable to the inclusion of Jefferson Electric, Inc. ($2.4 million) and Pioneer Wind Energy Systems Inc. ($0.4 million) in our consolidated results during the year ended December 31, 2010, offset by reduced selling, general and administrative expense at Pioneer Transformers Ltd. ($0.5 million).
 
Foreign Exchange (Gain) Loss.  Most of our consolidated operating revenues are denominated in Canadian dollars, principally via our Pioneer Transformers Ltd. operating subsidiary, and a material percentage of our expenses are denominated and disbursed in U.S. dollars.  We have not historically engaged in currency hedging activities.  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.  For the year ended December 31, 2010, we recorded a gain of $0.1 million due to currency fluctuations, compared to a gain of approximately $0.3 million during the year ended December 31, 2009.
 
Interest and Bank Charges.  For the year ended December 31, 2010, interest and bank charges were approximately $0.2 million, as compared to $0.3 million for the year ended December 31, 2009.  The decrease in interest expense was due to the reversal of approximately $0.1 million of interest accrued that was related to a tax liability previously recorded by Pioneer Transformers Ltd.  In the fourth quarter of 2010, we agreed to a settlement with the Canadian tax authorities whereby no interest charges will be imposed and we are instead expecting to receive a significant refund.  Without the effect of reversing this accrued interest, our interest expense would have been stable during 2010 as compared to 2009.  We had higher average borrowings as a result of the assumption of our Jefferson Electric, Inc. subsidiary’s debt in 2010.  The resulting increase in interest expense was offset by a decrease at Pioneer Transformers Ltd. which had significantly lower average borrowings during 2010 as compared to 2009, primarily due to the repayment of approximately $4.4 million of its bank indebtedness in December 2009.


Other Expense (Income).  For the year ended December 31, 2010, our other expense of $0.9 million consisted of professional fees and restructuring costs related to our acquisitions of Jefferson Electric, Inc., select assets from AAER Inc. and the acquisition of AAER Inc.  Approximately 50% of these costs were transaction-related fees and expenses.  The remainder of other expense (income) was incurred in connection with restructuring AAER Inc.’s business following the acquisition.
 
Gain on Bargain Purchase.  On June 7, 2010, we acquired most of the inventory and substantially all of the capital assets, intangible assets and intellectual property of AAER Inc. for approximately $0.4 million in cash.  In connection with the transaction, the fair value of the inventory and capital assets acquired, net of deferred tax liabilities, was determined to be approximately $1.5 million.  In August 2010, we sold a portion of the AAER Inc. assets that were acquired in June at a price exceeding their initially recorded fair value, resulting in an additional gain on sale of approximately $0.1 million.  Accordingly, we recognized a gain on bargain purchase of approximately $1.1 million, representing the excess of the fair value of net assets acquired over the consideration paid.  In the fourth quarter of 2010, we determined that certain of the capital assets we acquired were impaired by an amount of $0.4 million, resulting in a reduction to the previously recognized gain on bargain purchase to $0.7 million.
 
Provision for Income Taxes.  Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 10.0% in 2010 compared to 32.7% in 2009.  The decrease in the effective tax rate resulted primarily from a settlement we reached with the Canadian tax authority resulting in a $0.9 million refund of taxes previously paid by us, to be received during 2011.
 
Net Earnings.  We generated net earnings of $2.9 million for the year ended December 31, 2010, down 42.4% from approximately $5.1 million during the year ended December 31, 2009.  Our net earnings benefited from the acquisition of Jefferson Electric, Inc. during 2010, but were negatively impacted by weaker sales and earnings from our Pioneer Transformers Ltd. subsidiary and significantly higher selling, general and administrative expenses during the year ended December 31, 2010, as compared to the year ended December 31, 2009.  Earnings per basic and diluted share was $0.50 for the year ended December 31, 2010, as compared to $1.10 per basic and diluted share for the year ended December 31, 2009 (each as adjusted for the anticipated one-for-five reverse stock split of our common stock that is expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus is a part).  There were 1.3 million additional weighted average diluted shares outstanding during the year ended December 31, 2010, as compared to the year ended December 31, 2009, an amount which reflects the completion of our share exchange and private placement transactions during the fourth quarter of 2009, as well as the issuance of our common shares in conjunction with the acquisition of Jefferson Electric, Inc.

Backlog.  Our order backlog at December 31, 2010 was $18.7 million, up 13.3% from $16.5 million at December 31, 2009.  The $2.2 million increase in our backlog is evenly split between new orders received by Pioneer Transformers Ltd. and the inclusion of backlog from Jefferson Electric, Inc. in the 2010 period.  Our backlog is based on orders expected to be delivered in the future, most of which is expected to occur during 2011.  New orders placed during the year ended December 31, 2010 totaled $47.7 million, an increase of 25.7% compared to new orders of $38.0 million that were placed during the year ended December 31, 2009.  The large percentage increase in orders on a year-over-year basis is primarily due to the inclusion of Jefferson Electric, Inc. in our 2010 results.

Liquidity and Capital Resources
 
General.  At December 31, 2010, we had cash and cash equivalents of approximately $0.5 million and total debt, including capital lease obligations, of $6.1 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, borrowing capacity available under our credit facilities and funds generated from operations should be sufficient to finance our cash requirements for anticipated operating activities, capital improvements and principal repayments of debt through at least the next 12 months.
 

Our operating activities generated cash flow of approximately $3.3 million during the year ended December 31, 2010, compared to cash flow from operating activities of $4.3 million during the year ended December 31, 2009.  The principal elements of cash flow from operating activities during 2010 were net earnings of $2.9 million, offset by $0.7 million of non-cash income related to the gain on bargain purchase associated with the AAER Inc. transaction.  Cash flow from operating activities during 2010 also increased by approximately $0.2 million from changes in our operating working capital and $0.9 million from the effect of non-cash expenses included in our net earnings.

Cash used in investing activities during the year ended December 31, 2010 was approximately $2.3 million, as compared to $0.3 million during the year ended December 31, 2009.  During the year ended December 31, 2010, we used approximately $1.7 million for capital expenditures, principally for the expansion of our manufacturing facility located in Quebec, Canada.  In 2010, we used another $0.8 million for acquisitions.  Offsetting our cash used in investing activities was $0.2 million of net proceeds we received from the sale of certain capital assets we had previously purchased from AAER Inc.  During the year ended December 31, 2009, our cash used in investing activities consisted entirely of additions to property and equipment at Pioneer Transformers Ltd.

Cash used by our financing activities was approximately $2.0 million during the year ended December 31, 2010, compared to $2.5 million during the year ended December 31, 2009.  Our primary use of cash for financing activities during the year ended December 31, 2010 was for debt repayment of $1.9 million, together with approximately $0.1 million for equity financing transaction costs.  During the year ended December 31, 2009, we raised gross proceeds of $5.0 million from an issuance of common stock to investors.  Our primary uses of cash for financing activities in 2009 consisted of $4.5 million in debt repayments, $2.7 million to make dividend payments to Provident Pioneer Partners, L.P., previously the sole stockholder of Pioneer Transformers Ltd., and $0.2 million for equity financing transaction costs.

As of December 31, 2010, our current assets were 1.1 times our current liabilities.  Current assets increased by $2.1 million and current liabilities increased by $9.0 million during the year ended December 31, 2010.  These increases were primarily due to the acquisition of Jefferson Electric, Inc. during the year and the inclusion of its current maturities of debt and accounts payable and accrued liabilities.  As a result, our net working capital balance decreased by $6.9 million to $2.0 million during the year ended December 31, 2010, as compared to $9.0 million of net working capital as of December 31, 2009.

Credit Facilities.  In October 2009, our Pioneer Transformers Ltd. subsidiary entered into a financing arrangement with a Canadian bank that replaced its previous credit facility.  Expressed in approximate U.S. dollars, the $10.0 million credit agreement consists of a $7.7 million demand revolving credit facility, a $1.8 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 approximately $10.0 million on all of our assets, as well as a collateral mortgage of $10.0 million on our land and buildings.

The credit facilities require Pioneer Transformers Ltd. 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 2.50.  The credit facilities also restrict the ability of Pioneer Transformers Ltd. to make investments or advancements to affiliated or related companies without the lender’s prior written consent.  The demand revolving credit facility is subject to margin criteria and borrowings bear interest at the bank’s prime rate plus 0.75% 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.  As of December 31, 2010, we had no borrowings outstanding under the credit facility and we were in compliance with its financial covenant requirements.

Our Jefferson Electric, Inc. subsidiary has a bank loan agreement with a U.S. bank that includes a revolving credit facility with a borrowing base of $5.0 million and a term credit facility.  Monthly payments of accrued interest must be made under the revolving credit facility and monthly payments of principal and accrued interest must be made under the term credit facility, with a final payment of all outstanding amounts due on October 31, 2011.  Borrowings under the bank loan agreement are collateralized by substantially all the assets of Jefferson Electric, Inc. and are guaranteed by its Mexican subsidiary.  In addition, an officer of Jefferson Electric, Inc. is a guarantor under the bank loan agreement and has provided additional collateral to the bank in the form of our common stock and a warrant to purchase our shares of common stock held by him.
 

The bank loan agreement requires Jefferson Electric, Inc. to comply with certain financial covenants, including a requirement to exceed minimum quarterly targets for tangible net worth, as defined, and maintain a minimum debt service coverage ratio.  The bank loan agreement also restricts Jefferson Electric, Inc.’s ability to pay dividends or make distributions, advances or other transfers of assets.  The interest rate under the revolving credit facility is equal to the greater of the bank’s reference rate (currently 3.25% annually) or 6.5% annually.  The interest rate under the term credit facility is 7.27% annually.  As of December 31, 2010, our Jefferson Electric, Inc. subsidiary had approximately $2.8 million outstanding under the revolving credit facility and approximately $3.0 million outstanding under the term credit facility and was in compliance with its financial covenant requirements.

Equipment Loans and Capital Lease Obligations.  As of December 31, 2010, we had equipment loans and capital lease obligations with an aggregate principal amount outstanding of approximately $31,000, as compared to approximately $134,000 outstanding as of December 31, 2009.  These equipment loans and capital lease obligations bear interest at rates varying from 0.0% to 18.8% and are repayable in monthly installments.  We anticipate that these equipment loans will be paid off by the end of December 2013.
 
Loans from Stockholders.  Certain limited partners of Provident Pioneer Partners, L.P., our controlling stockholder, previously advanced to us an aggregate of $150,000 at an interest rate of 12% per annum with no specific terms of repayment.  During the year ended December 31, 2010, the aggregate principal amount of these advances were repaid in full.

Capital Expenditures.  In September 2009, we commenced an expansion of our Pioneer Transformers Ltd. plant that increased our manufacturing facilities and office space by approximately 6,000 square feet.  The capital budget for the project was approximately $2.0 million, including machinery and equipment, and the project was substantially complete by December 2010.  The cost of the project was funded through cash flow from operations.  We have no major future capital projects planned, or significant replacement spending anticipated, during 2011.
  
Subsequent EventsIn April 2011 our Pioneer Transformers Ltd. subsidiary revised its financing arrangement with its Canadian bank and thereby replaced its October 2009 credit facilities.  The terms of the new credit agreement are substantially similar to the 2009 credit agreement except that the amount of term loan facility availability was increased to approximately $2.0 million, with principal repayments becoming due on a seven year amortization schedule.  In addition, the new credit facilities are no longer secured by a collateral mortgage of $10.0 million on the land and buildings of Pioneer Transformers Ltd.
  
Financial Guidance

Cautionary Note on Estimates and Projections

Any estimates, forecasts or projections set forth below or elsewhere in this prospectus have been prepared by our management in good faith on a basis believed to be reasonable.  Such estimates, forecasts and projections involve significant elements of subjective judgment and analysis as well as risks (many of which are beyond our control).  As such, no representation can be made as to the attainability of our forecasts and projections.  Investors are cautioned that such estimates, forecasts or projections have not been audited and have not been prepared in conformance with generally accepted accounting principles.  For a listing of risks and other factors that could impact our ability to attain our projected results, please see "Cautionary Note Regarding Forward-Looking Statements".

Outlook for 2011

On March 31, 2010, in conjunction with announcing our annual financial results for the fiscal year ended December 31, 2010, we commenced an investor relations policy of providing guidance for expected annual revenue and earnings for the year in progress. Our guidance for the year ending December 31, 2011 does not include potential future acquisitions and excludes non-recurring costs and income, if any. In addition, for the purpose of translating the financial results of our Canadian operations to U.S. dollars, we have assumed a constant foreign exchange rate at parity ($USD/CAD: 1.00) throughout the year.

Revenue.  We expect our consolidated revenue in the year ending December 31, 2011 to be between $66 and $77 million, consisting of approximately $63 to $70 million from our electrical transformer businesses and approximately $3 to $7 million from our wind energy equipment and services business. Our expected growth assumption in our electrical transformer segment reflects 20% to 30% year-over-year growth for each of Pioneer Transformers Ltd. and Jefferson Electric, Inc., plus the benefit of including twelve months of Jefferson Electric, Inc. results during 2011, as compared to only eight months in 2010 following the acquisition. Our revenue expectation for Pioneer Wind Energy Systems Inc. reflects a portion of the pipeline of sales opportunities we are presently focused on. Our actual results in our wind energy segment could deviate significantly from our revenue guidance depending on unanticipated changes in timing and on the ultimate terms and pricing we are able to achieve with customers for each power project, if any.

 
Net Earnings.  We expect our non-GAAP net earnings will increase to between $0.70 and $0.90 per diluted share in the year ending December 31, 2011, as compared to $0.43 per diluted share in 2010 (each as adjusted for the anticipated one-for-five reverse stock split). Our electrical transformer segment accounts for most of our expected earnings improvement during 2011. Non-GAAP net earnings is defined by us as net earnings before amortization of acquisition-related intangibles, stock-based compensation, non-recurring acquisition costs and reorganization expense, impairments, other unusual gains or charges and any tax effects related to these items.

Reconciliation of GAAP Measures to Non-GAAP Measures

We have presented non-GAAP measures such as non-GAAP net earnings and non-GAAP net earnings per share because many of our investors use these non-GAAP measures to monitor our performance.  These non-GAAP measures should not be considered as an alternative to GAAP measures as an indicator of our operating performance.

Non-GAAP net earnings is defined by us as net earnings before amortization of acquisition-related intangibles, stock-based compensation, non-recurring acquisition costs and reorganization expense, impairments, other unusual gains or charges and any tax effects related to these items.

Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  The non-GAAP measures included below, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.  A reconciliation of non-GAAP to GAAP net earnings is set forth in the table below.

Reconciliation of GAAP Measures to Non-GAAP Measures
(In thousands, except per share data)

 
Years Ended December 31,
 
 2008
 
2009
 
2010
Reconciliation to Non-GAAP Net Earnings and Diluted EPS
         
Net Earnings Per Share (GAAP Measure)
$0.47
 
$1.10
 
$0.50
Net Earnings (GAAP Measure)
$2,138
 
$5,115
 
$2,946
Amortization of Acquisition Intangibles
-
 
-
 
144
Stock-Based Compensation Expense
-
 
-
 
161
Stock and Warrant Issuance Expense for Services
-
 
-
 
232
Non-Recurring Acquisition Costs and Reorganization Expense
-
 
-
 
884
Impairment Charges
700
 
-
 
-
Gain on Bargain Purchase
-
 
-
 
(650)
Canadian Tax Recovery
-
 
-
 
(831)
Tax Adjustments
(209)
 
-
 
(323)
Non-GAAP Net Earnings
$2,629
 
$5,115
 
$2,562
Non-GAAP Net Earnings Per Diluted Share
$0.58
 
$1.10
 
$0.43
Weighted Average Diluted Shares Outstanding
4,560
 
4,659
 
5,931
 
Note: Amounts may not foot due to rounding.
 

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 electrical transformer and wind energy products industries and the markets for our products and services.  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 the effect of fluctuations with respect to commodities in our customer contracts through the inclusion of index clauses.  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, industrial production and commercial construction markets.  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.
 
Recent Accounting Pronouncements
 
In December 2010, the FASB issued Update No.  2010-28, “Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”).  ASU 2010-28 affects all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative.  ASU 2010-28 modifies Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.  In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist.  The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010.  Early adoption is not permitted.  We are currently evaluating the impact of ASU 2010-28 on our consolidated financial statements.

In December 2010, the FASB issued Update No.  2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”)  The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.  ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.  The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The amendments affect any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis.  ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2010.  Early adoption is permitted.  We are currently evaluating the impact of ASU 2010-29 on our consolidated financial statements.

In April 2010, the FASB issued Update No.  2010-13, “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”).  This amendment clarifies that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition.  Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification.  ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  Earlier application is permitted.  We are currently evaluating the impact of ASU 2010-13 on our consolidated financial statements.

 
In April 2010, the FASB issued Update No.  2010-17, “Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition” (“ASU 2010-17”).  ASU 2010-17 provides guidance on defining a milestone under Topic 605 and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.  Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive.  Milestones should be considered substantive in their entirety and may not be bifurcated.  An arrangement may contain both substantive and non-substantive milestones that should be evaluated individually.  ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010.  Early adoption is permitted.  We are currently evaluating the impact of ASU 2010-17 on our consolidated financial statements.

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, and (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.  We are currently evaluating the impact of  ASU 2009-13 on our consolidated financial statements.
 
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.
 

 
Overview
 
Pioneer Power Solutions, Inc., a Delaware corporation, based in Fort Lee, New Jersey, is an owner and operator of specialty electrical equipment manufacturing and service businesses.  We provide a range of products and services to the electrical transmission and distribution industry and our focus is on the electric utility, industrial, commercial and wind energy market segments.  We intend to grow our business by increasing our portfolio of highly-engineered solutions for specialty electrical applications, both through acquisitions and internal product development.
 
Our customers, which include a number of recognized national and regional utility and industrial companies, are primarily located in North America.  We currently have five locations in the U.S., Canada and Mexico for manufacturing, centralized distribution, engineering, sales and administration.  In addition, we utilize a network of 21 independently-operated stocking locations in the U.S., including two regional distribution centers.
 
Operating Structure
 
We operate in two business segments, electrical transformers and wind energy equipment and services.
 
Electrical Transmission and Distribution Equipment
 
Our electrical transformers segment designs and manufactures a full line of custom and standard liquid-filled, encapsulated and ventilated electrical transformers used in the control and conditioning of electrical current for critical processes.  Our operating subsidiaries, Pioneer Transformers Ltd. and Jefferson Electric, Inc., specialize in liquid-filled and dry-type transformers, respectively.  Each business unit distinguishes itself by producing a wide range of engineered-to-order and standard equipment, sold either directly to end users, through engineering and construction firms, or through wholesale distributors.  These operating companies serve customers in a variety of industries including electric utilities, industrial customers, commercial construction companies and renewable energy producers.
 
Wind Energy Equipment and Services
 
We are currently developing our wind energy business segment to provide project integration solutions, including equipment sales, procurement, after-sales services and financing to community wind and industrial customers seeking wind turbines with generation capacities of one to two megawatts (MW).  Our wind energy operating company, Pioneer Wind Energy Systems Inc., was established through acquisitions that we completed in 2010.  Its predecessors have a 10-year history of developing, manufacturing, commissioning and servicing our advanced wind turbine designs, principally the P-1650, which is a 1.65 MW wind turbine generator.  Our portfolio of completed projects encompasses five units in the Northeast U.S., California and for the U.S. military, all commissioned between 2008 and 2010.  We intend to rely on Pioneer Wind Energy Systems Inc.’s portfolio of licensed technologies and our expertise in engineering, procurement and field services to meet the specific challenges of each wind energy project.  In situations where the site characteristics and investment constraints of a project are not conducive to the deployment of our P-1650 unit, we intend to acquire and resell comparable units from other manufacturers that meet the project owner’s requirements.  We also intend to advance growth in this segment by offering customers tailored financing arrangements with extended payment terms and revenue-sharing features.
 
Business Strategy
 
We believe we have developed a stable platform from which to develop and grow our business lines, revenues, earnings and shareholder value.  We intend to expand rapidly over the next several years through a two-pronged strategy.  First, we intend to pursue strategic acquisitions that provide us with complementary product and service offerings, new sales channels, end-markets and scalable operations.  Second, we will focus on internal growth through operating efficiencies, customer focus and our continued migration towards more highly-engineered products and specialized services.


Acquisitions
 
We believe a disciplined acquisition program is a key component to accelerating our growth and we intend to pursue opportunities to acquire businesses that broaden the range of customer solutions we provide, increase our market share or expand our geographic reach.  In addition to transformer manufacturers, we also intend to acquire producers of other technically-advanced, customized, ancillary or complementary products which address market segments where we seek penetration -- such as in power quality and conditioning.  We operate in a highly fragmented industry that is served by a few global diversified electrical equipment manufacturers and numerous small manufacturing companies that provide niche products and services to various sub-segments of the power transmission and distribution market.  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.

Internal Growth
 
We intend to build our revenue and earnings at rates exceeding industry norms primarily by continuing our sales and product mix movement towards more value-added products.  We intend to accomplish this goal within our liquid-filled transformer business by emphasizing the sale of more power, network and subsurface transformers to new and existing utility customers, particularly in the U.S.  In February 2011, we completed a plant expansion that added approximately 6,000 square feet to our Granby, Quebec facility which will allow us to increase our manufacturing capacity for these larger products.

We believe our internal growth objectives for our dry-type transformer business will be achieved by expanding the geographic coverage and productivity of our national distribution network, as well as by continuing to expand our direct sales channel with original equipment manufacturers (OEMs) and brand label customers.

Within our wind energy business, we intend to cross-sell equipment manufactured by our other business units, find opportunistic ways to make our products and services more accessible and better suited to community wind market customers, and establish new partnerships with major international wind turbine equipment manufacturers as appropriate.

Products
 
Electrical Transmission and Distribution Equipment
 
We design, develop, manufacture and sell a wide range of liquid-filled and dry-type power, distribution and specialty electrical transformers.  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 generating 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 nears its final destination, a “step-down” transformer reduces its voltage.  A distribution transformer makes a final step-down in voltage to a level usable in homes and businesses.
 
Transformers are integral to every 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.  The renewable energy industry uses transformers to connect new sources of electricity generation to the power grid, as does the construction industry for the supply of electricity to new homes and buildings.
 
Liquid-Filled Transformers
 
Our liquid-filled transformer products are manufactured by our wholly-owned subsidiary, Pioneer Transformers Ltd., in electrical power ranges from 25 kVA (kilovolt amperes) to 30 MVA (megavolt amperes) and at up to 69 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-customized models.  We sell these products to electrical utilities, independent power providers, electrical co-ops, industrial companies, commercial users and electric equipment wholesalers.  Our primary categories of liquid-filled transformers are as follows:

 
Transformer Type
 
Range of Sizes
 
Applications
         
Small and Medium Power
 
300 kVA to 30 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 MVA, also supplied for substation installation up to 2.5 MVA
 
Dry-Type Transformers
 
Our dry-type transformer products are manufactured by our wholly-owned subsidiary, Jefferson Electric, Inc.  Our focus is primarily on low voltage distribution transformers for commercial and industrial power applications, typically in the 15 kVa through 1 MVA size range and for indoor use.  Our primary categories of dry-type transformers are as follows:
 
Transformer Type
 
Range of Sizes
 
Applications
         
Encapsulated Single & Three Phase
 
50 VA to 50 kVA
3 kVA to 75 kVA
 
General purpose encapsulated transformers for lighting, industrial and commercial applications.  Suitable for indoor or outdoor use
         
Ventilated Single & Three Phase
 
25 kVA to 100 kVA
15 kVA to 1 MVA
 
Ventilated transformers designed for general loads, indoors or out, including for lighting, industrial and commercial applications
         
Floor Mount Encapsulated
 
30 kVA to 75 kVA
 
For all general loads in rugged environment areas including refineries, factories, chemical plants, marine duty, ship docks, and grain mills
         
Buck Boost Transformers
 
50 VA to 10 kVA
 
Single phase transformers for correcting voltage line drops, landscape lighting, low voltage lighting, international voltage adaptation and motor applications
         
Non-Linear Transformers
 
15 kVA to 300 kVA
 
Jefferson Plus™ line of non-linear transformers are designed to meet the load demands caused by computers and other electronic office equipment
         
Other
Transformers
 
Various size ranges
 
Drive isolation, industrial control and custom designed transformers, lighting ballasts, reactors, filters and associated other parts
 
   
Wind Energy Products and Services
 
Our P-1650 model wind turbine generator is a 1.65 MW, three-blade wind turbine equipped with full span pitch control and a transmission system with integrated main shaft and main bearings.  Our P-1650 turbine is Germanischer Lloyd-certified and was developed by us through a technology license with Windtec Engineering GmbH, a subsidiary of American Superconductor.  There is only one other company licensed to sell this wind turbine design in the U.S.  The P-1650 unit is also available in a 1.5 MW power rating and can be delivered with a tower height ranging from 65 to 100 meters and a rotor diameter of 77 meters.  This model uses a variable speed asynchronous generator and fixed speed gearbox.  The combination of electrical torque control and variable pitch control allows the wind turbine to operate at wind speeds from 3.5 meters per second (m/s) and with a constant 1.65 MW energy production in wind speeds between 11 m/s and 20 m/s.  In situations where the site characteristics and investment constraints of a project are not conducive to the deployment of our P-1650 unit, our strategy is to acquire and resell comparable units from other manufacturers that meet the project owner’s requirements.
 
Our monitoring service provides real-time performance tracking and remote control of wind turbines in operation.  We also provide operations and maintenance (O&M) services including scheduled maintenance, as well as unscheduled maintenance in situations where uncharacteristic weather conditions, network disturbances or other operating complications arise.  As is standard in our industry, we offer a range of manufacturer warranties:
 
 
·
electro-mechanical warranty (two years standard);
 
 
·
power curve warranty (one year standard);
 
 
·
sound level warranty (one year standard); and
 
 
·
an availability warranty covering the duration of the O&M contract.
 
According to each customer’s needs, we also offer extended warranties typically covering the three to five year period after installation.
 
Harnessing the power of wind requires knowledge of the grid, electrical equipment expertise and an understanding of the complexities of interconnection.  In addition to wind turbine products, our wind energy business assists customers in the procurement of ancillary electrical equipment for the project balance of plant, including medium voltage switchgear and liquid-filled transformers such as those manufactured by Pioneer Transformers Ltd.
 
Community wind projects require a substantial investment.  The cost of a single 1.65 MW wind turbine such as ours, including blades and the tower, typically will exceed $2 million.  In addition, the project owner must fund the costs of transportation, construction, the balance of plant and professional fees.  In order to alleviate this obstacle for qualified projects, our wind energy business seeks to provide vendor financing for the wind turbine portion of the total project cost.  We are offering financing structures tailored to each project that reduce the amount of down payment required and establish a repayment schedule following delivery that includes interest charges.  Our equipment financing terms are accompanied by customary credit protections and may require that the customer purchase a minimum scope of related services from us, such as an O&M contract.
 
Our Industries
 
Electrical Transmission and Distribution Equipment
 
Demand for our electrical power and distribution transformers results primarily from spending by electric utilities for replacement equipment, grid expansion 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, stricter environmental regulations and investment in sources of renewable energy generation.

 
According to IBISWorld Inc., a market research firm, the total value of U.S. electrical equipment industry shipments was approximately $34.6 billion in 2010.  Of this amount, 16.0%, or $5.5 billion, was comprised of power, distribution and specialty transformers, compared with a 13.1% share of total shipments for transformers in 2002.  Together with Canadian shipments of transformers, we believe that the North American market currently exceeds $6.0 billion annually.  IBISWorld expects U.S. electrical equipment industry revenue to increase in real terms on average by 4.3% annually in the five year period ending in 2015.  We believe several of the key industry trends supporting this growth estimate are as follows:
 
 
·
Aging and Overburdened North American Power Grid — The aging and overburdened North American power grid is expected to require significant capital expenditures to upgrade the existing infrastructure over the next several years to maintain adequate levels of reliability and efficiency. According to the North American Electric Reliability Corp. (NERC), Level 5 Transmission Load Relief (TLR) events, which are triggered when power outages are imminent or in progress, have grown at a 60% compounded annual growth rate from 2002 to 2008.  These events demonstrate the current power grid’s inadequate transmission capacity to accommodate all requests for reliable power.  Significant capital investment will be required over the next several decades to relieve congestion, accommodate growth and replace components of the U.S. power grid operating at, near or past their planned service lives.  According to the consulting firm The Brattle Group, 70% of all power transformers in the U.S. are currently over 25 years old and $900 billion of capital investment will be required for transmission and distribution equipment by 2030 in order to meet growing demand and achieve targets for efficiency, emissions, renewable sources and infrastructure replacement.
 
 
·
Increasing Demand for Reliably Delivered Electricity — Increasing demand for reliably delivered electricity in North America will require substantial investment in the electric grid to expand capacity and improve efficiency.  The DOE’s Energy Information Administration, or EIA, forecasts that total electricity use in the U.S. will increase by approximately 30% from 2008 to 2035.  This increase is driven by population growth, economic expansion, increasing dependence on computing power throughout the economy and the increased use of electrical devices in the home.  As an example, the power consumption of servers and data centers, one of the largest users of electricity in the U.S., doubled between 2000 and 2006 and is expected to double again by 2011 according to estimates by the U.S. Environmental Protection Agency.  Electric vehicles are another example of a new source of potentially significant increase in power consumption.  The expected increase in electricity demand will require considerable investment in the North American electric transmission and distribution infrastructure as well as specialized equipment to ensure the reliability and quality of electricity for critical applications such as servers and data centers.
 
 
·
Strong Legislative Support — The U.S. government has directed significant resources towards the modernization and improvement of the U.S. electric grid.  The legislative developments continue to promote growth and investment in electric transmission and distribution infrastructure by encouraging electricity providers to expand capacity and relieve grid congestion.  The Energy Policy Act of 2005 established mandatory grid reliability standards and created incentives to increase electric transmission and distribution infrastructure investments.  Incentives associated with such law ensured that utilities (who represent our largest customer segment) are better positioned to finance and realize system enhancement projects.  In addition, the American Recovery and Reinvestment Act of 2009 allocated $4.5 billion to improve electricity delivery and energy reliability through modernization of the electric transmission and distribution infrastructure.
 
 
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Mandates for Renewable Power Sources Leading to Grid Expansion — North American federal, state, provincial, and local governments have enacted and are considering legislation and regulations aimed at increasing energy efficiency and encouraging expansion of renewable energy generation.  We believe that the increased focus on renewable energy will drive investment growth in the electric transmission and distribution grid as additional infrastructure is developed to integrate renewable energy sources such as wind and solar with the existing electric power grid.  Many sources of renewable energy are not near key demand centers, and according to NERC and the Edison Electric Institute (EEI), significant infrastructure investments will be required to reliably transport and integrate electricity with the grid.  Power transformers will be a critical component of the additional infrastructure.  We also expect that the general upward trend in energy demand will push power suppliers toward renewable power sources, driving investment in new plant construction and significantly contributing to growth in the transmission and distribution industry over the next several years.  Renewable power development also benefits from strong regulatory support, with 29 states and the District of Columbia having adopted mandatory renewable portfolio standards, or RPS.  Seven other states have enacted non-binding RPS-like goals and the U.S. Congress is evaluating national renewable generation targets.
 
 
The transformer market is very fragmented due to the range of sizes, voltages and technological standards required by different categories of end users.  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.  The vast majority of North American demand for transformers is satisfied by 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.
 
Wind Energy Equipment and Services
 
With rising energy demand, volatile carbon fuel prices and increasing awareness of the effects of climate change, the wind power market has expanded substantially in the U.S. over the past 5 years.  As of January 2011, the American Wind Energy Association (AWEA) reported that total U.S. wind generation capacity stands at 40,180 MW, representing an average annual increase of 35% per annum since the year 2005.  Due primarily to the effects of the economic downturn and financial crisis starting in 2008, the rate of U.S. wind generation capacity additions decreased significantly in 2010 versus 2009, but still grew 15% in 2010.  The latest industry statistics from AWEA indicate that wind power projects accounted for 39% of all new generating capacity added in 2009 and 1.8% of all electricity provided to the U.S. electric grid.
 
We believe that the market for wind energy equipment and services has favorable long-term growth characteristics due primarily to the following key industry trends:
 
 
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Wind Power Leading the Growth in Renewable Generation Capacity — Wind power generation is one of the more mature renewable energy technologies and one of the fastest growing renewable energy sources according to the Institute of Electrical and Electronics Engineers and the Global Wind Energy Council.  According to the DOE, U.S. wind power generation capacity has the potential to grow at a compounded annual rate in excess of 15% through 2020.   The 2008 DOE report, “20% Wind Energy by 2030”, published in a joint effort with industry and the nation’s leading laboratories, provides a potential framework for large scale integration of wind power in the U.S.  Among other considerations, this report stipulates that reaching the 20% wind energy level in the U.S. will require expansion of the nation’s transmission infrastructure to integrate wind energy into the grid.
 
 
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Continued Support for Wind Power from Federal and State Governments — Wind power enjoys broad public support and can be a fundamental part of federal and state economic development strategies.  In the U.S., a number of federal and state legislative and regulatory activities influence the wind industry’s ability to compete in the electric market.  A federal-level income tax credit, the PTC, is allowed for the production of electricity from utility-scale wind turbines.  Congress acted in 2009 to provide a three-year extension of the PTC through the end of 2012.  At the state level, a renewable portfolio standard is a policy that sets hard targets for renewable energy in the near- and long-term to diversify electricity supply, stimulate local economic development, reduce pollution and cut water consumption.
 
Investment in wind generation capacity is heavily dependent on government incentives to promote commercial-scale development.  The effectiveness of these incentives, principally federal programs like the PTC and the investment tax credit, has been marred by frequent expirations and one- to two-year extension periods.  Historical uncertainty surrounding the continuation of such incentives has created a boom-and-bust cycle of wind project development and hindered rational industry planning, investments in technology and efforts to reduce costs.  In addition to federal-level tax incentives, wind project development is also driven by states that have instituted their own renewable portfolio standards requiring electricity service providers to gradually increase the percentage of renewable sources used to meet their electricity demand by specified dates.  RPS policies, which invoke financial penalties on service providers if targets are not met, currently exist in 29 U.S. states and in the District of Columbia, but not at the national level.
 

The wind turbine equipment market is dominated by several large, multi-national manufacturers that are equipped for orders requiring dozens or even hundreds of units sold to utilities and other well-capitalized project developers.  By contrast, the market segment addressed by our wind energy business, “community wind,” encompasses projects that are locally owned and employ utility-scale equipment, but are generally intended to have less than 20 MW in generation capacity, with many requiring as few as one wind turbine.  Community wind projects are commonly owned by municipal or cooperative electric utilities, towns, universities, individual landowners and local businesses or factories.  Although community wind represents only a small sub-sector of the entire U.S. wind market, it has several characteristics that we believe are favorable to our business:
 
 
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local ownership and support which tends to facilitate project approval and implementation; and
 
 
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the power generated is often for on-site consumption, rather than exclusively intended for resale and distribution into the broader grid.
 
These factors generally make the viability of community wind projects less susceptible to fluctuations in wholesale electricity prices and the availability of financing in the capital markets.  At the same time, given the relatively small size of community wind projects, developers frequently have difficulty attracting major turbine manufacturers and traditional sources of financing, challenges that we feel represent an opportunity for our wind energy business.
 
Customers
 
Prior to 2010, we sold our products principally to Canadian customers, including many of Canada’s electrical utilities, municipal power systems, large industrial companies, engineering and construction firms and a number of electrical distributors.  After giving effect to our acquisition of Jefferson Electric, Inc. on April 30, 2010, we expect annual sales in our electrical transformers segment to be more balanced between the U.S. and Canada, with Canadian customers still representing the majority.  In our wind energy segment, Pioneer Wind Energy Systems Inc., is focused primarily on selling products and services to U.S. customers, and did not make any contribution to our revenue during 2010.
 
Approximately 36% and 40% of our sales in 2010 and 2009, respectively, were made to Hydro-Quebec Utility Company, a provincial 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 2010, no other customer accounted for 10% or more of our sales, although Siemens Industry, Inc., a significant customer of Jefferson Electric, Inc., represented 9% of our sales.  Aside from Hydro-Quebec Utility Company and Siemens Industr