UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | SeptemberJune 30, 20202021 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Transition Period From ________ to _________ |
Commission File Number 001-36378
PROFIRE ENERGY, INC.
(Exact name of registrant as specified in its charter)
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Nevada | 20-0019425 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
321 South 1250 West, Suite 1 | |
Lindon, Utah | 84042 |
(Address of principal executive offices) | (Zip Code) |
(801) 796-5127
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | Accelerated Filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common, $0.001 Par Value | | PFIE | | NASDAQ |
As of November 6, 2020,August 2, 2021, the registrant had 51,371,96051,651,386 shares of common stock issued and 47,959,58248,239,008 shares of common stock outstanding, par value $0.001.
PROFIRE ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION | |
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Item 1. Financial Statements | |
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| Condensed Consolidated Balance Sheets | |
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| Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)Loss (Unaudited) | |
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| Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | |
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| Condensed Consolidated Statements of Cash Flows (Unaudited) | |
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| Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
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Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations | |
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Item 3. Quantitative and Qualitative Disclosure about Market Risk | |
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Item 4. Controls and Procedures | |
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PART II — OTHER INFORMATION | |
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Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 3. Defaults Upon Senior Securities | |
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Item 4. Mine Safety Disclosures | |
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Item 5. Other Information | |
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Item 6. Exhibits | |
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Signatures | |
PART I. FINANCIAL INFORMATION
Item 1 Financial Information
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
| | As of |
| | June 30, 2021 | | December 31, 2020 |
ASSETS | | (Unaudited) | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents | | $ | 9,921,375 | | | $ | 9,148,312 | |
Short-term investments | | 2,087,332 | | | 2,388,601 | |
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Accounts receivable, net | | 3,787,084 | | | 3,719,508 | |
Inventories, net (note 3) | | 7,911,996 | | | 8,414,772 | |
Prepaid expenses and other current assets (note 4) | | 773,146 | | | 1,678,428 | |
Income tax receivable | | 785,590 | | | 486,154 | |
Total Current Assets | | 25,266,523 | | | 25,835,775 | |
LONG-TERM ASSETS | | | | |
| | | | |
Long-term investments | | 7,132,675 | | | 6,064,294 | |
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Financing right-of-use asset | | 28,758 | | | 50,094 | |
Property and equipment, net | | 11,721,692 | | | 12,021,811 | |
Intangible assets, net | | 1,660,504 | | | 1,771,870 | |
Goodwill | | 2,579,381 | | | 2,579,381 | |
Total Long-Term Assets | | 23,123,010 | | | 22,487,450 | |
TOTAL ASSETS | | $ | 48,389,533 | | | $ | 48,323,225 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
CURRENT LIABILITIES | | | | |
Accounts payable | | $ | 1,257,437 | | | $ | 1,178,979 | |
Accrued liabilities (note 5) | | 1,486,578 | | | 1,196,870 | |
Current financing lease liability (note 6) | | 30,238 | | | 39,451 | |
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Total Current Liabilities | | 2,774,253 | | | 2,415,300 | |
LONG-TERM LIABILITIES | | | | |
Net deferred income tax liability | | 601,616 | | | 522,870 | |
Long-term financing lease liability (note 6) | | 0 | | | 12,669 | |
TOTAL LIABILITIES | | 3,375,869 | | | 2,950,839 | |
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STOCKHOLDERS' EQUITY (note 7) | | | | |
Preferred stock: $0.001 par value, 10,000,000 shares authorized: 0 shares issued or outstanding | | 0 | | | 0 | |
Common stock: $0.001 par value, 100,000,000 shares authorized: 51,651,386 issued and 48,239,008 outstanding at June 30, 2021, and 51,384,961 issued and 47,972,583 outstanding at December 31, 2020 | | 51,651 | | | 51,385 | |
Treasury stock, at cost | | (5,353,019) | | | (5,353,019) | |
Additional paid-in capital | | 30,582,504 | | | 30,293,472 | |
Accumulated other comprehensive loss | | (1,798,278) | | | (2,148,924) | |
Retained earnings | | 21,530,806 | | | 22,529,472 | |
TOTAL STOCKHOLDERS' EQUITY | | 45,013,664 | | | 45,372,386 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 48,389,533 | | | $ | 48,323,225 | |
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
| | As of |
| | September 30, 2020 | | December 31, 2019 |
ASSETS | | (Unaudited) | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents | | $ | 7,919,545 | | | $ | 7,358,856 | |
Short-term investments | | 2,239,256 | | | 1,222,053 | |
Short-term investments - other | | 600,000 | | | 2,600,000 | |
Accounts receivable, net | | 2,397,985 | | | 5,597,701 | |
Inventories, net (note 3) | | 8,780,571 | | | 9,571,807 | |
Prepaid expenses and other current assets (note 4) | | 2,178,682 | | | 1,672,422 | |
Income tax receivable | | 465,828 | | | 77,385 | |
Total Current Assets | | 24,581,867 | | | 28,100,224 | |
LONG-TERM ASSETS | | | | |
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Long-term investments | | 6,450,891 | | | 7,399,963 | |
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Financing right-of-use asset | | 61,347 | | | 107,991 | |
Property and equipment, net | | 11,595,366 | | | 12,071,019 | |
Intangible assets, net | | 1,827,553 | | | 1,989,782 | |
Goodwill | | 2,579,381 | | | 2,579,381 | |
Total Long-Term Assets | | 22,514,538 | | | 24,148,136 | |
TOTAL ASSETS | | $ | 47,096,405 | | | $ | 52,248,360 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
CURRENT LIABILITIES | | | | |
Accounts payable | | $ | 980,601 | | | $ | 2,633,520 | |
Accrued liabilities (note 5) | | 1,061,515 | | | 2,089,391 | |
Current financing lease liability (note 6) | | 43,024 | | | 59,376 | |
Income taxes payable | | 0 | | | 403,092 | |
Total Current Liabilities | | 2,085,140 | | | 5,185,379 | |
LONG-TERM LIABILITIES | | | | |
Net deferred income tax liability | | 484,115 | | | 439,275 | |
Long-term financing lease liability (note 6) | | 20,927 | | | 52,120 | |
TOTAL LIABILITIES | | 2,590,182 | | | 5,676,774 | |
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STOCKHOLDERS' EQUITY (note 7) | | | | |
Preferred stock: $0.001 par value, 10,000,000 shares authorized: 0 shares issued or outstanding | | 0 | | | 0 | |
Common stock: $0.001 par value, 100,000,000 shares authorized: 51,371,960 issued and 47,959,582 outstanding at September 30, 2020, and 50,824,355 issued and 47,411,977 outstanding at December 31, 2019 | | 51,371 | | | 50,824 | |
Treasury stock, at cost | | (5,353,019) | | | (5,353,019) | |
Additional paid-in capital | | 30,208,082 | | | 29,584,172 | |
Accumulated other comprehensive loss | | (2,873,765) | | | (2,415,460) | |
Retained earnings | | 22,473,554 | | | 24,705,069 | |
TOTAL STOCKHOLDERS' EQUITY | | 44,506,223 | | | 46,571,586 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 47,096,405 | | | $ | 52,248,360 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Operations and Comprehensive Loss |
(Unaudited) |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
REVENUES (note 8) | | | | | | | |
Sales of goods, net | $ | 5,374,539 | | | $ | 3,999,139 | | | $ | 10,032,074 | | | $ | 10,860,097 | |
Sales of services, net | 659,744 | | | 360,340 | | | 1,094,558 | | | 946,524 | |
Total Revenues | 6,034,283 | | | 4,359,479 | | | 11,126,632 | | | 11,806,621 | |
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COST OF SALES | | | | | | | |
Cost of goods sold-product | 2,910,879 | | | 1,944,389 | | | 5,448,513 | | | 5,778,071 | |
Cost of goods sold-services | 465,672 | | | 328,225 | | | 845,700 | | | 777,009 | |
Total Cost of Goods Sold | 3,376,551 | | | 2,272,614 | | | 6,294,213 | | | 6,555,080 | |
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GROSS PROFIT | 2,657,732 | | | 2,086,865 | | | 4,832,419 | | | 5,251,541 | |
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OPERATING EXPENSES | | | | | | | |
General and administrative expenses | 2,783,872 | | | 2,753,773 | | | 5,338,408 | | | 6,026,311 | |
Research and development | 301,445 | | | 229,548 | | | 558,336 | | | 639,274 | |
Depreciation and amortization expense | 166,852 | | | 180,997 | | | 334,337 | | | 328,469 | |
Total Operating Expenses | 3,252,169 | | | 3,164,318 | | | 6,231,081 | | | 6,994,054 | |
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LOSS FROM OPERATIONS | (594,437) | | | (1,077,453) | | | (1,398,662) | | | (1,742,513) | |
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OTHER INCOME (EXPENSE) | | | | | | | |
Gain on sale of fixed assets | 38,492 | | | 157,455 | | | 112,393 | | | 157,455 | |
Other income (expense) | 4,836 | | | (1,665) | | | 4,739 | | | (1,318) | |
Interest income | 28,569 | | | 77,532 | | | 49,631 | | | 151,925 | |
Total Other Income | 71,897 | | | 233,322 | | | 166,763 | | | 308,062 | |
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LOSS BEFORE INCOME TAXES | (522,540) | | | (844,131) | | | (1,231,899) | | | (1,434,451) | |
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INCOME TAX BENEFIT | 125,374 | | | 35,628 | | | 233,233 | | | 260,684 | |
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NET LOSS | $ | (397,166) | | | $ | (808,503) | | | $ | (998,666) | | | $ | (1,173,767) | |
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OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | |
Foreign currency translation gain (loss) | $ | 163,485 | | | $ | 375,267 | | | $ | 303,091 | | | $ | (570,156) | |
Unrealized gains (losses) on investments | 55,529 | | | 72,875 | | | 47,555 | | | (84,479) | |
Total Other Comprehensive Income (Loss) | 219,014 | | | 448,142 | | | 350,646 | | | (654,635) | |
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COMPREHENSIVE LOSS | $ | (178,152) | | | $ | (360,361) | | | $ | (648,020) | | | $ | (1,828,402) | |
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BASIC LOSS PER SHARE (note 9) | $ | (0.01) | | | $ | (0.02) | | | $ | (0.02) | | | $ | (0.02) | |
FULLY DILUTED LOSS PER SHARE (note 9) | $ | (0.01) | | | $ | (0.02) | | | $ | (0.02) | | | $ | (0.02) | |
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BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING | 48,054,136 | | | 47,723,208 | | | 48,022,295 | | | 47,607,825 | |
FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING | 48,054,136 | | | 47,723,208 | | | 48,022,295 | | | 47,607,825 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Stockholders' Equity |
(Unaudited) |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | | | | |
Balance, December 31, 2020 | | 47,972,583 | | | $ | 51,385 | | | $ | 30,293,472 | | | $ | (2,148,924) | | | $ | (5,353,019) | | | $ | 22,529,472 | | | $ | 45,372,386 | |
Stock based compensation | | — | | | — | | | 125,043 | | — | | | — | | | — | | | 125,043 |
| | | | | | | | | | | | | | |
Stock issued in settlement of RSUs | | 49,113 | | | 49 | | | (49) | | | — | | | — | | | — | | | 0 | |
Tax withholdings paid related to stock based compensation | | — | | | — | | | (26,629) | | | — | | | — | | | — | | | (26,629) | |
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Foreign currency translation | | — | | | — | | | — | | | 139,606 | | | — | | | — | | | 139,606 | |
Unrealized losses on investments | | — | | | — | | | — | | | (7,974) | | | — | | | — | | | (7,974) | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (601,500) | | | (601,500) | |
Balance, March 31, 2021 | | 48,021,696 | | | $ | 51,434 | | | $ | 30,391,837 | | | $ | (2,017,292) | | | $ | (5,353,019) | | | $ | 21,927,972 | | | $ | 45,000,932 | |
Stock based compensation | | — | | | $ | — | | | $ | 207,084 | | | $ | — | | | $ | — | | | $ | — | | | 207,084 | |
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Stock issued in settlement of RSUs | | 217,312 | | | 217 | | | (217) | | | — | | | — | | | — | | | 0 | |
Tax withholdings paid related to stock based compensation | | — | | | — | | | (16,200) | | | — | | | — | | | — | | | (16,200) | |
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Foreign currency translation | | — | | | — | | | — | | | 163,485 | | | — | | | — | | | 163,485 | |
Unrealized gains on investments | | — | | | — | | | — | | | 55,529 | | | — | | | — | | | 55,529 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (397,166) | | | (397,166) | |
Balance, June 30, 2021 | | 48,239,008 | | | $ | 51,651 | | | $ | 30,582,504 | | | $ | (1,798,278) | | | $ | (5,353,019) | | | $ | 21,530,806 | | | $ | 45,013,664 | |
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
(Unaudited) |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
REVENUES (note 9) | | | | | | | |
Sales of goods, net | $ | 3,517,280 | | | $ | 9,251,947 | | | $ | 14,377,377 | | | $ | 29,009,837 | |
Sales of services, net | 482,826 | | | 653,814 | | | 1,429,350 | | | 1,853,013 | |
Total Revenues | 4,000,106 | | | 9,905,761 | | | 15,806,727 | | | 30,862,850 | |
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COST OF SALES | | | | | | | |
Cost of goods sold-product | 2,141,888 | | | 4,326,335 | | | 7,919,959 | | | 13,465,989 | |
Cost of goods sold-services | 337,795 | | | 410,130 | | | 1,114,804 | | | 1,275,655 | |
Total Cost of Goods Sold | 2,479,683 | | | 4,736,465 | | | 9,034,763 | | | 14,741,644 | |
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GROSS PROFIT | 1,520,423 | | | 5,169,296 | | | 6,771,964 | | | 16,121,206 | |
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OPERATING EXPENSES | | | | | | | |
General and administrative expenses | 2,247,614 | | | 3,256,023 | | | 8,273,925 | | | 9,984,251 | |
Research and development | 433,800 | | | 641,716 | | | 1,073,074 | | | 1,503,645 | |
Depreciation and amortization expense | 168,507 | | | 130,105 | | | 496,976 | | | 357,238 | |
Total Operating Expenses | 2,849,921 | | | 4,027,844 | | | 9,843,975 | | | 11,845,134 | |
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INCOME (LOSS) FROM OPERATIONS | (1,329,498) | | | 1,141,452 | | | (3,072,011) | | | 4,276,072 | |
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OTHER INCOME (EXPENSE) | | | | | | | |
Gain on sale of fixed assets | 36,483 | | | 34,826 | | | 193,938 | | | 73,166 | |
Other expense | (48,349) | | | (2,065) | | | (49,667) | | | (3,029) | |
Interest income | 103,364 | | | 38,478 | | | 255,289 | | | 216,068 | |
Total Other Income | 91,498 | | | 71,239 | | | 399,560 | | | 286,205 | |
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INCOME (LOSS) BEFORE INCOME TAXES | (1,238,000) | | | 1,212,691 | | | (2,672,451) | | | 4,562,277 | |
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INCOME TAX BENEFIT (EXPENSE) | 180,252 | | | (290,943) | | | 440,936 | | | (986,407) | |
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NET INCOME (LOSS) | $ | (1,057,748) | | | $ | 921,748 | | | $ | (2,231,515) | | | $ | 3,575,870 | |
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OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | |
Foreign currency translation gain (loss) | $ | 233,170 | | | $ | (91,397) | | | $ | (336,986) | | | $ | 160,453 | |
Unrealized gains (losses) on investments | (36,840) | | | (12,386) | | | (121,319) | | | 105,861 | |
Total Other Comprehensive Income (Loss) | 196,330 | | | (103,783) | | | (458,305) | | | 266,314 | |
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COMPREHENSIVE INCOME (LOSS) | $ | (861,418) | | | $ | 817,965 | | | $ | (2,689,820) | | | $ | 3,842,184 | |
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BASIC EARNINGS (LOSS) PER SHARE (note 10) | $ | (0.02) | | | $ | 0.02 | | | $ | (0.05) | | | $ | 0.08 | |
FULLY DILUTED EARNINGS (LOSS) PER SHARE (note 10) | $ | (0.02) | | | $ | 0.02 | | | $ | (0.05) | | | $ | 0.07 | |
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BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING | 47,933,318 | | | 47,739,192 | | | 47,717,114 | | | 47,509,357 | |
FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING | 47,933,318 | | | 48,469,246 | | | 47,717,114 | | | 48,259,900 | |
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| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | | | | |
Balance, December 31, 2019 | | 47,411,977 | | | $ | 50,824 | | | $ | 29,584,172 | | | $ | (2,415,460) | | | $ | (5,353,019) | | | $ | 24,705,069 | | | $ | 46,571,586 | |
Stock based compensation | | — | | | — | | | 66,348 | | — | | | — | | | — | | | 66,348 |
Stock issued in exercise of stock options | | 2,000 | | | 2 | | | 2,018 | | | — | | | — | | | — | | | 2,020 | |
Stock issued in settlement of RSUs and accrued bonuses | | 271,684 | | | 272 | | | 419,101 | | | — | | | — | | | — | | | 419,373 | |
Tax withholdings paid related to stock based compensation | | — | | | — | | | (148,879) | | | — | | | — | | | — | | | (148,879) | |
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Foreign currency translation | | — | | | — | | | — | | | (945,423) | | | — | | | — | | | (945,423) | |
Unrealized losses on investments | | — | | | — | | | — | | | (157,354) | | | — | | | — | | | (157,354) | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (365,264) | | | (365,264) | |
Balance, March 31, 2020 | | 47,685,661 | | | $ | 51,098 | | | $ | 29,922,760 | | | $ | (3,518,237) | | | $ | (5,353,019) | | | $ | 24,339,805 | | | $ | 45,442,407 | |
Stock based compensation | | — | | | — | | | 183,850 | | — | | | — | | | — | | | 183,850 |
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Stock issued in settlement of RSUs | | 227,454 | | | 227 | | | (227) | | | — | | | — | | | — | | | 0 | |
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Foreign currency translation | | — | | | — | | | — | | | 375,267 | | | — | | | — | | | 375,267 | |
Unrealized gains on investments | | — | | | — | | | — | | | 72,875 | | | — | | | — | | | 72,875 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | (808,503) | | | (808,503) | |
Balance, June 30, 2020 | | 47,913,115 | | | $ | 51,325 | | | $ | 30,106,383 | | | $ | (3,070,095) | | | $ | (5,353,019) | | | $ | 23,531,302 | | | $ | 45,265,896 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Stockholders' Equity |
(Unaudited) |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | | | | |
Balance, December 31, 2019 | | 47,411,977 | | | $ | 50,824 | | | $ | 29,584,172 | | | $ | (2,415,460) | | | $ | (5,353,019) | | | $ | 24,705,069 | | | $ | 46,571,586 | |
Stock based compensation | | | | | | 66,348 | | | | | | | | 66,348 |
Stock issued in exercise of stock options | | 2,000 | | | 2 | | | 2,018 | | | | | | | | | 2,020 | |
Stock issued in settlement of RSUs and accrued bonuses | | 271,684 | | | 272 | | | 419,101 | | | | | | | | | 419,373 | |
Tax withholdings paid related to stock based compensation | | | | | | (148,879) | | | | | | | | | (148,879) | |
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Foreign currency translation | | | | | | | | (945,423) | | | | | | | (945,423) | |
Unrealized losses on investments | | | | | | | | (157,354) | | | | | | | (157,354) | |
Net loss | | | | | | | | | | | | (365,264) | | | (365,264) | |
Balance, March 31, 2020 | | 47,685,661 | | | $ | 51,098 | | | $ | 29,922,760 | | | $ | (3,518,237) | | | $ | (5,353,019) | | | $ | 24,339,805 | | | $ | 45,442,407 | |
Stock based compensation | | | | | | $ | 183,850 | | | | | | | | | 183,850 | |
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Stock issued in settlement of RSUs | | 227,454 | | | 227 | | | (227) | | | | | | | | | 0 | |
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Foreign currency translation | | | | | | | | 375,267 | | | | | | | 375,267 | |
Unrealized gains on investments | | | | | | | | 72,875 | | | | | | | 72,875 | |
Net loss | | | | | | | | | | | | $ | (808,503) | | | (808,503) | |
Balance, June 30, 2020 | | 47,913,115 | | | $ | 51,325 | | | $ | 30,106,383 | | | $ | (3,070,095) | | | $ | (5,353,019) | | | $ | 23,531,302 | | | $ | 45,265,896 | |
Stock based compensation | | | | | | 101,745 | | | | | | | | | 101,745 | |
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Stock issued in settlement of RSUs | | 46,467 | | | 46 | | | (46) | | | | | | | | | 0 | |
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Foreign currency translation | | | | | | | | 233,170 | | | | | | | 233,170 | |
Unrealized losses on investments | | | | | | | | (36,840) | | | | | | | (36,840) | |
Net loss | | | | | | | | | | | | (1,057,748) | | | (1,057,748) | |
Balance, September 30, 2020 | | $ | 47,959,582 | | | $ | 51,371 | | | $ | 30,208,082 | | | $ | (2,873,765) | | | $ | (5,353,019) | | | $ | 22,473,554 | | | $ | 44,506,223 | |
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
| For the Six Months Ended June 30, |
| 2021 | | 2020 |
OPERATING ACTIVITIES | | | |
Net loss | $ | (998,666) | | | $ | (1,173,767) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 683,597 | | | 566,791 | |
Gain on sale of fixed assets | (112,393) | | | (153,973) | |
Bad debt expense | (32,463) | | | 236,005 | |
Stock awards issued for services | 332,127 | | | 250,198 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (7,313) | | | 3,248,693 | |
Income taxes receivable/payable | (299,436) | | | (1,761) | |
Inventories | 577,341 | | | 445,634 | |
Prepaid expenses and other current assets | 988,464 | | | 168,718 | |
Deferred tax asset/liability | 78,746 | | | 104,166 | |
Accounts payable and accrued liabilities | 345,818 | | | (2,843,685) | |
Net Cash Provided by Operating Activities | 1,555,822 | | | 847,019 | |
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INVESTING ACTIVITIES | | | |
Proceeds from sale of property and equipment | 69,484 | | | 0 | |
Sale (purchase) of investments | (719,817) | | | 1,057,404 | |
Purchase of property and equipment | (93,049) | | | (994,410) | |
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Net Cash Provided by (Used in) Investing Activities | (743,382) | | | 62,994 | |
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FINANCING ACTIVITIES | | | |
Value of equity awards surrendered by employees for tax liability | (42,829) | | | (148,879) | |
Cash received in exercise of stock options | 0 | | | 2,020 | |
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Principal paid towards lease liability | (21,749) | | | (34,267) | |
Net Cash Used in Financing Activities | (64,578) | | | (181,126) | |
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Effect of exchange rate changes on cash | 25,201 | | | (65,506) | |
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NET INCREASE IN CASH | 773,063 | | | 663,381 | |
CASH AT BEGINNING OF PERIOD | 9,148,312 | | | 7,358,856 | |
CASH AT END OF PERIOD | $ | 9,921,375 | | | $ | 8,022,237 | |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
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CASH PAID FOR: | | | |
Interest | $ | 2,353 | | | $ | 4,247 | |
Income taxes | $ | 17,150 | | | $ | 0 | |
NON-CASH FINANCING AND INVESTING ACTIVITIES | | | |
Common stock issued in settlement of accrued bonuses | $ | 0 | | | $ | 419,373 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | | | | |
Balance, December 31, 2018 | | 47,932,305 | | | $ | 49,708 | | | $ | 28,027,742 | | | $ | (2,895,683) | | | $ | (2,609,485) | | | $ | 22,683,577 | | | $ | 45,255,859 | |
Stock based compensation | | | | | | 66,714 | | | | | | | | 66,714 |
Stock issued in exercise of stock options | | 2,483 | | | 2 | | | (2) | | | | | | | | | 0 | |
Stock issued in settlement of RSUs and accrued bonuses | | 148,723 | | | 149 | | | 379,712 | | | | | | | | | 379,861 | |
Tax withholdings paid related to stock based compensation | | | | | | (143,022) | | | | | | | | | (143,022) | |
Treasury stock repurchased | | (775,287) | | | | | | | | | (1,333,578) | | | | | (1,333,578) | |
Foreign currency translation | | | | | | | | 149,415 | | | | | | | 149,415 | |
Unrealized gains on investments | | | | | | | | 68,752 | | | | | | | 68,752 | |
Net income | | | | | | | | | | | | 1,668,618 | | | 1,668,618 | |
Balance, March 31, 2019 | | 47,308,224 | | | $ | 49,859 | | | $ | 28,331,144 | | | $ | (2,677,516) | | | $ | (3,943,063) | | | $ | 24,352,195 | | | $ | 46,112,619 | |
Stock based compensation | | | | | | 297,127 | | | | | | | | | 297,127 | |
Stock issued in exercise of stock options | | 9,174 | | | 9 | | | 6,841 | | | | | | | | | 6,850 | |
Stock issued in settlement of RSUs | | 148,794 | | | 149 | | | (149) | | | | | | | | | 0 | |
Tax withholdings paid related to stock based compensation | | | | | | (41,411) | | | | | | | | | (41,411) | |
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Foreign currency translation | | | | | | | | 102,435 | | | | | | | 102,435 | |
Unrealized gains on investments | | | | | | | | 49,495 | | | | | | | 49,495 | |
Net income | | | | | | | | | | | | 985,504 | | | 985,504 | |
Balance, June 30, 2019 | | 47,466,192 | | | $ | 50,017 | | | $ | 28,593,552 | | | $ | (2,525,586) | | | $ | (3,943,063) | | | $ | 25,337,699 | | | $ | 47,512,619 | |
Stock based compensation | | | | | | (5,571) | | | | | | | | | (5,571) | |
Stock issued in exercise of stock options | | 4,836 | | | 5 | | | 2,015 | | | | | | | | | 2,020 | |
Stock issued in settlement of RSUs | | 546 | | | 1 | | | (1) | | | | | | | | | 0 | |
Stock issues in acquisition (note 9) | | 739,130 | | | 739 | | | 1,019,261 | | | | | | | | | 1,020,000 | |
Tax withholdings paid related to stock based compensation | | | | | | (571) | | | | | | | | | (571) | |
Treasury stock repurchased | | (592,100) | | | | | | | | | (916,167) | | | | | (916,167) | |
Foreign currency translation | | | | | | | | (91,397) | | | | | | | (91,397) | |
Unrealized losses on investments | | | | | | | | (12,386) | | | | | | | (12,386) | |
Net income | | | | | | | | | | | | 921,748 | | | 921,748 | |
Balance, September 30, 2019 | | $ | 47,618,604 | | | $ | 50,762 | | | $ | 29,608,685 | | | $ | (2,629,369) | | | $ | (4,859,230) | | | $ | 26,259,447 | | | $ | 48,430,295 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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PROFIRE ENERGY, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
| For the Nine Months Ended September 30, |
| 2020 | | 2019 |
OPERATING ACTIVITIES | | | |
Net income (loss) | $ | (2,231,515) | | | $ | 3,575,870 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 860,028 | | | 732,396 | |
Gain on sale of fixed assets | (193,938) | | | (73,166) | |
Bad debt expense | 182,179 | | | 255,943 | |
Stock awards issued for services | 351,943 | | | 358,270 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 3,404,439 | | | 1,244,104 | |
Income taxes receivable/payable | (404,304) | | | (890,523) | |
Inventories | 714,245 | | | 1,711,446 | |
Prepaid expenses | 43,099 | | | (586,576) | |
Deferred tax asset/liability | 44,840 | | | 219,138 | |
Accounts payable and accrued liabilities | (2,648,339) | | | 855,207 | |
Net Cash Provided by Operating Activities | 122,677 | | | 7,402,109 | |
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INVESTING ACTIVITIES | | | |
Proceeds from sale of equipment | 16,313 | | | 75,310 | |
Sale of investments | 1,814,070 | | | 2,476,227 | |
Purchase of fixed assets | (1,146,400) | | | (3,309,191) | |
Payments for acquisitions, net of cash acquired | 0 | | | (4,322,722) | |
Net Cash Provided by (Used in) Investing Activities | 683,983 | | | (5,080,376) | |
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FINANCING ACTIVITIES | | | |
Value of equity awards surrendered by employees for tax liability | (148,879) | | | (185,004) | |
Cash received in exercise of stock options | 2,020 | | | 8,870 | |
Purchase of treasury stock | 0 | | | (2,249,745) | |
Principal paid towards lease liability | (45,965) | | | (53,190) | |
Net Cash Used in Financing Activities | (192,824) | | | (2,479,069) | |
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Effect of exchange rate changes on cash | (53,147) | | | (468) | |
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NET CHANGE IN CASH | 560,689 | | | (157,804) | |
CASH AT BEGINNING OF PERIOD | 7,358,856 | | | 10,101,932 | |
CASH AT END OF PERIOD | $ | 7,919,545 | | | $ | 9,944,128 | |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
| | | |
CASH PAID FOR: | | | |
Interest | $ | 4,946 | | | $ | 4,469 | |
Income taxes | $ | 402,510 | | | $ | 1,793,281 | |
NON-CASH FINANCING AND INVESTING ACTIVITIES | | | |
Common stock issued in settlement of accrued bonuses | $ | 419,373 | | | $ | 379,861 | |
Issuance of common stock - Midflow acquisition | $ | 0 | | | $ | 1,020,000 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
For the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
Except where the context otherwise requires, all references herein to the "Company," "Profire," "we," "us," "our," or similar words and phrases are to Profire Energy, Inc. and its wholly owned subsidiaries, taken together.
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, stockholders' equity, and cash flows at SeptemberJune 30, 20202021 and for all periods presented herein have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements contained in its annual report on Form 10-K for the year ended December 31, 20192020 ("Form 10-K"). The results of operations for the three and ninesix month periods ended SeptemberJune 30, 20202021 and 20192020 are not necessarily indicative of the operating results for the full years.
NOTE 2 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
This Organization and Summary of Significant Accounting Policies of the Company is presented to assist in understanding the Company's condensed consolidated financial statements. The Company's accounting policies conform to "US GAAP."
The Company provides burner-management products, solutions and services for the oil and gas industry primarily in the US and Canadian markets.
Significant Accounting Policies
There have been no changes to the significant accounting policies of the Company from the information provided in Note 1 of the Notesnotes to the Consolidated Financial Statementsconsolidated financial statements in the Company's most recent Form 10-K.
Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 3 – INVENTORIES
Inventories consisted of the following at each balance sheet date:
| | | As of | | As of |
| | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Raw materials | Raw materials | $ | 328,945 | | | $ | 0 | | Raw materials | $ | 356,899 | | | $ | 328,772 | |
Finished goods | Finished goods | 9,494,074 | | | 10,517,858 | | Finished goods | 8,578,380 | | | 9,229,298 | |
Work in process | Work in process | 0 | | | 0 | | Work in process | 0 | | | 0 | |
Subtotal | Subtotal | 9,823,019 | | | 10,517,858 | | Subtotal | 8,935,279 | | | 9,558,070 | |
Reserve for obsolescence | Reserve for obsolescence | (1,042,448) | | | (946,051) | | Reserve for obsolescence | (1,023,283) | | | (1,143,298) | |
Total | Total | $ | 8,780,571 | | | $ | 9,571,807 | | Total | $ | 7,911,996 | | | $ | 8,414,772 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
97
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at each balance sheet date:
| | | | | | | | | | | |
| As of |
| September 30, 2020 | | December 31, 2019 |
Assets classified as held for sale | 791,180 | | | 0 | |
Prepaid Inventory | 659,084 | | | 1,291,577 | |
Prepaid insurance | 275,623 | | | 133,611 | |
Vehicle trade-in credits | 156,607 | | | 0 | |
Interest receivables | 64,600 | | | 80,609 | |
Other | 231,588 | | | 166,625 | |
Total | $ | 2,178,682 | | | $ | 1,672,422 | |
| | | | | | | | | | | |
| As of |
| June 30, 2021 | | December 31, 2020 |
Assets classified as held for sale | $ | 0 | | | $ | 623,805 | |
Prepaid inventory | 445,683 | | | 542,313 | |
Prepaid insurance | 148,396 | | | 217,465 | |
Interest receivables | 64,604 | | | 65,984 | |
Vehicle trade-in credits | 6,993 | | | 55,733 | |
Other | 107,470 | | | 173,128 | |
Total | $ | 773,146 | | | $ | 1,678,428 | |
In the first quarter of 2020, we completed the construction of a new office building and research and development facility in Acheson, Canada. As a result, during the second quarter of 2020 we started the process of selling our old office building in Spruce Grove, Canada. In the table above, the assets classified as held"held for sale assale" consisted of Septemberan office building located in Spruce Grove, Alberta, Canada. During the six months ended June 30, 2020, consist2021, we sold the remaining 3 bays that were part of this oldthe office building, which we intend to sell withinresulted in a one year period fromgain of $42,378 CAD that was recorded during the most recent balance sheet date. The amount shown above is recorded at cost, less accumulated depreciation.period.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following at each balance sheet date:
| | | | | | | | | | | |
| As of |
| September 30, 2020 | | December 31, 2019 |
Employee-related payables | $ | 792,050 | | | $ | 1,657,826 | |
Warranty liabilities | 98,354 | | | 166,301 | |
Inventory-related payables | 80,641 | | | 0 | |
Acquisition liabilities | 0 | | | 162,907 | |
Other | 90,470 | | | 102,357 | |
Total | $ | 1,061,515 | | | $ | 2,089,391 | |
| | | | | | | | | | | |
| As of |
| June 30, 2021 | | December 31, 2020 |
Employee-related payables | $ | 1,160,053 | | | $ | 789,573 | |
Inventory-related payables | 154,215 | | | 158,519 | |
Warranty liabilities | 40,608 | | | 71,852 | |
Other | 131,702 | | | 176,926 | |
Total | $ | 1,486,578 | | | $ | 1,196,870 | |
NOTE 6 – LEASES
We have leases for office equipment and office space. The leases for office equipment are classified as financing leases and the typical term is 36 months. We have the option to extend most office equipment leases, but we do not intend to do so. Accordingly, no extensions have been recognized in the right-of-use asset or lease liability. The office equipment lease payments are not variable and the lease agreements do not include any non-lease components, residual value guarantees, or restrictions. There are no interest rates implicit in the office equipment lease agreements, so we have used our incremental borrowing rate to determine the discount rate to be applied to our financing leases.leases for purposes of determining our lease liabilities. The weighted average discount rate applied to our financing leases is 4.50% and the weighted average remaining lease term is 17.810.3 months.
The following table shows the components of financing lease cost:
| | | | | | | | | | | | | | | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
Financing Lease Cost | Financing Lease Cost | | For the Three Months Ended September 30, 2020 | | For the Nine Months Ended September 30, 2020 | Financing Lease Cost | 2021 | 2020 | | 2021 | 2020 |
Amortization of right-of-use assets | Amortization of right-of-use assets | | $ | 11,567 | | | $ | 45,064 | | Amortization of right-of-use assets | $ | 10,211 | | $ | 15,121 | | | $ | 21,203 | | $ | 33,497 | |
Interest on lease liabilities | Interest on lease liabilities | | 699 | | | 4,946 | | Interest on lease liabilities | 417 | | 3,375 | | | 2,353 | | 4,247 | |
Total financing lease cost | Total financing lease cost | | $ | 12,266 | | | $ | 50,010 | | Total financing lease cost | $ | 10,628 | | $ | 18,496 | | | $ | 23,556 | | $ | 37,744 | |
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
The following table reconciles future minimum lease payments to the discounted finance lease liability:
| Years ending December 31, | Years ending December 31, | | Amount | Years ending December 31, | | Amount |
2020 - remaining | | $ | 12,506 | | |
2021 | | 40,921 | | |
2021 - remaining | | 2021 - remaining | | $ | 18,079 | |
2022 | 2022 | | 12,803 | | 2022 | | 12,803 | |
2023 | 2023 | | 0 | | 2023 | | 0 | |
2024 | 2024 | | 0 | | 2024 | | 0 | |
2025 | | 2025 | | 0 | |
Thereafter | Thereafter | | 0 | | Thereafter | | 0 | |
Total future minimum lease payments | Total future minimum lease payments | | $ | 66,230 | | Total future minimum lease payments | | $ | 30,882 | |
Less: Amount representing interest | Less: Amount representing interest | | 2,279 | | Less: Amount representing interest | | 644 | |
Present value of future payments | Present value of future payments | | $ | 63,951 | | Present value of future payments | | $ | 30,238 | |
Current portion | Current portion | | $ | 43,024 | | Current portion | | $ | 30,238 | |
Long-term portion | Long-term portion | | $ | 20,927 | | Long-term portion | | $ | 0 | |
Because our office space leases are substantially all considered to be short-term, we have elected not to recognize them on our balance sheet under the short-term recognition exemption. During the three and ninesix months ended SeptemberJune 30, 2020,2021, we recognized $19,189$19,000 and $57,719,$35,263, respectively, in short-term lease costs associated with office space leases.
NOTE 7 – STOCKHOLDERS' EQUITY
As of SeptemberJune 30, 20202021, and December 31, 2019,2020, the Company held 3,412,378 shares of its common stock in treasury at a total cost of $5,353,019, respectively.
As of SeptemberJune 30, 2020 ,2021, the Company had 275,203361,409 restricted stock units, 252,701480,667 performance based restricted stock units, and 934,700 stock options outstanding with $593,361$846,876 in remaining compensation expense to be recognized over the next 2.31.9 years.
20202021 EIP and LTIP
Due to economic uncertainties including those caused byOn May 28, 2021, the COVID-19 pandemic,Compensation Committee (the "Compensation Committee") of the Board of Directors of the Company (the "Board"“Board”), with the support of the Company's executives, has elected to not adopt an executive incentive plan ("EIP") or long-term incentive plan ("LTIP") for 2020. The Board and executives believe this is an appropriate short-term measure that will help to align the Company's cost structure with the current extraordinary conditions affecting the industry in which we operate.
2019 EIP
On April 22, 2019, the Board approved the 20192021 Executive Incentive Plan (the “2019“2021 EIP”) for Brenton W. Hatch, the Company’s then President and Chief Executive Officer,Chairman, Ryan W. Oviatt, the Company’s Chief Financial Officer,Co-CEO, Co-President, and CFO, Cameron M. Tidball, the Company’s Chief Business Development Officer,Co-CEO and Co-President, Jay G. Fugal, the Company’s Vice President of Operations, and Patrick D. Fisher, the Company’s Vice President of Product Development. The 20192021 EIP providedprovides for the potential award of bonusesincentive compensation to the participants based on the Company’s financial performance in fiscal year 2019. On March 4, 2020,2021. If earned, the Company's Board of Directors approved a one-time executive bonus in the amount of $828,787 for meeting targets pursuant to the 2019 EIP. Half of the bonus was paidincentive compensation will be payable in cash and halfstock, and the stock portion of the bonus was settled by issuing 343,748 shares of common stockincentive compensation is intended to constitute an award under the Company'sCompany’s 2014 Equity Incentive Plan, as amended (the "2014 Plan"“Plan”) which was fully vested on.
Under the dateterms of grant.the 2021 EIP, each participating executive officer has been assigned a target incentive compensation amount for fiscal 2021. The target incentive compensation amount for Mr. Hatch is $200,000, the target incentive compensation amount for Mr. Oviatt is $150,000, the target incentive compensation amount for Mr. Tidball is $150,000, the target incentive compensation for Mr. Fugal is $54,000, and the target incentive compensation for Mr. Fisher is $51,000 CAD. Under no circumstance can the participants receive more than two times the assigned target incentive compensation.
Participants werewill be eligible to receive bonusesincentive compensation based upon reaching or exceeding performance goals established by the Board or its Compensation Committee for fiscal 2019.2021. The performance goals in the 20192021 EIP wereare based on the Company’s total revenue, net income, free cash flow,EBITDA, and product development milestones.a non-financial milestone relating to revenue source diversification. Each of these performance goals werewill be weighted 25%one third in calculating bonusincentive compensation amounts.
The incentive compensation amounts earned under the 2021 EIP, if any, will be paid 50% in cash and 50% in shares of restricted stock under the Plan. In no event shall the total award exceed 200% of the target incentive compensation amount for each participant, or exceed any limitations otherwise set forth in the Plan. The actual incentive compensation amounts, if
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
any, will be determined by the Compensation Committee upon the completion of fiscal 2021 and paid by March 15, 2022, subject to all applicable tax withholding.
2019 LTIP
On April 22, 2019In addition to the 2021 EIP, the Board also adoptedapproved as a long-term incentive plan the 2019 Long-Term Incentive plangrants of a restricted stock unit awards to Messrs. Oviatt, Tidball, Fugal, and Fisher pursuant to the Plan (the "2019 LTIP"“2021 LTIP”) for certain of the Company's executive officers.. The 20192021 LTIP consists of total awards of up to 66,213204,543 restricted stock units (“RSUs”Units”) to Mr. Oviatt, up to 51,646 RSUs204,543 Units to Mr. Tidball, up to 35,313 RSUs85,908 Units to Mr. Fugal, and up to 24,862 RSUs47,973 Units to Mr. Fisher, pursuant to two separate Restrictedrestricted stock unit award agreements (collectively, the “Restricted Stock Unit Award Agreements that were entered intoAgreements”) between the Company and each participant under the 2014 Plan.participant. One agreement covers 33% of each award recipient’s RSU'sUnits that are subject to time-based vesting, and the other agreement covers the remaining 67% of such award recipient’s RSU'sUnits that may vest based on performance metrics. Upon vesting, the award agreements entitle the award recipients to receive one share of the Company’s common stock for each vested RSU.Unit. The vesting period of the 20192021 LTIP began on January 1, 20192021, and terminates on December 31, 2021.2023 (the “Performance Vesting Date”).
2017The Units subject to time-based vesting, including 68,181 Units to Mr. Oviatt, 68,181 Units for Mr. Tidball, 28,636 Units to Mr. Fugal, and 15,991 Units to Mr. Fisher, will vest in three equal annual installments beginning December 31, 2021 and ending on December 31, 2023 if the award recipients’ employment continues with the Company through such dates.
The performance-vesting Units, including up to 136,362 Units for Mr. Oviatt, 136,362 Units for Mr. Tidball, 57,272 Units for Mr. Fugal, and 31,982 Units to Mr. Fisher, are eligible to vest over a three-year performance period beginning January 1, 2021 (the “Performance Period”) based upon the following Company performance metrics:
| | | | | | | | | | | | | | |
Performance Metric | Weight | Target | Above Target | Outstanding |
Total Shareholder Return
| 1/3 | 135% | 194% | 253% |
Relative Total Shareholder Return | 1/3 | Third Quartile | Second Quartile | First Quartile |
EBITDA as a Percentage of Total Revenue | 1/3 | 10% | 15% | 20% |
One-third of such performance-vesting Units, consisting of 45,454 Units for Mr. Oviatt, 45,454 Units for Mr. Tidball, 19,091 Units for Mr. Fugal, and 10,661 Units for Mr. Fisher, are eligible to vest for each of the 3 performance metrics identified in the table above. The number of Units that will vest for each performance metric on the Performance Vesting Date shall be determined as follows:
•if the “Target” level for such performance metric is not achieved, 0ne of the Units relating to such performance metric will vest;
•if the “Target” level (but no higher level) for such performance metric is achieved, 50% of the Units relating to such performance metric will vest;
•if the “Above Target” level (but no higher level) for such performance metric is achieved, 75% of the Units relating to such performance metric will vest; and
•if the “Outstanding” level for such performance metric is achieved, 100% of the Units relating to such performance metric will vest.
The foregoing summary of the 2021 EIP, the 2021 LTIP and the Restricted Stock Unit Award Agreements is qualified in its entirety by the text of the 2021 EIP and each of the Restricted Stock Unit Award Agreements, which the Company has filed as an exhibits to this report.
2020 EIP and LTIP
On March 4, 2020,Due to economic uncertainties including those caused by the COVID-19 pandemic, the Board, approved a one-timewith the support of the Company's executives, elected not to adopt an executive bonusincentive plan ("2020 EIP") or long-term incentive plan ("2020 LTIP") for 2020. The Board and executives believed this was an appropriate short-term measure that was settled by issuing 16,689 shares of common stock for meeting targets pursuant tohelped align the previously announced "2017 Long-Term Incentive Plan",Company's cost structure with the extraordinary conditions that affected the industry in which shares were issued under the 2014 Plan. These shares were fully vested as of March 4, 2020.we operate.
20202021 RSUs
On February 18, 2021, the Board, upon the recommendation of the Compensation Committee, approved a restricted stock award of 18,852 shares of common stock to each of Cameron M. Tidball and Ryan W. Oviatt. Messrs. Tidball and Oviatt entered into Restricted Stock Unit Award Agreements, the forms of which were approved pursuant to the Plan. These
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 17,30, 2021 and 2020
restricted stock awards, which vested immediately, were settled by the issuance of a total of 27,334 shares of common stock, net of tax withholding and resulted in $45,999 of compensation expense.
On June 16, 2021, pursuant to the annual renewal of Directordirector compensation, the Board approved a grant of 270,966189,471 RSUs to Independent Directors.the Company's independent directors. Half of the RSUs vested immediately on the date of grant and the remaining 50% of the RSUs will vest on the first anniversary of the grant date or at the Company's next Annual Meetingannual meeting of Stockholders,stockholders, whichever is earlier. The awards will result in total compensation expense of approximately $216,000 to be recognized over the vesting period.
2020 RSUs
On June 17, 2020, pursuant to the annual renewal of director compensation, the Board approved a grant of 270,966 RSUs to the Company's independent directors. Half of the RSUs vested immediately on the date of grant and the remaining 50% of the RSUs will vest on the first anniversary of the grant date or at the Company's next annual meeting of stockholders, whichever is earlier. The awards will result in total compensation expense of $252,000 to be recognized over the vesting period.
On July 30, 2020 Mr. Arlen B. Crouch notified the Chairman of the Board of the Company of his decision to resign, effective August 3, 2020,resigned from his position as a member of the Board.Board, effective August 3, 2020. Mr. Crouch’s resignation did not result from any disagreements with Managementmanagement or the Board. On the effective date of Mr. Crouch's resignation, date all of his unvested RSUs were forfeited and theforfeited. The related compensation expense associated with Mr. Crouch's unvested RSUs will be recaptured. On July 30, 2020, the Board appointed Colleen Larkin Bell to serve as a director to fill the vacancy resulting from Mr. Crouch’s resignation, effective August 3, 2020. Ms. Bell will servewas also appointed as Chair of the Nominating Committee and will serve onas a member of the Audit and Compensation Committees. As part of her compensation for her service on the Boardas a director and Committee Assignments,committee member, on August 21, 2020, the board approved a grant of 92,934 RSUs. Half of the RSUs vested immediately on the date of the grant and the remaining 50% of the RSUs will vest on the first anniversary of the grant date. The awards will result in total compensation expense of $72,953 to be recognized over the vesting period.
2019 RSUs
On March 14, 2019, the Board approved a grant of 85,000 RSUs to various employees. The awards vest annually over five years and will result in a total compensation expense of $149,600 to be recognized over the vesting period.
On June 12, 2019, pursuant to the annual renewal of Director compensation, the Board approved a grant of 183,942 RSUs to Independent Directors. Half of the RSUs vested immediately on the date of grant and the remaining 50% of the RSUs vested on the first anniversary of the grant date. The awards have resulted in total compensation expense of $252,000 that was recognized over the vesting period.
2020 Stock Options
On March 17, 2020 (the "March Grant Date"), the Board approved a grant of options to purchase 115,200 shares of the Company's common stock at a strike price of $0.81 to various employees (the "March 2020 Options"). The March 2020 Options terminate four years from the March Grant Date and the March 2020 Options become exercisable as to one-third of the shares of common stock covered thereby on each anniversary of the March Grant Date for the next three years following the March Grant Date. The March 2020 Options will resultresulted in a total compensation expense of $40,280 to be recognized over the vesting period.$40,280.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020 and 2019
On July 2, 2020 (the "July Grant Date"), upon the recommendation of the Compensation Committee, the Board approved the grant of a non-qualified stock option to purchase 100,000 shares of the Company’s common stock to each of Mr. Oviatt and Mr. Tidball under the Company’s 2014 Plan and pursuant to the standard form of Noticenotice of Stock Option Grantstock option grant and Stock Option Agreementstock option agreement under the plan (the “July 2020 Options”). The exercise price of the July 2020 Options is equal to the closing bid price of the Company's common stock on July 2, 2020, or $0.8439 per share. The July 2020 Options shall vest equally over a period of three years from the July Grant Date. Vesting occurs on the anniversary date of the July Grant Date, with one-third of the total shares vesting on each of the first three anniversaries of the July Grant Date. Vesting is contingent upon the executive’s continued employment with the Company on each applicable vesting date. The July 2020 Options expire on July 2, 2024. TheseThe July 2020 Options will result in a total compensation expense of $79,431 to be recognized over the vesting period.
On August 21, 2020 (the "August Grant Date"), the Board approved a grant of options to purchase 630,000 shares of the Company's common stock at a strike price of $0.785 to various employees (the "August 2020 Options"). The August 2020 Options terminate four years from the August Grant Date and the August Options shall become exercisable as to one-third of the shares of common stock covered thereby on each anniversary of the August Grant Date for the next three years following the August Grant Date. The August 2020 Options will result in a total compensation expense of $233,111 to be recognized over the vesting period.
NOTE 8 – ACQUISITIONSREVENUE
Millstream Energy Products
On June 18, 2019, our wholly-owned subsidiary, Profire Combustion, Inc., acquired substantially all the assets of Millstream Energy Products, LTD., a Canadian corporation ("MEP"). MEP is a privately-held Canadian company that developed a line of high-performance burners, economy burners, flame arrestor housings, secondary air control plates, and other related combustion components. MEP’s full line of products became available for sale by Profire’s existing sales team immediately after closing of the transaction. These products complement our burner-management system (BMS) product offerings and enable us to supply a larger portion of the total BMS package sale to our customers.
The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase price of $2,219,782 was funded through existing cash. A portion of the cash purchase amount equal to $140,257 was held back for 6 months pending satisfaction of seller obligations under the purchase agreement and was paid to the seller on February 20, 2020. The seller is also entitled to receive a 4.5% annual royalty on proprietary MEP product revenue generated during the next five years period from June 18, 2019 to June 18, 2024.
Profire hired a valuation firm to perform the purchase price allocation based on net assets received and the price paid. Based on the fair value of net assets at the time of purchase, the Company recorded intangible assets in the amount of $990,000 and goodwill of $17,681. Intangible assets include customer relationships, the trade name and developed technology.
| | | | | |
The purchase price calculation is a follows: | |
Cash | $ | 2,079,525 | |
Liabilities | 140,257 | |
| $ | 2,219,782 | |
| |
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of purchase: | |
Accounts receivable | $ | 207,145 | |
Inventory | 1,119,143 | |
Intangible assets | 990,000 |
Goodwill | 17,681 | |
Accounts payable | (114,187) | |
| $ | 2,219,782 | |
Performance Obligations
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 20202021 and 2019
Transaction and other costs directly related to the acquisition of MEP, consisting primarily of professional fees and integration expenses, have amounted to approximately $136,811, were expensed as incurred and are included in general and administrative expenses.
Midflow Services
On August 5, 2019, we acquired all of the outstanding membership interests of Midflow Services, LLC ("Midflow"). Midflow provides packaged combustion solutions and services to the upstream and midstream oil and gas industry.
The Midflow acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase price of $3,439,371 was funded through a combination of existing cash and shares of the Company's common stock. The cash portion of the purchase price includes $500,000 placed in an escrow account for 12 months pending satisfaction of certain obligations under the purchase agreement which was settled in August 2020.
Profire hired a valuation firm to perform the purchase price allocation based on the net assets received and the price paid. Based on the fair value of the net assets at the time of purchase, the Company recorded intangible assets in the amount of $1,110,000 and goodwill of $1,564,000. Intangible assets include customer relationships, the trade name and developed technology.
| | | | | |
The purchase price calculation is as follows: | |
Cash | $ | 2,419,371 | |
Stock | 1,020,000 | |
| $ | 3,439,371 | |
| |
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of purchase: | |
Cash | $ | 172,850 | |
Accounts receivable | 324,989 | |
Inventory | 269,746 | |
Prepaid expenses | 13,180 | |
Property and equipment | 126,000 | |
Intangible assets | 1,110,000 | |
Goodwill | 1,564,000 | |
Accounts payable | (134,956) | |
Accrual liabilities | (6,438) | |
| $ | 3,439,371 | |
Transaction costs directly related to the acquisition of Midflow, consisting primarily of professional fees and integration expenses, amounted to approximately $44,087. All of these costs were expensed as incurred and are included in general and administrative expenses.
NOTE 9 – REVENUE
Performance Obligations
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020 and 2019
Our performance obligations include providing product and servicing our product. We recognize product revenue performance obligations in most cases when the product is delivered to the customer. Occasionally, if we are shipping the product on a customer’s account, we recognize revenue when the product has been shipped. At that point in time, the control of the product is transferred to the customer. When we perform service work, we apply the practical expedient that allows us to recognize service revenue when we have the right to invoice the customer for the work completed. We do not engage in transactions acting as an agent. The time needed to complete our performance obligations varies based on the size of the project; however, we typically satisfy our performance obligations within a few months of entering into the applicable sales contract or service contract.
Our customers have the right to return certain unused and unopened products within 90 days for a restocking fee. We provide a warranty on some of our products ranging from 90 days to 2 years, depending on the product. See Nnoteote 5 for the amount accrued for expected returns and warranty claims as of SeptemberJune 30, 2020.2021.
Contract Balances
We have elected to use the practical expedient in ASC 340-40-25-4 (regarding recognition of the incremental costs of obtaining a contract) for costs related to contracts that are estimated to be completed within one year. All of our current sales contracts and service contracts are expected to be completed within one year, and as a result, we have not recognized a contract asset account. If we had chosen not to use this practical expedient, we would not expect a material difference in the contract balances. We also did not have any material contract liabilities because we typically do not receive payments in advance of recognizing revenue.
Disaggregation of Revenue
All revenue recognized in the income statement is considered to be revenue from contracts with customers. The table below shows revenue by category:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Electronics | Electronics | | $ | 1,406,681 | | | $ | 3,880,542 | | | $ | 5,708,436 | | | $ | 12,632,170 | | Electronics | | $ | 2,016,876 | | | $ | 1,644,668 | | | $ | 3,868,675 | | | $ | 4,301,755 | |
Manufactured | Manufactured | | 139,057 | | | 519,990 | | | 682,149 | | | 1,456,789 | | Manufactured | | 324,830 | | | 142,234 | | | 561,640 | | | 543,092 | |
Re-Sell | Re-Sell | | 1,971,542 | | | 4,851,415 | | | 7,986,792 | | | 14,920,878 | | Re-Sell | | 3,032,833 | | | 2,212,237 | | | 5,601,759 | | | 6,015,250 | |
Service | Service | | 482,826 | | | 653,814 | | | 1,429,350 | | | 1,853,013 | | Service | | 659,744 | | | 360,340 | | | 1,094,558 | | | 946,524 | |
Total Revenue | Total Revenue | | $ | 4,000,106 | | | $ | 9,905,761 | | | $ | 15,806,727 | | | $ | 30,862,850 | | Total Revenue | | $ | 6,034,283 | | | $ | 4,359,479 | | | $ | 11,126,632 | | | $ | 11,806,621 | |
NOTE 109 – BASIC AND DILUTED EARNINGS PER SHARE
The following table is a reconciliation of the numerator and denominators used in the earnings per share calculation:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, |
| | 2021 | | 2020 |
| | Loss (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount | | Loss (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
Basic EPS | | | | | | | | | | | | |
Net loss available to common stockholders | | $ | (397,166) | | | 48,054,136 | | | $ | (0.01) | | | $ | (808,503) | | | 47,723,208 | | | $ | (0.02) | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Stock options & RSUs | | 0 | | | 0 | | | | | 0 | | | 0 | | | |
| | | | | | | | | | | | |
Diluted EPS | | | | | | | | | | | | |
Net loss available to common stockholders + assumed conversions | | $ | (397,166) | | | 48,054,136 | | | $ | (0.01) | | | $ | (808,503) | | | 47,723,208 | | | $ | (0.02) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, |
| | 2020 | | 2019 |
| | Income (loss) (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount | | Income (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
Basic EPS | | | | | | | | | | | | |
Net income (loss) available to common stockholders | | $ | (1,057,748) | | | 47,933,318 | | | $ | (0.02) | | | $ | 921,748 | | | 47,739,192 | | | $ | 0.02 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Stock options & RSUs | | 0 | | | 0 | | | | | 0 | | | 730,054 | | | |
| | | | | | | | | | | | |
Diluted EPS | | | | | | | | | | | | |
Net income (loss) available to common stockholders + assumed conversions | | $ | (1,057,748) | | | 47,933,318 | | | $ | (0.02) | | | $ | 921,748 | | | 48,469,246 | | | $ | 0.02 | |
Stock options and RSUs to purchase 1,776,776 shares of common stock at a weighted average price of $1.15 per share were outstanding during the three months ended June 30, 2021, but were not included in the computation of diluted EPS because
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
the impact of these shares would be antidilutive. These RSUs, which expire between December 2022 and December 2024, were still outstanding at June 30, 2021.
Stock options and RSUs to obtain 527,904purchase 534,924 shares of common stock at a weighted average price of $0.83 per share were outstanding during the three months ended SeptemberJune 30, 2020, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expire between March 2021 and March 2024, were still outstanding at June 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, |
| | 2021 | | 2020 |
| | Income (loss) (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount | | Income (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
Basic EPS | | | | | | | | | | | | |
Net income (loss) available to common stockholders | | $ | (998,666) | | | 48,022,295 | | | $ | (0.02) | | | $ | (1,173,767) | | | 47,607,825 | | | $ | (0.02) | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Stock options & RSUs | | 0 | | | 0 | | | | | 0 | | | 0 | | | |
| | | | | | | | | | | | |
Diluted EPS | | | | | | | | | | | | |
Net income (loss) available to common stockholders + assumed conversions | | $ | (998,666) | | | 48,022,295 | | | $ | (0.02) | | | $ | (1,173,767) | | | 47,607,825 | | | $ | (0.02) | |
Stock options and RSUs to purchase 1,776,776 shares of common stock at a weighted average price of $1.15 per share were outstanding during the six months ended June 30, 2021, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These RSUs, which expire between March 2021December 2022 and MarchDecember 2024, were still outstanding at SeptemberJune 30, 2020.
2021.
Stock options and RSUs to purchase 244,600555,866 shares of common stock at a weighted average price of $3.88$0.98 per share were outstanding during the threesix months ended SeptemberJune 30, 2019,2020, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expired between November 2019 and May 2020, were still outstanding at September 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2020 | | 2019 |
| | Income (loss) (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount | | Income (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
Basic EPS | | | | | | | | | | | | |
Net income (loss) available to common stockholders | | $ | (2,231,515) | | | 47,717,114 | | | $ | (0.05) | | | $ | 3,575,870 | | | 47,509,357 | | | $ | 0.08 | |
| | | | | | | | | | | | |
Effect of Dilutive Securities | | | | | | | | | | | | |
Stock options & RSUs | | 0 | | | 0 | | | | | 0 | | | 750,543 | | | |
| | | | | | | | | | | | |
Diluted EPS | | | | | | | | | | | | |
Net income (loss) available to common stockholders + assumed conversions | | $ | (2,231,515) | | | 47,717,114 | | | $ | (0.05) | | | $ | 3,575,870 | | | 48,259,900 | | | $ | 0.07 | |
Stock options and RSUs to purchase 666,714 shares of common stock at a weighted average price of $0.85 per share were outstanding during the nine months ended September 30, 2020, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These stock options and RSUs, which expire between March 2021 and AugustMarch 2024, were still outstanding at SeptemberJune 30, 2020.
Stock options to purchase 244,600 shares of common stock at a weighted average price of $3.88 per share were outstanding during the nine months ended September 30, 2019, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expired between November 2019 and May 2020, were still outstanding at September 30, 2019.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020
NOTE 1110 – SEGMENT INFORMATION
The Company operates in the United States and Canada. Segment information for these geographic areas is as follows:
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
Sales | Sales | | 2020 | | 2019 | | 2020 | | 2019 | Sales | | 2021 | | 2020 | | 2021 | | 2020 |
Canada | Canada | | $ | 755,701 | | | $ | 1,890,592 | | | $ | 2,365,118 | | | $ | 3,883,010 | | Canada | | $ | 1,035,377 | | | $ | 585,695 | | | $ | 1,863,822 | | | $ | 1,609,417 | |
United States | United States | | 3,244,405 | | 8,015,169 | | 13,441,609 | | 26,979,840 | United States | | 4,998,906 | | 3,773,784 | | 9,262,810 | | | 10,197,204 | |
Total Consolidated | Total Consolidated | | $ | 4,000,106 | | | $ | 9,905,761 | | | $ | 15,806,727 | | | $ | 30,862,850 | | Total Consolidated | | $ | 6,034,283 | | | $ | 4,359,479 | | | $ | 11,126,632 | | | $ | 11,806,621 | |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
Profit (Loss) | Profit (Loss) | | 2020 | | 2019 | | 2020 | | 2019 | Profit (Loss) | | 2021 | | 2020 | | 2021 | | 2020 |
Canada | Canada | | $ | (473,395) | | | $ | (242,182) | | | $ | (1,059,627) | | | $ | (1,171,424) | | Canada | | $ | (556,713) | | | $ | (264,163) | | | $ | (877,475) | | | $ | (586,232) | |
United States | United States | | (584,353) | | 1,163,930 | | (1,171,888) | | 4,747,294 | United States | | 159,547 | | (544,340) | | (121,191) | | | (587,535) | |
Total Consolidated | Total Consolidated | | $ | (1,057,748) | | | $ | 921,748 | | | $ | (2,231,515) | | | $ | 3,575,870 | | Total Consolidated | | $ | (397,166) | | | $ | (808,503) | | | $ | (998,666) | | | $ | (1,173,767) | |
| | | As of | | As of |
Long-Lived Assets | Long-Lived Assets | | September 30, 2020 | | December 31, 2019 | Long-Lived Assets | | June 30, 2021 | | December 31, 2020 |
Canada | Canada | | $ | 5,733,180 | | | $ | 6,068,061 | | Canada | | $ | 5,971,607 | | | $ | 6,049,790 | |
United States | United States | | 16,781,358 | | | 18,080,075 | | United States | | 5,778,843 | | | 6,022,115 | |
Total Consolidated | Total Consolidated | | $ | 22,514,538 | | | $ | 24,148,136 | | Total Consolidated | | $ | 11,750,450 | | | $ | 12,071,905 | |
|
NOTE 1211 – SUBSEQUENT EVENTS
In accordance with ASC 855 "Subsequent Events," Company Managementmanagement reviewed all material events through the date this report was issued and there were no subsequent events to report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the three and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 2019.2020. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Financial Statementsfinancial statements and Notesnotes to the Financial Statementsfinancial statements contained in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended December 31, 2019.2020.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are based on management's beliefs and assumptions and on information currently available to management. For this purpose, any statement contained in this report that is not a statement of historical fact may be deemed to be forward-looking, including, but not limited to, statements relating to our future actions, intentions, plans, strategies, objectives, results of operations, cash flows and the adequacy of or need to seek additional capital resources and liquidity. Words such as "may," "should," "expect," "project," "plan," "anticipate," "believe," "estimate," "intend," "budget," "forecast," "predict," "potential," "continue," "should," "could," "will," or comparable terminology or the negative of such terms are intended to identify forward-looking statements; however, the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements by their nature involve known and unknown risks and uncertainties and other factors that may cause actual results and outcomes to differ materially depending on a variety of factors, many of which are not within our control. Such factors include, but are not limited to, economic conditions generally and in the oil and gas industry in which we and our customers participate; competition within our industry; legislative requirements or changes which could render our products or services less competitive or obsolete; our failure to successfully develop new products and/or services or to anticipate current or prospective customers' needs; price increases; limits to employee capabilities; delays, reductions, or cancellations of contracts we have previously entered into; sufficiency of working capital, capital resources and liquidity and other factors detailed herein and in our other filings with the United States Securities and Exchange Commission (the "SEC" or "Commission"). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A. Risk Factors, included elsewhere in this report.
Forward-looking statements are based on current industry, financial, and economic information which we have assessed but which by its nature is dynamic and subject to rapid and possibly abrupt changes. Due to risks and uncertainties associated with our business, our actual results could differ materially from those stated or implied by such forward-looking statements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements and we hereby qualify all of our forward-looking statements by these cautionary statements.
Forward-looking statements in this report are based only on information currently available to us and speak only as of the date on which they are made. We undertake no obligation to amend this report or revise publicly these forward-looking statements (other than as required by law) to reflect subsequent events or circumstances, whether as the result of new information, future events or otherwise.
The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this report and in our other filings with the Commission.
Overview
We are an oilfielda technology company providing productssolutions that enhance the efficiency, safety, and compliancereliability of industrial combustion appliances while mitigating potential environmental impacts related to the operation of these devices. Our legacy business is primarily focused in the upstream, midstream, and downstream transmission segments of the oil and gas industry.industry; however, we have commenced identifying applications in other industries where we believe our solutions will be applicable as we expand our addressable market over time. We specialize in the engineering and design of burner and combustion management systems and solutions used on a variety of oilfield natural-draft fire-tubenatural and forced-airforced draft applications. We sell our products and services primarily throughout North America. Our experienced team of industrysales and service professionals also provides supporting servicesare strategically positioned across the United States and Canada providing support and service for our products.
Principal Products and Services
Across the energy industry, there are numerous demands for heat generation and control. Applications such as combustors, enclosed flares, gas production units, treaters, glycol and amine reboilers, indirect line-heaters, heated tanks, and process heaters require heat as part of their production and or processing functions. This heat is generated through the process of combustion, which must be controlled, managed, and supervised. Combustion and the resulting generation of heat are integral to the process of separating, treating, storing, incinerating, and transporting oil and gas. Factors such as petroleum's specific gravity, the presence of hydrates, temperature and hydrogen sulfide content contribute to the need for heat generation in oil and gas production and processing applications. Our burner-management systems ignite, monitor, and manage pilotspilot and burnersburner systems that are utilized in this process. Our technology affords remote operation, reducing the need for employee interaction with the appliance's burner for purposes such as for the purposes of re-ignition or temperature monitoring. In addition, our burner-management systems can help reduce gas emissions by quicklyefficiently reigniting a failed flame, andthereby improving application efficiencies and up-time. Our extensive service and combustion experience provide customers with solutions that are consistent with industry trends and regulatory requirements to mitigate environmental impacts and reduce emissions through increased efficiency.
Oil and gas producerscompanies, including upstream, midstream, downstream, pipeline, and gathering operators, utilize burner-management systems to achieve increased safety, greater operational efficiencies, and improved compliance with changing industry regulations. Without a burner-management system, ana field employee must discover and reignite an extinguished burner flame, then restart the application manually. Therefore, without a proper burner-management systems,system, all application monitoring is donemust be accomplished in-person, directly on-site. SuchThis requirement for on-site monitoring, in an environment with limited field personnel, can result in the potential interruption of production for longerlong periods of time and increased risks associated with reigniting a flame, which can lead to burns andsite hazards, including explosions and the possibility of rawventing gas being vented into the atmosphere when the flame fails.atmosphere. In addition, without a burner-managementburner -management system, burners often runoperate for longer incurring significantdurations, frequently with lower efficiency, resulting in increased equipment fatigue and greater expense related to fuel costs. We believe there is a growing trend in the oil and gas industry toward enhanced control, process automation, and data logging, largely for improved efficiency and operational cost savings, and partly for potential regulatory-satisfaction purposes. Our burner-management systems are designed to be always on standby to make sure the burner flame is lit and managed properly, which can reduce how often a burner is running and may reduce fuel costs.consumption. We continue to assess compliance-interest in the industry, and weregulatory requirements on behalf of our customers. We believe that enhanced burner-management productssystems and services can help ouroffer solutions for customers be compliant with such regulatory requirements,to meet compliance standards where applicable. In addition to selling products,product sales, we train and dispatch specialized service technicians to service burner flame installationsprovide maintenance and installation support throughout the United States and Canada.
We initially developed our first burner-management systemcontroller in 2005. Since then, wethat time, our systems have released several iterations of our initialbecome widely adopted throughout the United States and Western Canada. Profire burner-management system, increasing featuressystems have been designed to comply with widely accepted safety and capabilities, while maintaining compliance withindustrial codes and standards in North American standards,America, including those proscribed and certified by the Canadian Standards Association (CSA), Underwriters Laboratories (UL), and Safety Integrity Level (SIL) standards.
Our burner-management systems and solutions have becomebeen widely used throughout the United Statesadopted by exploration and Western Canada. We have sold our burner-management systems to many large energyproduction companies including(E&P), midstream operators, pipeline operators, as well as downstream transmission and utility providers. Our customers include, Antero, ATCO, Cenovus, Chevron, EQT, Antero,CNRL, Concho Resources, ConocoPhillips, Devon Encana,Energy, Dominion Energy, EQT, Hess, Pioneer Natural Resources, Williams, XTO, CNRL, Shell, OXY, and others. Our systems have also been sold orand installed in other parts of the world including many countries in Europe, South America, Europe, Africa, the Middle East, and Asia. We areThough firmly established in theand primarily focused on North American oil and gas markets, which is our primary focus currently, but we are workingcontinue to expand further into otherinvest in expansion efforts in international markets.markets and the broader combustion industries.
Product Extensions:Environmental, Social and Governance Focus
The PF3100As guiding principles and core to our strategy, our products and solutions are developed with a focus on safety, environmental impacts, reliability and efficiency. Protecting human life, protecting the environment, and protecting our customers’ investments are key guiding principles. Our products play a key role in supporting our customers’ existing and future initiatives regarding improving workplace safety and environmental impacts.
Our burner-management technology is an advanceddesigned to monitor, operate, and manage a wide array of complex industrial heat-applications. Our safety-approved and certified technology, which is purposefully designed and built to meet regulatory requirements and process needs, is a critical component of our customers’ safety protocols and initiatives.
Proper burner and combustion management system which is designed to operate, monitor, control, coupled with peripheral solutions, increase site and managelocation safety while reducing emissions. Profire technology and solutions are integrated into a wide variety of complex, heated appliances. Throughout the industry, Programmable Logic Controllers, or PLCs, are used to operate and manage custom-built oilfield applications. While PLC's perform these intended functions, they can be expensive, difficult to install and maintain. The PF3100 can help oilfield producers meet deadlines and improve profitability through an off-the-shelf solution with dynamic customization. We are selling the PF3100 for initial use in the oil and gas industry's natural-draft and forced-draft applications.
Our latest BMS solution, the PF2200, was built to address what we recognized as the area of burner management most in need of innovation: the user experience. The PF2200 is designed to optimize installation, commissioning, troubleshooting and daily operation. This focus on the user will optimize the time required on-site for both installation and operator training. With the user-focused design being combined with an expanded feature set, the PF2200 becomes a very powerful tool to reduce downtime and lessen the burden on producers in a wide variety of applications ranging from dual-burner to forced draft, to a varietysignificantly reduce the release of waste-gas destruction applications.methane and volatile organic compounds into the environment.
We frequently assess market needs by participatingProfire burner-management controls and complementary solutions provide users with the ability to monitor field equipment remotely. This reduces truck rolls and the need for field personnel to travel to and manually inspect burner malfunctions in industry conferencesremote sites and soliciting feedback from existinglocations. Our automated solutions help our customers improve safety, reduce emissions, and potential customers, allowing us to provide quality solutions to the oil and gas producing companies we serve. Upon identifying a potential market need, we begin researching the market and developing products that are likely to have feasibility for future sale.decrease operating costs.
Additional Complementary Products
In addition toOperator safety is at the heart of our burner- and combustion-managementburner-management solution technology. The use of these systems we also supply complementary products that providehelps our customers with a complete solution. These products include safetyincrease the likelihood that their employees perform their job safely and monitoring devices suchreturn home each day. Adding greater physical distance between humans and the combustion process, as shut-down and temperature valves, pressure transmitters and switches, burners, pilots,well as ensuring gas supplies are properly shutoff when no flame arrestor housings and other combustion related equipment. We continue to invest inis present, are two of the developmentcritical elements of innovative, complementary products which we anticipate willhow our burner-management solutions help bolster continued long-term growth.protect human life.
Results of Operations
Comparison quarter over quarter
The table below presents certain financial data comparing the most recent quarter to prior quarters:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended |
| September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Total Revenues | $ | 4,000,106 | | | $ | 4,359,479 | | | $ | 7,447,142 | | | $ | 8,118,463 | | | $ | 9,905,761 | |
Gross Profit Percentage | 38.0 | % | | 47.9 | % | | 42.5 | % | | 42.0 | % | | 52.2 | % |
Operating Expenses | $ | 2,849,921 | | | $ | 3,164,318 | | | $ | 3,829,736 | | | $ | 4,518,825 | | | $ | 4,027,844 | |
Net Income (Loss) | $ | (1,057,748) | | | $ | (808,503) | | | $ | (365,264) | | | $ | (1,554,378) | | | $ | 921,748 | |
Operating Cash Flow | $ | (724,342) | | | $ | 575,941 | | | $ | 271,078 | | | $ | 311,093 | | | $ | 2,094,454 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended |
| June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 |
Total Revenues | $ | 6,034,283 | | | $ | 5,092,349 | | | $ | 5,651,883 | | | $ | 4,000,106 | | | $ | 4,359,479 | |
Gross Profit Percentage | 44.0 | % | | 42.7 | % | | 48.8 | % | | 38.0 | % | | 47.9 | % |
Operating Expenses | $ | 3,252,169 | | | $ | 2,978,912 | | | $ | 2,762,437 | | | $ | 2,849,921 | | | $ | 3,164,318 | |
Net Income (Loss) | $ | (397,166) | | | $ | (601,500) | | | $ | 55,918 | | | $ | (1,057,748) | | | $ | (808,503) | |
Operating Cash Flow | $ | (264,843) | | | $ | 1,820,665 | | | $ | 141,723 | | | $ | (724,342) | | | $ | 575,941 | |
Revenues for the quarter ended SeptemberJune 30, 2020 decreased2021, increased by 60%38% or $5,905,655$1,674,804 compared to the quarter ended SeptemberJune 30, 2019,2020, which was mostly driven by improved customer demand associated with modest recoveries from the macro industry changes over that same period.challenges and the effects of the COVID-19 pandemic. The average oil price during the three months ended SeptemberJune 30, 20202021, was only $40.89$66.19 per barrel compared to $56.34$27.96 per barrel for the same period of last year, representing a decreasean increase of 27.4%137%. The thirdAdditionally, the second quarter of 20202021 weekly average rig count for North America was 287508 compared to 1,024401 in the same period of last year, which represents a decreasean increase of 62%27%. The historic fall inAlthough oil prices which accelerated towardhave recovered from the end of March 2020, continued into the third quarterhistoric lows of 2020, due towhich was caused by a flood of supply from Russia and Saudi Arabia and a dramatic drop in global demand due to the COVID-19 pandemic. On April 20, 2020, short-term futures contracts for oil reflected negative oil prices for the first time in history. Although oil prices improved slightly in the third quarter of 2020,pandemic, the operating environment was stillin the second quarter of 2021 continued to be characterized by uncertainty surrounding economic recovery from the COVID-19 pandemic and geopolitical factors which caused afactors. This uncertainty continued to create strain in oil supply and demand dynamics. It is uncertain when oil prices will return to levels consistent with the third quarter of 2019. As a result of these extraordinary macro pressures and uncertainties, exploration and production companies have pulled back even further on capital expenditure budgets or cancelled planned spending all together.remained cautious and have not invested in new production like they were prior to the pandemic. Until our customers return to more normalhigher capital expenditure levels, our business is likely to continue to be adversely affected.
Our gross profit margin for the thirdsecond quarter of 20202021 was down 3.9% from the same quarter of last year and iswas below our normally expected range for a typical quarter.range. The gross margin percentage normally fluctuates each quarter due to changes in product mix and product related reserves, which contributed to the change in the decline in gross profit margin for the thirdsecond quarter of 2020. In addition,2021. During the significantsecond quarter of 2021, a larger portion of our revenue was generated from service work which also contributed to the decrease in revenue for the third quarter of 2020profit margin compared to the same quarter last year also caused the fixed cost portion of cost of goods and services to push the product margin lower than historic levels. During the second and third quarters of 2020 we took actions to reduceyear. Fixed costs and adjust the cost structure of the Company to reduce the fixed cost burden on gross margin. In the current economic environment, we intend towill continue to evaluate the Company's cost structure in an effort to improveimpact our gross profit margins in future periods.margin until revenues recover.
Operating expenses decreased $1,177,923increased $87,851 from the same quarter of last year, which reflected a focus on cost control measuresstrategic investments in business development and our employees as we navigateseek to recover from the uncertainty caused by the COVID-19 pandemic and the resulting oil market supply and demand imbalance. We have been focused on reducingexpect that our operating expenses, particularly labor costs,and travel costs, will further increase in the second half of 2021 as we position ourselves to respond to the anticipated economic recovery from the pandemic and other non-essential expenditures in this current environment.increased demand for oil and gas production.
Due to the significantly lower revenuesfactors discussed above, we reported a net loss of $1,057,748$397,166 for the quarter ended SeptemberJune 30, 20202021, compared to a net incomeloss of $921,748$808,503 for the same quarter in 2019.2020.
Operating cash flows decreased significantly during the thirdsecond quarter of 2021 compared to the second quarter of 2020, compareddue primarily to changes in customer accounts receivable balances, as well as accounts payable and inventory accounts.
The global COVID-19 pandemic continued to impact our business during the thirdsecond quarter of 2019, due2021 and will likely continue to the 60% dropimpact our business in revenue. This decrease was primarily due to extraordinary industryfuture quarters. However, we remain optimistic that our results of operations will improve as vaccine distribution increases, which we anticipate will result in improved economic conditions and global economic crisis conditions that persisted throughout the secondimproved demand for oil and third quarters of 2020.gas.
Comparison of the ninesix months ended SeptemberJune 30, 20202021 and 20192020
The table below presents certain financial data comparing the ninesix months ended SeptemberJune 30, 20202021 to the same period ended SeptemberJune 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
Total Revenues | $ | 15,806,727 | | | $ | 30,862,850 | | | $ | (15,056,123) | | | (48.8) | % |
Gross Profit Percentage | 42.8 | % | | 52.2 | % | | | | (9.4) | % |
Operating Expenses | $ | 9,843,975 | | | $ | 11,845,134 | | | $ | (2,001,159) | | | (16.9) | % |
Net Income (Loss) | $ | (2,231,515) | | | $ | 3,575,870 | | | $ | (5,807,385) | | | (162.4) | % |
Operating Cash Flow | $ | 122,677 | | | $ | 7,402,109 | | | $ | (7,279,432) | | | (98.3) | % |
2020: | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
Total Revenues | $ | 11,126,632 | | | $ | 11,806,621 | | | $ | (679,989) | | | (5.8) | % |
Gross Profit Percentage | 43.4 | % | | 44.5 | % | | | | (1.1) | % |
Operating Expenses | $ | 6,231,081 | | | $ | 6,994,054 | | | $ | (762,973) | | | (10.9) | % |
Net Loss | $ | (998,666) | | | $ | (1,173,767) | | | $ | 175,101 | | | (14.9) | % |
Operating Cash Flow | $ | 1,555,822 | | | $ | 847,019 | | | $ | 708,803 | | | 83.7 | % |
Revenues during the nine-monthsix-month period ended SeptemberJune 30, 20202021, decreased 5.8% compared to the same period of last year declined 48.8% whichyear. The decrease in revenue was largely due to a 33.3% drop in the average oil price over the same time frame resultingcontinued uncertainties surrounding economic recovery from the global COVID-19 pandemic and the corresponding reduction in spending by our customers.geopolitical factors. Operating expenses declined 16.9%decreased 10.9% year-over-year due to our focus on cost control measures in 2020. The decrease in operating expenses helped offset the decrease in revenues. As a result, we reported a net loss of $998,666 for the six months ended June 30, 2021, compared to a net loss of $1,173,767 for the same period in 2020. Our gross profit percentage decreased slightly by 1.1% during the nine-month periodsix months ended SeptemberJune 30, 20202021, compared to the same period in 2019 due to our focus on cost reduction and control measures in 2020. As a result of revenue and operating cost changes, we reported a net loss of $2,231,515 for the nine months ended September 30, 2020, compared to net income of $3,575,870 for the same period in 2019. Our gross profit percentage declined by 9.4% during the nine months ended September 30, 2020, compared to the same period in 2019, primarily due to changes in product mix, direct labor cost increases,costs, inventory adjustments and the fixed burdencost structure within cost of goods and services.
Liquidity and Capital Resources
Working capital at SeptemberJune 30, 20202021 was $22,496,727,$22,492,270, compared to $22,914,845$23,420,475 at December 31, 2019.2020.
We acquired land for a new office building and research and development facility in Canada in June 2018 and completed construction of the facility in March 2020. Excluding the cost of the land, the total cost of the building was approximately $4,600,000 USD. As of September 30, 2020, only minimal costs remained related to final landscaping.
Our liquidity position is impacted by operating, investing and financing activities. During the ninesix months ended SeptemberJune 30, 2020,2021, we generated $122,677$1,555,822 of positive cash flow from operating activities, primarily due to cash received from customer sales,sale of the remaining bays from our old office building in Canada and from changes in inventory levels, partially offset by cash outflows for accounts payable and accrued liabilities.the impact of changes in income tax accounts. Operating activity trends consist of cash inflows and outflows related to changes in operating assets and liabilities. During the ninesix months ended SeptemberJune 30, 2020,2021, we generated $683,983used $743,382 of positive cash flow fromin investing activities, primarily due to the reinvestment of cash from financial investment sales, partially offset by costs incurred for the construction of the new office buildingmaturities in Canada.our bond and CD portfolio. Investing activity trends consist of changes in the mix of our investment portfolio, purchases or sales of fixed assets, and acquisition activities. We do not anticipate any material capital expenditures over the next 12 months. During the ninesix months ended SeptemberJune 30, 2020,2021, we used $192,824$64,578 of cash in financing activities, primarily related to equity awards issued to management. Financing activity trends consist of transactions related to equity awards and purchases or sales of treasury stock. The global COVID-19 pandemic has impacted our business in 2020 and as a result, we have focused on cost control measures as we navigate the uncertainty caused by the pandemic and the resulting oil market supply and demand imbalance. We have focused on decreasing operating, investing and financing costs. We have reduced labor costs, travel and other non-essential expenditures in this current environment. We have also completed the construction of the new office building in Canada, and as a result we expect fewer costs related to investing activities in the near future. Thus far in 2020, we havedid not purchasedpurchase any treasury stock in order to reduce costs related to financing activities.during the first half of 2021. The extent to which the global COVID-19 pandemic will continue to affect our liquidity position will depend on future developments, which are highly uncertain and cannot be predicted with confidence. As of SeptemberJune 30, 2020,2021, we hold $17,209,692held $19,141,382 of cash and investments
that form our core excess liquidity which could be utilized, if required, due to the issues described above. See also Item 1A. Risk Factors for further discussion on the impact of COVID-19 on our business.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements, nor do we plan to engage in any in the foreseeable future.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
This section is not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Principal Executive OfficerOfficers and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act, as of the end of the period covered by this Report.quarterly report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Principal Executive OfficerOfficers and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on the evaluation performed, our management, including the Principal Executive OfficerOfficers and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of SeptemberJune 30, 2020.2021.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our Principal Executive OfficerOfficers and Principal Financial Officer, evaluated the changes in our internal control over financial reporting that occurred during the quarterly period covered by this Quarterly Reportquarterly report on Form 10-Q. Based on that evaluation, management concluded that no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended SeptemberJune 30, 20202021, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of our knowledge, there are no legal proceedings pending or threatened against us that may have a material impact on us and there are no actions pending or threatened against any of our directors or officers that are adverse to us.
Item 1A. Risk Factors
In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the risks discussed in our Annual Reportannual report on Form 10-K for the year ended December 31, 2019,2020, which risks could materially affect our business, financial condition, or future results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material, adverse effect on our business, financial condition or future results. Except as described below, there have been no material changes to the risk factors disclosed in our most recent Form 10-K.
The global COVID-19 pandemic has and will likely continue to adversely affect us, and it could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
Since the beginning of 2020, the COVID-19 pandemic has spread across the globe and disrupted economies around the world, including the oil and gas industry in which we operate. The rapid spread of the virus has led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates, sweeping restrictions on travel, and other public health and safety measures, nearly all of which have materially reduced global demand for crude oil. The extent to which the global COVID-19 pandemic will continue to affect our business, financial condition, liquidity, results of operations, prospects, and the demand for our products will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration or any recurrence of the outbreak and responsive measures, additional or modified government actions, new information which may emerge concerning the severity of the global COVID-19 pandemic and the effectiveness of actions taken to contain the coronavirus or treat its impact now or in the future, among others.
Some impacts of the global COVID-19 pandemic that could have an adverse effect on our business, financial condition, liquidity and results of operations, include:
•significantly reduced prices for oil production, resulting from a world-wide decrease in demand and a resulting oversupply of existing production;
•further decreases in the demand for oil production, resulting from significantly decreased levels of global, regional and local travel as a result of federal, state and local government-imposed quarantines, including shelter-in-place mandates, enacted to slow the spread of the virus;
•increased likelihood that our customers will reduce capital expenditures due to reduced oil prices, decreases in demand for oil production and other factors that could curtail production;
•increased potential that our customers may seek to invoke force majeure provisions as a result of significantly adverse market conditions to avoid the performance of contractual obligations;
•increased costs and staffing requirements related to facility modifications, social distancing measures or other best practices implemented in connection with federal, state or local government, and voluntarily imposed quarantines or other regulations or guidelines concerning physical gatherings; and
•increased legal and operational costs related to compliance with significant changes in federal, state, and local laws and regulations.
To the extent the global COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects our business, financial condition, liquidity, results of operations and prospects it may also have the effect of increasing the likelihood and/or magnitude of other risks described in Risk Factors in Part I, Item 1A of our 2019 Form 10-K and in this Form 10-Q.
The ability or willingness of the Organization of the Petroleum Exporting Countries (“OPEC”), Russia and other oil exporting nations to set, maintain and enforce production levels has a significant impact on oil and gas commodity prices, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
OPEC is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market. Actions taken by OPEC member countries, including those taken along with other oil exporting nations, have a significant impact on global oil supply and pricing. In March 2020, members of OPEC and ten other oil producing countries (“OPEC+”) met to discuss how to respond to the potential market effects of the global COVID-19 pandemic. The meeting ended on March 6, 2020, as Saudi Arabia failed to convince Russia to reduce production to offset falling demand due to slowing economic activity resulting from the global COVID-19 pandemic. In response to Russia’s refusal to accept the production cut, Saudi Arabia announced an immediate reduction in its export prices and Russia announced that all previously agreed oil production cuts would expire on April 1, 2020. These actions flooded the global market with an oversupply of crude oil, and led to an immediate and steep decrease in global oil prices. In early April 2020, in response to significantly depressed global oil prices, 23 countries, led by Saudi Arabia, Russia and the United States, committed to implement reductions in world oil production. In June 2020, the first phase of production cuts that were put in place in April, were extended through July 31, 2020. In July OPEC agreed to further production cuts through the end of 2020.
There can be no assurance that the production cuts will stabilize oil prices or that they will be maintained, and recent indications suggest that oil prices will be largely unaffected. The global COVID-19 pandemic has destroyed global oil demand to an unprecedented degree, and despite the concerted action to reduce global production, the relative magnitude of the production cuts as compared to the degree of demand destruction may be wholly insufficient to mitigate or even impact the over-supplied oil market. Further, there is a lack of transparency regarding production volumes among oil-producing nations, and there are limited enforcement mechanisms for real or perceived violations of the production cuts. In connection with past production cuts, OPEC has, at times, failed to enforce its own production limits on violating members, with no official mechanism for punishing member countries that do not comply. There can be no assurance that OPEC and non-OPEC member countries will abide by the quotas or that OPEC will enforce the quotas. Additionally, certain other countries with free-market economies that agreed to reduce production, are unable to impose mandatory production cuts on non-OPEC oil producers operating in their countries, but instead expect to realize a decrease in production through market forces, as companies tend to cut production voluntarily when prices drop. For such countries, there can be no assurance that oil producers will react in the desired manner or that the market will behave as expected. Uncertainty regarding the effectiveness and enforcement of the production cuts is likely to lead to increased volatility in the supply and demand of oil and the price of oil, all of which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
We may not be able to maintain compliance with The Nasdaq Capital Market's continued listing requirements.
Our common stock is listed on the Nasdaq Capital Market. There are a number of continued listing requirements that we must satisfy in order to maintain our listing on the Nasdaq Capital Market. If we fail to maintain compliance with all applicable continued listing requirements for the Nasdaq Capital Market and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, our ability to obtain financing to repay any future debt we could incur and fund our operations.
On April 24, 2020, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the NasdaqCapital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the “Compliance Period Rule”), we have an initial period of 180 calendar days to regain compliance. However, given the extraordinary market conditions in the financial markets, Nasdaq tolled the compliance period for the bid price requirement through June 30, 2020. The compliance period resumed on July 1, 2020 and we will have 180 calendar days, or until December 28, 2020 (the “Compliance Date”), to regain compliance with the Minimum Bid Price Requirement. If, at any time before the Compliance Date, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under the Compliance Period Rule, the Staff will provide us with written notification of compliance with the Bid Price Rule, unless the Staff exercises its discretion to extend this 10 day period pursuant to Nasdaq Listing Rule 5810(c)(3)(G).
The Notice also provides that, if we do not regain compliance with the Minimum Bid Price Requirement by December 28, 2020, we may be eligible for additional time to regain compliance. To qualify for additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provide written notice of our intention to
cure the minimum bid price deficiency during the second compliance period, by effecting a reverse split, if necessary. If we meet these requirements, we will be granted an additional compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. If the Nasdaq staff determines that we will not be able to cure the deficiency, or if we are otherwise not eligible for such additional compliance period, Nasdaq will provide notice that our Common Stock will be subject to delisting.
As of the date of this report, we have not made any determination with respect to any action or response regarding our noncompliance with the Minimum Bid Price Requirement. We intend to consider available options to regain compliance with the Minimum Bid Price Requirement and continued listing on the Nasdaq Capital Market. If our common stock were to be delisted from the Nasdaq Capital Market, trading of our common stock most likely would be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board. Such trading would likely reduce the market liquidity of our common stock. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock. If our common stock is delisted from the Nasdaq Capital Market and the trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a "penny stock" (generally, any equity security not listed on a national securities exchange that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow against or "margin" low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers' commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock. As a result, the ability of our stockholders to resell their shares of common stock, and the price at which they could sell their shares, could be adversely affected. The delisting of our stock from the Nasdaq Capital Market would also make it more difficult for us to raise additional capital.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
This item is not applicable
Item 3. Defaults Upon Senior Securities
This item is not applicable.
Item 4. Mine Safety Disclosures
This item is not applicable.
Item 5. Other Information
This item is not applicable.
Item 6. Exhibits
Exhibits. The following exhibits are included as part of this report:
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| First Amendment to Second Amended and Restated Employment Agreement between Profire Energy and Brenton W. Hatch dated April 30, 2021(1) |
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| First Amendment to Second Amended and Restated Employment Agreement between Profire Energy and Ryan Oviatt dated April 30, 2021(2) |
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| First Amendment to Amended and Restated Employment Agreement between Profire Energy and Cameron Tidball dated April 30, 2021(3) |
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| First Amendment to Employment Agreement between Profire Energy and Jay G. Fugal dated April 30, 2021(4) |
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| First Amendment to Employment Agreement between Profire Energy and Patrick D. Fisher dated April 30, 2021(5) |
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| Profire Energy, Inc. 2021 Executive Incentive Plan |
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| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Ryan Oviatt dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Ryan Oviatt dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Cameron Tidball dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Cameron Tidball dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Jay G. Fugal dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Jay G. Fugal dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Patrick D. Fisher dated June 4, 2021. |
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| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Patrick D. Fisher dated June 4, 2021. |
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| Certification of Co-Principal Executive Officer Pursuant to Rule 13a-14(a) Ryan W. Oviatt |
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| Certification of Co-Principal Executive Officer Pursuant to Rule 13a-14(a) Cameron M. Tidball |
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| Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) |
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| Certification of Principal Executive Officers pursuant to 18 U.S.C. Section 1350 |
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| Certification of Ryan W. Oviatt, Principal Financial Officer pursuant to 18 U.S.C. Section 1350 |
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Exhibit 101.INS* | XBRL Instance Document |
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Exhibit 101.SCH* | XBRL Taxonomy Extension Schema Document |
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Exhibit 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
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Exhibit 101.DEF* | XBRL Taxonomy Definition Linkbase Document |
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Exhibit 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
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Exhibit 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith
(1) Incorporated by reference to Exhibit 10.3 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(2) Incorporated by reference to Exhibit 10.4 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(3) Incorporated by reference to Exhibit 10.5 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(4) Incorporated by reference to Exhibit 10.6 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(5) Incorporated by reference to Exhibit 10.7 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | PROFIRE ENERGY, INC. |
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Date: | November 9, 2020August 4, 2021 | By: | /s/ Ryan W. Oviatt |
| | | Ryan W. Oviatt |
| | | Co-Chief Executive Officer and Chief Financial Officer |
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Date: | November 9, 2020August 4, 2021 | By: | /s/ Cameron M. Tidball |
| | | Cameron M. Tidball |
| | | Co-Chief Executive Officer |