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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2022
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)
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.
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:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common, $0.001 Par ValuePFIENASDAQ

As of November 1, 2022, the registrant had 52,078,283 shares of common stock issued and 47,040,153 shares of common stock outstanding, par value $0.001.



PROFIRE ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Item 2.  Management's Discussion and Analysis of Financial Condition And Results of Operations
Item 3.  Quantitative and Qualitative Disclosure about Market Risk
Item 4.  Controls and Procedures
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A.  Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6.  Exhibits
Signatures




PART I. FINANCIAL INFORMATION
Item 1 Financial Information
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of
September 30, 2022December 31, 2021
ASSETS(Unaudited)
CURRENT ASSETS
Cash and cash equivalents$5,639,865 $8,188,270 
Short-term investments867,658 1,013,683 
Accounts receivable, net8,933,905 6,262,799 
Inventories, net (note 3)10,205,207 7,185,248 
Prepaid expenses and other current assets (note 4)2,642,512 1,025,276 
Income tax receivable 560,445 
Total Current Assets28,289,147 24,235,721 
LONG-TERM ASSETS
Net deferred tax asset185,772 163,254 
Long-term investments7,944,181 8,259,809 
Financing right-of-use asset132,760 65,280 
Property and equipment, net10,374,126 11,185,539 
Intangible assets, net1,312,660 1,549,138 
Goodwill2,579,381 2,579,381 
Total Long-Term Assets22,528,880 23,802,401 
TOTAL ASSETS$50,818,027 $48,038,122 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable$2,008,126 $1,822,559 
Accrued liabilities (note 5)3,157,221 1,872,348 
Current financing lease liability (note 6)53,084 30,214 
Income taxes payable570,430  
Total Current Liabilities5,788,861 3,725,121 
LONG-TERM LIABILITIES
Net deferred income tax liability480,105 136,106 
Long-term financing lease liability (note 6)80,684 35,912 
TOTAL LIABILITIES6,349,650 3,897,139 
STOCKHOLDERS' EQUITY (note 7)
Preferred stock: $0.001 par value, 10,000,000 shares authorized: no shares issued or outstanding
  
Common stock: $0.001 par value, 100,000,000 shares authorized: 52,078,283 issued and 47,040,153 outstanding at September 30, 2022, and 51,720,142 issued and 47,643,233 outstanding at December 31, 2021
52,079 51,720 
Treasury stock, at cost(7,336,323)(6,107,593)
Additional paid-in capital31,570,226 30,819,394 
Accumulated other comprehensive loss(3,418,272)(2,100,467)
Retained earnings23,600,667 21,477,929 
TOTAL STOCKHOLDERS' EQUITY44,468,377 44,140,983 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$50,818,027 $48,038,122 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3


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,
2022202120222021
REVENUES (note 8)
Sales of products, net$11,895,881 $6,296,736 $29,634,986 $16,328,810 
Sales of services, net933,457 646,462 2,330,639 1,741,020 
Total Revenues12,829,338 6,943,198 31,965,625 18,069,830 
COST OF SALES
Cost of sales - product5,960,311 3,217,655 14,873,075 8,666,168 
Cost of sales - services750,151 606,075 2,013,825 1,451,775 
Total Cost of Sales6,710,462 3,823,730 16,886,900 10,117,943 
GROSS PROFIT6,118,876 3,119,468 15,078,725 7,951,887 
OPERATING EXPENSES
General and administrative3,413,048 2,980,945 10,591,986 8,319,353 
Research and development435,059 290,657 1,105,571 848,993 
Depreciation and amortization152,876 166,155 479,473 500,492 
Total Operating Expenses4,000,983 3,437,757 12,177,030 9,668,838 
INCOME (LOSS) FROM OPERATIONS2,117,893 (318,289)2,901,695 (1,716,951)
OTHER INCOME (EXPENSE)
Gain on sale of assets12,887 31,685 323,570 144,078 
Other income (expense)(6,839)(2,984)(43,567)1,755 
Interest income45,107 33,067 86,959 82,698 
Total Other Income51,155 61,768 366,962 228,531 
INCOME (LOSS) BEFORE INCOME TAXES2,169,048 (256,521)3,268,657 (1,488,420)
INCOME TAX BENEFIT (EXPENSE)(958,300)348,767 (1,145,919)582,000 
NET INCOME (LOSS)$1,210,748 $92,246 $2,122,738 $(906,420)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss)$(591,282)$(263,908)$(723,209)$39,183 
Unrealized gains (losses) on investments(172,802)(20,811)(594,596)26,744 
Total Other Comprehensive Income (Loss)(764,084)(284,719)(1,317,805)65,927 
COMPREHENSIVE INCOME (LOSS)$446,664 $(192,473)$804,933 $(840,493)
BASIC EARNINGS (LOSS) PER SHARE$0.03 $ $0.04 $(0.02)
FULLY DILUTED EARNINGS (LOSS) PER SHARE$0.02 $ $0.04 $(0.02)
BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING47,036,012 48,239,236 47,201,611 48,095,404 
FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING48,558,207 49,328,808 48,761,346 48,095,404 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Treasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance, December 31, 202147,643,233 $51,720 $30,819,394 $(2,100,467)$(6,107,593)$21,477,929 $44,140,983 
Stock based compensation— — 138,503— — — 138,503
Stock issued in settlement of RSUs and accrued bonuses139,894 140 212,647 — — — 212,787 
Tax withholdings paid related to stock based compensation— — (91,098)— — — (91,098)
Treasury stock repurchased(509,631)— — — (622,263)— (622,263)
Foreign currency translation— — — 158,359 — — 158,359 
Unrealized losses on investments— — — (287,126)— — (287,126)
Net income— — — — — 627,161 627,161 
Balance, March 31, 202247,273,496 $51,860 $31,079,446 $(2,229,234)$(6,729,856)$22,105,090 $44,277,306 
Stock based compensation— — 274,390 — $— — 274,390 
Stock issued in exercise of stock options27,200 $28 $21,554 $— $— $— $21,582 
Stock issued in settlement of RSUs184,047 184 (184)— — —  
Tax withholdings paid related to stock based compensation— — (3,524)— — — (3,524)
Treasury stock repurchased(451,590)$— — — (606,467)— $(606,467)
Foreign currency translation— — — (290,292)— — (290,292)
Unrealized losses on investments— — — (134,662)— — (134,662)
Net income— — — — — 284,829 284,829 
Balance, June 30, 202247,033,153 $52,072 $31,371,682 $(2,654,188)$(7,336,323)$22,389,919 $43,823,162 
Stock based compensation— — 193,056 — — — 193,056 
Stock issued in exercise of stock options7,000 7 5,488 — — — 5,495 
Stock issued in settlement of RSUs— — — — — — — 
Tax withholdings paid related to stock based compensation— — — — — — — 
Treasury stock repurchased— — — — — — — 
Foreign currency translation— — — (591,282)— — (591,282)
Unrealized losses on investments— — — (172,802)— — (172,802)
Net income— — — — — 1,210,748 1,210,748 
Balance, September 30, 2022$47,040,153 $52,079 $31,570,226 $(3,418,272)$(7,336,323)$23,600,667 $44,468,377 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Continued)
(Unaudited)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Treasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance, December 31, 202047,972,583 $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 RSUs49,113 49 (49)— — —  
Tax withholdings paid related to stock based compensation— — (26,629)— — — (26,629)
Foreign currency translation— — — 139,606 — — 139,606 
Unrealized losses on investments— — — (7,974)— — (7,974)
Net loss— — — — — (601,500)(601,500)
Balance, March 31, 202148,021,696 $51,434 $30,391,837 $(2,017,292)$(5,353,019)$21,927,972 $45,000,932 
Stock based compensation— — 207,084— — — 207,084
Stock issued in exercise of stock options— — — — 
Stock issued in settlement of RSUs217,312 217 (217)— — —  
Tax withholdings paid related to stock based compensation(16,200)(16,200)
Treasury stock repurchased— — — 
Foreign currency translation— — — 163,485 — — 163,485 
Unrealized gains on investments— — — 55,529 — — 55,529 
Net loss— — — — — (397,166)(397,166)
Balance, June 30, 202148,239,008 $51,651 $30,582,504 $(1,798,278)$(5,353,019)$21,530,806 $45,013,664 
Stock based compensation— — 142,754 — — — 142,754 
Stock issued in exercise of stock options3,000 3 2,670 — — — 2,673 
Stock issued in settlement of RSUs— — — — — — — 
Stock issues in acquisition (note 9)— — — — — — — 
Tax withholdings paid related to stock based compensation— — — — — — — 
Treasury stock repurchased— — — — — — — 
Foreign currency translation— — — (263,908)— — (263,908)
Unrealized losses on investments— — — (20,811)— — (20,811)
Net loss— — — — — 92,246 92,246 
Balance, September 30, 2021$48,242,008 $51,654 $30,727,928 $(2,082,997)$(5,353,019)$21,623,052 $44,966,618 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30,
20222021
OPERATING ACTIVITIES
Net income (loss)$2,122,738 $(906,420)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense831,036 971,712 
Gain on sale of property and equipment(314,059)(144,078)
Gain on sale of intangibles(9,511) 
Bad debt expense40,948 2,622 
Stock awards issued for services605,955 474,881 
Changes in operating assets and liabilities:
Accounts receivable(2,620,155)(904,325)
Income taxes receivable/payable1,130,931 (606,128)
Inventories(3,190,546)946,865 
Prepaid expenses and other current assets(1,668,442)532,519 
Deferred tax asset/liability307,663 49,851 
Accounts payable and accrued liabilities1,566,810 540,322 
Net Cash Provided by (Used in) Operating Activities(1,196,632)957,821 
INVESTING ACTIVITIES
Proceeds from sale of property and equipment464,574 101,169 
Proceeds from sale of intangibles85,000  
Purchase of investments(133,371)(881,588)
Purchase of property and equipment(370,791)(138,562)
Net Cash Provided by (Used in) Investing Activities45,412 (918,981)
FINANCING ACTIVITIES
Value of equity awards surrendered by employees for tax liability(94,802)(42,829)
Cash received in exercise of stock options31,084 2,673 
Purchase of treasury stock(1,228,731) 
Principal paid towards lease liability(28,145)(31,911)
Net Cash Used in Financing Activities(1,320,594)(72,067)
Effect of exchange rate changes on cash(76,591)14,331 
NET DECREASE IN CASH(2,548,405)(18,896)
CASH AT BEGINNING OF PERIOD8,188,270 9,148,312 
CASH AT END OF PERIOD$5,639,865 $9,129,416 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest$2,331 $2,689 
Income taxes$21,000 $17,150 
NON-CASH FINANCING AND INVESTING ACTIVITIES
Common stock issued in settlement of accrued bonuses$212,787 $ 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
For the nine months ended September 30, 2022 and 2021


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 consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments have been made (which include only normal recurring adjustments) which are necessary to present fairly the financial position, results of operations, stockholders' equity, and cash flows at September 30, 2022 and for all periods presented herein.

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, 2021 ("Form 10-K").  The results of operations for the three- and nine-month periods ended September 30, 2022 and 2021 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 primarily for the oil and gas industry within the US and Canadian markets. The Company has begun expanding outside of these markets to other international locations and into other industries with combustion and burner management requirements.

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 notes to the consolidated 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
September 30, 2022December 31, 2021
Raw materials$245,049 $301,320 
Finished goods10,312,904 7,556,048 
Subtotal10,557,953 7,857,368 
Reserve for obsolescence(352,746)(672,120)
Total$10,205,207 $7,185,248 

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
For the nine months ended September 30, 2022 and 2021
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, 2022December 31, 2021
Prepaid inventory$997,885 $530,725 
Accrued receivables767,110  
Prepaid insurance356,718 228,849 
Interest receivables60,248 63,841 
Tax credits161,385  
Other299,166 201,861 
Total$2,642,512 $1,025,276 


NOTE 5 – ACCRUED LIABILITIES

Accrued liabilities consisted of the following at each balance sheet date:
 As of
 September 30, 2022December 31, 2021
Employee-related payables$1,785,874 $1,621,131 
Deferred revenue328,744 817 
Inventory-related payables483,382 67,027 
Tax-related payables84,763 37,880 
Warranty liabilities45,407 49,624 
Other429,051 95,869 
Total$3,157,221 $1,872,348 

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 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 3.6 years.

The following table shows the components of financing lease cost:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
Financing Lease Cost2022202120222021
Amortization of right-of-use assets$7,240 $9,811 $28,308 $31,014 
Interest on lease liabilities1,078 337 2,331 2,690 
Total financing lease cost$8,318 $10,148 $30,639 $33,704 


9

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2022 and 2021
The Company leases one warehouse space with a two-year lease, which is recorded as an operating lease. The remainder of our office space leases are considered to be short-term, and we have elected not to recognize those on our balance sheet under the short-term recognition exemption. Operating lease expense recognized during the three- and nine months ended September 30, 2022 and September 30, 2021 was $13,356 and $50,270, and $19,000 and $35,263, respectively.

Supplemental operating lease information as of September 30, 2022 is as follows:

Operating right of use assets$42,473 
Current operating lease liabilities25,101 
Long-term operating lease liabilities17,372 
Weighted-average remaining lease term in years1.8
Weighted-average discount rate4.5 %

As of September 30, 2022, maturities of lease liabilities are as follows:
Years ending December 31,Amount
2022$14,480 
202357,919 
202440,886 
202511,927 
202611,927 
Thereafter5,963 
Total future minimum lease payments$143,102 
Less: Amount representing interest9,334 
Present value of future payments$133,768 
Current portion$53,084 
Long-term portion$80,684 



NOTE 7 – STOCKHOLDERS' EQUITY

As of September 30, 2022 and December 31, 2021, the Company held 5,038,130 and 4,076,909 shares of its common stock in treasury at a total cost of $7,336,323 and $6,107,593, respectively.

On September 15, 2021, the Board of Directors of the Company (the "Board") authorized a share repurchase program allowing the Company to repurchase up to $2,000,000 worth of the Company’s common stock from time to time through September 30, 2022. All purchases under this program were made at the discretion of management. The size and timing of purchases were dependent on price, market and business conditions and other factors. As of June 2022, the Company had spent the full allotment under the program.

As of September 30, 2022, the Company had 536,361 restricted stock units ("RSUs"), 735,512 performance-based RSUs, and 827,500 stock options outstanding with $746,570 in remaining compensation expense to be recognized over the next 1.4 years. See further details below about certain subsets of these outstanding equity-based awards.

On June 15, 2022, pursuant to the annual renewal of director compensation, the Board approved a grant of 178,623 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 approximately $234,000 to be recognized over the vesting period.
10

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2022 and 2021
On April 6, 2022, the Compensation Committee of the Board (The "Compensation Committee") approved the 2022 Executive Incentive Plan (the “2022 EIP”) for Ryan W. Oviatt, the Company's Co-CEO, Co-President, and CFO, Cameron M. Tidball, the Company's Co-CEO and Co-President, and Patrick D. Fisher, the Company's Vice President of Product Development. The 2022 EIP provides for the potential award of incentive compensation to the participants based on the Company’s financial performance in fiscal 2022. If earned, the incentive compensation will be payable in cash and stock, and the stock portion of the incentive compensation is intended to constitute an award under the Company's 2014 Equity Incentive Plan, as amended (the " Plan"). In addition to the 2022 EIP, the Board also approved as a long-term incentive plan the grants of restricted stock unit awards to Messrs. Oviatt, Tidball, and Fisher pursuant to the Plan (the “2022 LTIP”).

2022 EIP

Under the terms of the 2022 EIP, each participating executive officer has been assigned a target incentive compensation amount for fiscal 2022. The target incentive compensation amount for Mr. Oviatt is $198,000, the target incentive compensation amount for Mr. Tidball is $198,000, and the target incentive compensation for Mr. Fisher is $64,750 CAD.

Participants will be eligible to receive incentive compensation based upon reaching or exceeding performance goals established by the Compensation Committee for fiscal 2022. The performance goals in the 2022 EIP are based on the Company’s total revenue, EBITDA, and a non-financial milestone relating to revenue source diversification to be determined by the Compensation Committee. Each of these performance goals will be weighted one third in calculating incentive compensation amounts.

The incentive compensation amounts earned under the 2022 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 any, will be determined by the Compensation Committee upon the completion of fiscal 2022 and paid by March 15, 2023, subject to all applicable tax withholding.

2022 LTIP

The 2022 LTIP consists of total awards of up to 230,232 RSUs to Mr. Oviatt, up to 230,232 RSUs to Mr. Tidball, and up to 43,023 RSUs to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “2022 LTIP Restricted Stock Unit Award Agreements”) entered into between the Company and each participant. One such agreement covers the 33% of each award recipient’s RSUs that are subject to time-based vesting, and the other such agreement covers the remaining 67% of such award recipient’s RSUs 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 unit. The vesting period of the 2022 LTIP began on January 1, 2022 and terminates on December 31, 2024 (the “2022 LTIP Performance Vesting Date”).

The RSUs subject to time-based vesting, including 76,744 RSUs to Mr. Oviatt, 76,744 RSUs for Mr. Tidball, and 14,341 RSUs to Mr. Fisher, will vest in three equal and annual installments beginning December 31, 2022 and ending on December 31, 2024 if the award recipients’ employment continues with the Company through such dates.

The performance-vesting RSUs, including up to 153,488 RSUs for Mr. Oviatt, 153,488 RSUs for Mr. Tidball, and 28,682 RSUs to Mr. Fisher, may vest at the end of the three-year performance period beginning January 1, 2022 based upon the following Company performance metrics:

Performance MetricWeightTargetAbove TargetOutstanding
Total Shareholder Return (based on the Company’s closing price of its common stock at the end of the Performance Period relative to its closing price as of the last trading day in 2021)1/389%136%183%
Relative Total Shareholder Return (based on the Company’s ranked performance in closing stock price growth relative to a peer group of companies during the Performance Period)1/3Third QuartileSecond QuartileFirst Quartile
EBITDA as a Percentage of Total Revenue1/310%15%20%


11

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2022 and 2021
One-third of such performance-vesting RSUs, consisting of 51,163 RSUs for Mr. Oviatt, 51,163 RSUs for Mr. Tidball, and 9,561 RSUs for Mr. Fisher, may vest for each of the three performance metrics identified in the table above. The number of RSUs that will vest for each performance metric on the 2022 LTIP Performance Vesting Date shall be determined as follows:
a.if the “Target” level for such performance metric is not achieved, none of the RSUs relating to such performance metric will vest;
b.if the “Target” level (but no higher level) for such performance metric is achieved, 50% of the RSUs relating to such performance metric will vest;
c.if the “Above Target” level (but no higher level) for such performance metric is achieved, 75% of the RSUs relating to such performance metric will vest; and
d.if the “Outstanding” level for such performance metric is achieved, 100% of the RSUs relating to such performance metric will vest.

The foregoing summary of the 2022 EIP and the 2022 LTIP Restricted Stock Unit Award Agreements is qualified in its entirety by the text of the 2022 EIP and each of the 2022 LTIP Restricted Stock Unit Award Agreements, which are filed as exhibits to Form 10-Q for the quarter ending March 31, 2022.

2021 EIP and LTIP

On May 28, 2021, the Compensation Committee approved the 2021 Executive Incentive Plan (the “2021 EIP”) for Brenton W. Hatch, the Company’s former Executive Chairman, Ryan W. Oviatt, Cameron M. Tidball, Jay G. Fugal, the Company’s former Vice President of Operations, and Patrick D. Fisher. The 2021 EIP provided for the potential award of incentive compensation to the participants based on the Company’s financial performance in fiscal 2021. The incentive compensation was payable in cash and stock, and the stock portion of the incentive compensation was intended to constitute an award under the Plan.

Participants were eligible to receive incentive compensation based upon reaching or exceeding performance goals established by the Compensation Committee for fiscal 2021. The performance goals in the 2021 EIP were based on the Company’s total revenue, EBITDA, and a non-financial milestone relating to revenue source diversification. Each of these performance goals were weighted one third in calculating incentive compensation amounts.

On March 2, 2022, the Compensation Committee approved the incentive compensation amounts based on achieving certain targets pursuant to the 2021 EIP. The incentive compensation amounts earned under the 2021 EIP were paid 50% in cash and 50% in shares of restricted stock under the Plan. The incentive compensation amounts resulted in the Compensation Committee approving a one-time bonus for Company executives that was settled by issuing a total of 182,626 shares of common stock, or 120,097 shares net of tax withholding. These shares were fully vested as of March 2, 2022.

In addition to the 2021 EIP, the Board also approved as a long-term incentive plan, the grants of restricted stock unit awards to Messrs. Oviatt, Tidball, Fugal, and Fisher pursuant to the Plan (the “2021 LTIP”). The 2021 LTIP consists of total awards of up to 204,543 RSUs to Mr. Oviatt, up to 204,543 RSUs to Mr. Tidball, up to 85,908 RSUs to Mr. Fugal, and up to 47,973 RSUs to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “2021 LTIP Restricted Stock Unit Award Agreements”) between the Company and each participant. One agreement covers the 33% of each award recipient’s RSUs that are subject to time-based vesting, and the other agreement covers the remaining 67% of such award recipient’s RSUs 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. The vesting period of the 2021 LTIP began on January 1, 2021 and terminates on December 31, 2023 (the “2021 LTIP Performance Vesting Date”).

The RSUs subject to time-based vesting, including 68,181 RSUs to Mr. Oviatt, 68,181 RSUs for Mr. Tidball, 28,636 RSUs to Mr. Fugal, and 15,991 RSUs to Mr. Fisher, vest in three equal annual installments that began on December 31, 2021 and will end on December 31, 2023 if the award recipients’ employment continues with the Company through such dates.

The performance-vesting RSUs, including up to 136,362 RSUs for Mr. Oviatt, 136,362 RSUs for Mr. Tidball, 57,272 RSUs for Mr. Fugal, and 31,982 RSUs to Mr. Fisher, are eligible to vest over a three-year performance period beginning January 1, 2021 based upon the following Company performance metrics:

12

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2022 and 2021
Performance MetricWeightTargetAbove TargetOutstanding
Total Shareholder Return
1/3135%194%253%
Relative Total Shareholder Return 1/3Third QuartileSecond QuartileFirst Quartile
EBITDA as a Percentage of Total Revenue 1/310%15%20%

One-third of such performance-vesting RSUs, consisting of 45,454 RSUs for Mr. Oviatt, 45,454 RSUs for Mr. Tidball, 19,091 RSUs for Mr. Fugal, and 10,661 RSUs for Mr. Fisher, are eligible to vest for each of the three performance metrics identified in the table above. The number of RSUs that will vest for each performance metric on the 2021 LTIP Performance Vesting Date shall be determined as follows:
if the “Target” level for such performance metric is not achieved, none of the RSUs relating to such performance metric will vest;
if the “Target” level (but no higher level) for such performance metric is achieved, 50% of the RSUs 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 RSUs relating to such performance metric will vest; and
if the “Outstanding” level for such performance metric is achieved, 100% of the RSUs relating to such performance metric will vest.

Mr. Fugal resigned, effective October 31, 2021, from his position as Vice President of Operations to pursue an opportunity as CEO of another company. Accordingly, Mr. Fugal did not receive incentive compensation under the 2021 EIP and will not receive incentive compensation under the 2021 LTIP, and his unvested RSUs have been forfeited.

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 filed as exhibits to its quarterly report on Form 10-Q for the quarter ended June 30, 2021.

2021 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 Award Agreements, the forms of which were approved pursuant to the Plan. These 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 director compensation, the Board approved a grant of 189,471 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 vested as the Company's annual meeting of stockholders on June 15, 2022. The awards resulted in total compensation expense of approximately $216,000 recognized over the vesting period.

NOTE 8 – REVENUE

Performance Obligations

Our performance obligations include providing product and servicing our product as well as other combustion related equipment. 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 Note 5 for the amount accrued for expected returns and warranty claims as of September 30, 2022.

13

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2022 and 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. Occasionally, we collect milestone payments up front from customers on larger jobs. These payments are classified as deferred revenue until the deliverables have been met and revenue can be properly recognized in our financial statements. Each of the contracts related to these milestone payments is short-term in nature and we expect to recognize associated revenues within one year. As a result, we consider it appropriate to record deferred revenue for these transactions and do not have any other contract liability balances.

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,
2022202120222021
Electronics$4,415,011 $2,327,854 $11,456,616 $6,196,529 
Manufactured974,081 346,952 1,998,981 908,592 
Re-Sell6,506,789 3,621,930 16,179,388 9,223,689 
Service933,457 646,462 2,330,639 1,741,020 
Total Revenue$12,829,338 $6,943,198 $31,965,625 $18,069,830 

NOTE 9 – BASIC AND DILUTED EARNINGS (LOSS) 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 September 30,
20222021
Income (Numerator)Weighted Average Shares (Denominator)Per-Share
Amount
Income (Numerator)Weighted Average Shares (Denominator)Per-Share
Amount
Basic EPS
Net income available to common stockholders$1,210,748 47,036,012 $0.03 $92,246 48,239,236 $ 
Effect of Dilutive Securities
Stock options & RSUs 1,522,195  1,089,572 
Diluted EPS
Net income available to common stockholders + assumed conversions$1,210,748 $48,558,207 $0.02 $92,246 $49,328,808 $ 




14

PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2022 and 2021
For the Nine Months Ended September 30,
20222021
Loss (Numerator)Weighted Average Shares (Denominator)Per-Share
Amount
Loss (Numerator)Weighted Average Shares (Denominator)Per-Share
Amount
Basic EPS
Net income (loss) available to common stockholders$2,122,738 47,201,611 $0.04 $(906,420)48,095,404 $(0.02)
Effect of Dilutive Securities
Stock options & RSUs 1,559,735   
Diluted EPS
Net income (loss) available to common stockholders + assumed conversions$2,122,738 48,761,346 $0.04 $(906,420)48,095,404 $(