Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS (Notes)

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ACQUISITIONS (Notes)
6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
ACQUISITIONS ACQUISITIONS
Millstream Energy Products
On June 18, 2019, our wholly-owned subsidiary, Profire Combustion, Inc., acquired substantially all the assets from 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 should 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. Of this cash purchase amount $140,257 was held back for 6 months pending satisfaction of seller obligations under the purchase agreement and was settled with the seller on February 20, 2020. The seller is also entitled to receive a 4.5% royalty on proprietary MEP product revenue generated during the next five years.

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   

Transaction and related 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 is based in Millersburg, Ohio. Midflow provides packaged combustion solutions and services to the upstream and midstream oil and gas industry.

The 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.

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.