Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

v3.20.2
ACQUISITIONS
9 Months Ended
Sep. 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 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 
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.