Washington, DC 20549


Three Months EndedJune 30, 2019
For the Transition Period From ________ to _________

Commission File Number 001-36378

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
321 South 1250 West, Suite 1
Lindon, Utah
(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 August 5, 2019, the registrant had 50,758,945 shares of common stock issued and 48,208,158 shares of common stock outstanding, par value $0.001.

Item 1. Financial Statements 
Condensed Consolidated Balance Sheets 
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) 
Condensed Consolidated Statements of Cash Flows (Unaudited) 
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) 
Notes to 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 
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 

Item 1 Financial Information

Condensed Consolidated Balance Sheets
As of
June 30, 2019December 31, 2018
Cash and cash equivalents $11,487,778 $10,101,932 
Short-term investments 726,782 961,256 
Short-term investments - other 2,400,000 3,596,484 
Accounts receivable, net 6,395,332 6,885,296 
Inventories, net 9,071,479 9,659,571 
Prepaid expenses & other current assets 512,292 473,726 
Income tax receivable 473,093 173,124 
Total Current Assets 31,066,756 31,851,389 
Net deferred tax asset  85,092 
Long-term investments 8,433,185 7,978,380 
Financing right-of-use asset 149,484  
Property and equipment, net 9,108,234 8,020,462 
Goodwill 997,701 997,701 
Intangible assets, net 1,699,312 429,956 
Total Long-Term Assets 20,387,916 17,511,591 
TOTAL ASSETS $51,454,672 $49,362,980 
Accounts payable $1,415,824 $1,177,985 
Accrued vacation 373,995 311,435 
Accrued liabilities 1,679,279 1,445,510 
Current financing lease liability 76,559  
Income taxes payable 199,792 1,172,191 
Total Current Liabilities 3,745,449 4,107,121 
Net deferred income tax liability 120,222  
Long-term financing lease liability 76,382  
TOTAL LIABILITIES 3,942,053 4,107,121 
Preferred shares: $0.001 par value, 10,000,000 shares authorized: no shares issued or outstanding   
Common shares: $0.001 par value, 100,000,000 shares authorized: 50,016,979 issued and 47,466,192 outstanding at June 30, 2019, and 49,707,805 issued and 47,932,305 outstanding at December 31, 2018 50,017 49,708 
Treasury stock, at cost (3,943,063)(2,609,485)
Additional paid-in capital 28,593,552 28,027,742 
Accumulated other comprehensive loss (2,525,586)(2,895,683)
Retained earnings 25,337,699 22,683,577 
TOTAL STOCKHOLDERS' EQUITY 47,512,619 45,255,859 

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

Condensed Consolidated Statements of Operations and Comprehensive Income     
For the Three Months Ended June 30, For the Six Months Ended June 30, 
Sales of goods, net $9,559,255 $10,724,409 $19,757,890 $22,179,024 
Sales of services, net 564,776 615,352 1,199,199 1,330,454 
Total Revenues 10,124,031 11,339,761 20,957,089 23,509,478 
Cost of goods sold-product 4,568,666 4,959,539 9,139,654 10,517,249 
Cost of goods sold-services 368,327 471,555 865,525 953,422 
Total Cost of Goods Sold 4,936,993 5,431,094 10,005,179 11,470,671 
GROSS PROFIT 5,187,038 5,908,667 10,951,910 12,038,807 
General and administrative expenses 3,566,698 3,364,826 6,728,228 6,706,726 
Research and development 512,871 317,002 861,929 720,221 
Depreciation and amortization expense 110,910 129,070 227,133 257,787 
Total Operating Expenses 4,190,479 3,810,898 7,817,290 7,684,734 
INCOME FROM OPERATIONS 996,559 2,097,769 3,134,620 4,354,073 
Gain on sale of fixed assets 21,410 21,254 38,340 86,085 
Other expense (413)(4,164)(964)(5,956)
Interest income 85,887 174,771 177,590 225,479 
Total Other Income 106,884 191,861 214,966 305,608 
INCOME BEFORE INCOME TAXES 1,103,443 2,289,630 3,349,586 4,659,681 
INCOME TAX EXPENSE 117,939 575,363 695,464 1,069,183 
NET INCOME $985,504 $1,714,267 $2,654,122 $3,590,498 
Foreign currency translation gain (loss) $102,435 $(427,307)$251,850 $(394,072)
Unrealized gains (losses) on investments 49,495 9,226 118,247 (24,009)
Total Other Comprehensive Income (Loss) 151,930 (418,081)370,097 (418,081)
COMPREHENSIVE INCOME $1,137,434 $1,296,186 $3,024,219 $3,172,417 
BASIC EARNINGS PER SHARE $0.02 $0.04 $0.06 $0.07 
FULLY DILUTED EARNINGS PER SHARE $0.02 $0.03 $0.06 $0.07 
BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING 47,348,137 48,266,199 47,392,534 48,467,136 
FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING 48,124,208 49,095,575 48,192,849 49,237,938 

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

Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 
Net income $2,654,122 $3,590,498 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization expense 483,063 442,959 
Gain on sale of fixed assets (38,340)(76,703)
Bad debt expense 229,792 141,348 
Stock awards issued for services 749,547 861,189 
Changes in operating assets and liabilities: 
Changes in accounts receivable 605,009 548,419 
Changes in income taxes receivable/payable (1,261,267)(790,946)
Changes in inventories 1,831,865 (2,074,974)
Changes in prepaid expenses (35,637)114,907 
Changes in deferred tax asset/liability 205,314 91,890 
Changes in accounts payable and accrued liabilities (115,813)274,744 
Net Cash Provided by Operating Activities 5,307,655 3,123,331 
Proceeds from sale of equipment 39,810 159,449 
Sale of investments 1,109,297 368,379 
Purchase of fixed assets (1,429,735)(1,184,126)
Payments for asset acquisition (2,088,814) 
Net Cash Used in Investing Activities (2,369,442)(656,298)
Value of equity awards surrendered by employees for tax liability (184,433)(736,160)
Cash received in exercise of stock options  174,002 
Purchase of Treasury stock (1,333,578)(4,000,000)
Principal paid towards lease liability (32,185) 
Net Cash Used in Financing Activities (1,550,196)(4,562,158)
Effect of exchange rate changes on cash (2,171)(51,997)
NET INCREASE (DECREASE) IN CASH 1,385,846 (2,147,122)
CASH AT BEGINNING OF PERIOD 10,101,932 11,445,799 
CASH AT END OF PERIOD $11,487,778 $9,298,677 
Interest $2,832 $ 
Income taxes $1,793,281 $1,691,397 
Acquisition of assets (Preliminary estimate) $237,032 $ 

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

Condensed Consolidated Statements of Shareholders' Equity
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Treasury StockRetained EarningsTotal Stockholders' Equity
Balance, December 31, 201847,932,305 $49,708 $28,027,742 $(2,895,683)$(2,609,485)$22,683,577 $45,255,859 
Stock based compensation66,71466,714
Stock issued in exercise of stock options2,483 2 (2) 
Stock issued in settlement of RSUs148,723 149 379,712 379,861 
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 translation149,415 149,415 
Unrealized gains on investments68,752 68,752 
Net income1,668,618 1,668,618 
Balance, March 31, 201947,308,224 $49,859 $28,331,144 $(2,677,516)$(3,943,063)$24,352,195 $46,112,619 
Stock based compensation303,977 303,977 
Stock issued in exercise of stock options9,174 9 (9) 
Stock issued in settlement of RSUs148,794 149 (149) 
Tax withholdings paid related to stock based compensation(41,411)(41,411)
Foreign currency translation102,435 102,435 
Unrealized gains on investments49,495 49,495 
Net income985,504 985,504 
Balance, June 30, 201947,466,192 $50,017 $28,593,552 $(2,525,586)$(3,943,063)$25,337,699 $47,512,619 

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

Condensed Consolidated Statements of Shareholders' Equity (Continued)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Treasury StockRetained EarningsTotal Stockholders' Equity
Balance, December 31, 201748,606,425 $53,931 $27,535,469 $(2,200,462)$(6,890,349)$25,548,835 $44,047,424 
Stock based compensation390,585390,585
Stock issued in exercise of stock options81,229 81 (81) 
Stock issued in settlement of RSUs118,762 119 258,773 258,892 
Tax withholdings related to stock based compensation(83,600)(83,600)
Foreign currency translation(239,129)(239,129)
Unrealized losses on investments(33,235)(33,235)
Net income1,876,228 1,876,228 
Balance, March 31, 201848,806,416 $54,131 $28,101,146 $(2,472,826)$(6,890,349)$27,425,063 $46,217,165 
Stock based compensation292,450 292,450 
Stock issued in exercise of stock options445,038 445 (445) 
Stock issued in settlement of RSUs108,923 109 121,725 121,834 
Tax withholdings related to stock based compensation(686,072)(686,072)
Treasury stock repurchased(1,277,954)(4,000,000)(4,000,000)
Foreign currency translation(154,943)(154,943)
Unrealized losses on investments9,226 9,226 
Net income1,714,267 1,714,267 
Balance, June 30, 201848,082,423 $54,685 $27,828,804 $(2,618,543)$(10,890,349)$29,139,330 $43,513,927 

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

Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2019, and December 31, 2018


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 subsidiary, 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, and cash flows at June 30, 2019 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, 2018 ("Form 10-K").  The results of operations for the three and six month periods ended June 30, 2019 and 2018 are not necessarily indicative of the operating results for the full years.


Organization and Line of Business

This Organization and Summary of Significant Accounting Policies of Profire Energy, Inc. and its subsidiary (the "Company") is presented to assist in understanding the Company's condensed consolidated financial statements. The Company's accounting policies conform to accounting principles generally accepted in the United States of America ("US GAAP").

The Company provides burner- and chemical-management products 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 Notes to the Consolidated Financial Statements in the Company's most recent Form 10-K, except as discussed below.


In February of 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02 - Leases (Topic 842), which significantly amends the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company adopted this update as of January 1, 2019 using the modified retrospective transition method. Prior periods have not been restated. Upon implementation, the Company recognized an initial right-of-use asset of $132,488 and lease liability of $132,488. Due to the simplistic nature of the Company's leases, no change to retained earnings was required. See Note 8 for further details.

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.


Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had no impact on financial position, net income, or stockholders' equity.
The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2019, and December 31, 2018

Inventories consisted of the following at each balance sheet date:

As of 
June 30, 2019December 31, 2018
Raw materials $41,291 $76,319 
Finished goods 9,883,394 10,474,522 
Work in process   
Subtotal 9,924,685 10,550,841 
Reserve for obsolescence (853,206)(891,270)
Total $9,071,479 $9,659,571 


As of June 30, 2019, and December 31, 2018, the Company held 2,550,787 and 1,775,500 shares of its common stock in treasury at a total cost of $3,943,063 and $2,609,485, respectively.

On April 22, 2019, the Board of Directors (the “Board”) of Profire Energy, Inc. (the “Company”) approved the 2019 Executive Incentive Plan (the “EIP”) for Brenton W. Hatch, the Company’s President and Chief Executive Officer, Ryan W. Oviatt, the Company’s Chief Financial Officer, Cameron M. Tidball the Company’s Chief Business Development Officer, Jay G. Fugal, the Company’s Vice President of Operations, and Patrick D. Fisher, the Company’s Vice President of Product development. The EIP provides for the potential award of bonuses to the participants based on the Company’s financial performance in fiscal 2019. If earned, the bonuses will be payable in cash and stock, and the stock portion of the bonuses is intended to constitute an award under the Company’s 2014 Equity Incentive Plan, as amended (the “Plan”). In addition to the EIP, the Board also approved as a long term incentive plan the grants of a restricted stock unit awards to Messrs. Oviatt, Tidball, Fugal, and Fisher pursuant to the Plan (the “2019 LTIP”).

2019 EIP

Under the terms of the EIP, each participating executive officer has been assigned a target bonus amount for fiscal 2019. The target bonus amount for Mr. Hatch is $412,000, the target bonus amount for Mr. Oviatt is $90,125, the target bonus amount for Mr. Tidball is $84,357, the target bonus for Mr. Fugal is $41,200, and the target bonus for Mr. Fisher is $38,750 CAD. Under no circumstance can the participants receive more than two times the assigned target bonus.

Participants will be eligible to receive bonuses based upon reaching or exceeding performance goals established by the Board or its Compensation Committee for fiscal 2019. The performance goals in the EIP are based on the Company’s total revenue, net income, free cash flow, and product development milestones. Each of these performance goals will be weighted 25% in calculating bonus amounts.

The bonus amounts earned under the 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 bonus amount for each participant, or exceed any limitations otherwise set forth in the Plan. The actual bonus amounts, if any, will be determined by the Compensation Committee of the Board upon the completion of fiscal 2019 and paid by March 15, 2020, subject to all applicable tax withholding.

2019 LTIP

The 2019 LTIP consists of total awards of up to 66,213 restricted stock units (“Units”) to Mr. Oviatt, up to 51,646 Units to Mr. Tidball, up to 35,313 Units to Mr. Fugal, and up to 24,862 Units to Mr. Fisher pursuant to two separate Restricted Stock Unit Award Agreements to be entered between the Company and each participant. One such agreement will cover 33% of each award recipient’s Units that are subject to time-based vesting, and the other such agreement will cover the remaining 67% of such award recipient’s Units 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 2019 LTIP began on January 1, 2019 and terminates on December 31, 2021 (the “Performance Vesting Date”).


Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2019, and December 31, 2018
On March 14, 2019, our Board of Directors approved a grant of 85,000 restricted stock units ("RSUs") to various employees. The awards vest annually over five years and will result in total compensation expense of $149,600 to be recognized over the vesting period.

On June 12, 2019, the Board of Directors approved a grant of 183,942 restricted stock units ("RSUs") to Independent Directors. Half of the RSUs vest immediately on the date of grant and the remaining 50% of the RSUs will vest on the one year 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.


The Company operates in the United States and Canada. Segment information for these geographic areas is as follows:

For the Three Months Ended June 30, For the Six Months Ended June 30, 
Sales 2019201820192018
Canada $1,056,781 $1,272,056 $1,992,419 $2,570,888 
United States 9,067,250 10,067,705 18,964,670 20,938,590 
Total Consolidated $10,124,031 $11,339,761 $20,957,089 $23,509,478 
For the Three Months Ended June 30, For the Six Months Ended June 30, 
Profit (Loss) 2019201820192018
Canada $(547,202)$(265,830)$(929,242)$(700,494)
United States 1,532,706 1,980,097 3,583,364 4,290,992 
Total Consolidated $985,504 $1,714,267 $2,654,122 $3,590,498 
As of 
Long-Lived Assets June 30, 2019 December 31, 2018 
Canada $3,058,272 $2,079,173 
United States 6,049,962 5,941,289 
Total Consolidated $9,108,234 $8,020,462 

Performance Obligations
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 contract.

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 contact) for costs related to contracts that are estimated to be completed within one year. All of the current 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.


Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2019, and December 31, 2018
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 June 30, For the Six Months Ended June 30, 
2019 2018 2019 2018 
Electronics $4,139,283 $4,413,545 $8,785,880 $9,220,574 
Manufactured 492,969 814,731 923,562 1,769,510 
Re-Sell 4,927,003 5,496,133 10,048,448 11,188,940 
Service 564,776 615,352 1,199,199 1,330,454 
Total Revenue$10,124,031 $11,339,761 $20,957,089 $23,509,478 


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, 
Income (Numerator) Weighted Average Shares (Denominator) Per-Share
Income (Numerator) Weighted Average Shares (Denominator) Per-Share
Basic EPS
Net income available to common stockholders$985,504 47,348,137 $0.02 $1,714,267 48,266,199 $0.04 
Effect of Dilutive Securities
Stock options & RSUs 776,071  829,376 
Diluted EPS
Net income available to common stockholders + assumed conversions$985,504 48,124,208 $0.02 $1,714,267 49,095,575 $0.03 

Options to purchase 244,600 shares of common stock at a weighted average price of $3.88 per share were outstanding during the three months ended June 30, 2019, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expire between November 2019 and May 2020, were still outstanding at June 30, 2019. No shares were excluded for the three months ended June 30, 2018.

For the Six Months Ended June 30, 
Income (Numerator) Weighted Average Shares (Denominator) Per-Share
Income (Numerator) Weighted Average Shares (Denominator) Per-Share
Basic EPS 
Net income available to common stockholders $2,654,122 47,392,534 $0.06 $3,590,498 48,467,136 $0.07 
Effect of Dilutive Securities 
Stock options & RSUs  800,315  770,802 
Diluted EPS 
Net income available to common stockholders + assumed conversions $2,654,122 48,192,849 $0.06 $3,590,498 49,237,938 $0.07 


Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2019, and December 31, 2018
Options to purchase 244,600 and 251,600 shares of common stock at a weighted average price of $3.88 and $3.89 per share were outstanding during the six months ended June 30, 2019 and 2018, respectively, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expire between November 2019 and May 2020, were still outstanding at June 30, 2019.


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 used our incremental borrowing rate as the discount rate. Our weighted average discount rate is 4.50% and the weighted average remaining lease term is 27.4 months.

The following table shows the components of financing lease cost:

Financing Lease CostFor the Three Months Ended June 30, 2019For the Six Months Ended June 30, 2019
Amortization of right-of-use assets$19,280 $35,641 
Interest on lease liabilities1,421 2,832 
Total financing lease cost$20,701 $38,473 

The following table reconciles future minimum lease payments to the discounted finance lease liability:

Years ending December 31,Amount
Total future minimum lease payments$161,209 
Less: Amount representing interest8,268 
Present value of future payments$152,941 
Current portion$76,559 
Long-term portion$76,382 

Because our office space leases are short-term, we have elected not to recognize them on our balance sheet under the short-term recognition exemption. During the three and six months ended June 30, 2019, we recognized $13,411 and $22,318, respectively in short-term lease costs associated with office space leases.


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 develops 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.


Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2019, and December 31, 2018
The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase accounting process has not been completed primarily because the valuation of acquired assets has not been finalized. We expect to complete the purchase accounting as soon as practicable but no later than one year from the acquisition date. We do not believe there will be material adjustments. The purchase price of $2,325,846 USD was funded through existing cash. MEP will also receive a 4.5% royalty on proprietary MEP product revenue generated during the next five years. Based on the estimated fair value at the time of purchase, the Company recorded an estimate of intangible assets in the amount of $1,268,930 USD which may include goodwill once the final valuation analysis is completed.

The purchase price calculation is a follows:
The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of purchase:
Accounts receivable$308,431 
Intangibles and goodwill1,268,930 
Accounts payable(114,187)
Accrual liabilities(261,250)

Transaction and related costs directly related to the acquisition of MEP, consisting primarily of professional fees and integration expenses, have amounted to approximately $42,780 and were expensed as incurred and are included in general and administrative expenses.


In accordance with ASC 855 "Subsequent Events," Company Management reviewed all material events through the date this report was issued and the following subsequent events occurred:

On August 1, 2019, our Board of Directors authorized an additional $2,000,000 for the share repurchase plan that was put in place on October 30, 2018. This plan allows for the repurchase of our stock at Management's discretion through October 31, 2019. As of this filing, no shares have been repurchased under this plan.

On August 5, 2019, Profire Energy, Inc., a Nevada corporation (the “Company”), entered into definitive agreement (the “Agreement”) to acquire Midflow Services, LLC. (“Midflow”). The Agreement contains certain customary representations, warranties and covenants. The transaction closed on August 5, 2019.
The Company has agreed to pay a total purchase price of $3.4 million, $2.4 million in cash and $1 million in Profire stock, in exchange for all the stock of Midflow. The purchase price is subject to an adjustment based on working capital at closing.

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 six-month periods ended June 30, 2019 and 2018. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Financial Statements and Notes to the Financial Statements contained in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended December 31, 2018.

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 our forward-looking statements by these cautionary statements.

Forward-looking statements in this report speak only as of their dates. 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.


We are an oilfield technology company providing products that enhance the efficiency, safety, and compliance of the oil and gas industry. We specialize in the creation of burner-management systems used on a variety of oilfield forced-air and natural-draft fire-tube applications. We sell our products and services primarily throughout North America. Our experienced team of industry service professionals also provides supporting services for our products.


Principal Products and Services

In the oil and natural gas 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 or processing functions. This is provided by a burner flame. This burner flame is integral to the process of separating, treating, storing, and transporting oil and gas. Factors such as the gravity, the presence of hydrates, temperature and hydrogen sulfide content contribute to the requirement for heat in oil and gas production and processing applications. Our burner-management systems help ignite, monitor, and manage this burner flame, which can be operated remotely, reducing the need for employee interaction with the burner, such as for the purposes of re-ignition or temperature monitoring. In addition, our burner-management systems can help reduce gas emissions by quickly reigniting a failed flame.

Oil and gas producers can use our burner-management systems to achieve increased safety, greater operational efficiencies, and improved compliance with changing industry regulations. Without burner-management systems, an employee must discover and reignite an extinguished burner flame, then restart the application manually. Therefore, without burner-management systems, all application monitoring is done directly on-site. Such on-site monitoring can result in the interruption of production for longer periods of time, risk in reigniting a flame, which can lead to burns and explosions, and the possibility of raw gas being vented into the atmosphere when the flame fails. In addition, without a burner-management system, burners often run longer, incurring significant 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. We continue to assess compliance-interest in the industry, and we believe that enhanced burner-management products and services can help our customers be compliant with such regulatory requirements, where applicable. In addition to selling products, we train and dispatch service technicians to service burner flame installations throughout the United States and Canada.

We initially developed our first burner-management system in 2005. Since then, we have released several iterations of our initial burner-management system, increasing features and capabilities, while maintaining compliance with North American standards including, Canadian Standards Association (CSA), Underwriters Laboratories (UL), and Safety Integrity Level (SIL) standards.

Our burner-management systems have become widely used in Western Canada, and throughout many regions in the United States. We have sold our burner-management systems to many large energy companies, including Anadarko, Chesapeake, ConocoPhillips, Devon, Encana, XTO, CNRL, Shell, OXY, and others. Our systems have also been sold or installed in other parts of the world, including France, Italy, Argentina, India, Nigeria, the Middle East, Australia, and Brazil. We are established in the North American oil and gas markets, which is our current primary focus, but we are working to expand into more international markets as well.

Product Extension: PF3100

The PF3100 is an advanced burner-management system which is designed to operate, monitor, control, and manage a wide variety of more complex, multi-faceted oilfield appliances. Throughout the industry, Programmable Logic Controllers, or PLCs, are used to operate and manage custom-built oilfield applications. Though capable, PLCs can be expensive, tedious, and difficult to use and install. The PF3100 can help manage and synchronize custom applications helping 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.

We frequently assess market needs by participating in industry conferences and soliciting feedback from existing 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 might have feasibility for future sale.


Additional Complementary Products

In addition to our burner- and combustion-management systems, we also supply complementary products that provide our cu