Document

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, 2019
☐	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 class

Trading Symbol(s)

Name of each exchange on which registered

Common, $0.001 Par Value

PFIE

NASDAQ

As of November 5, 2019, the registrant had 50,807,831 shares of common stock issued and 47,395,453 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	4

	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows (Unaudited)	6

	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations			16

Item 3. Quantitative and Qualitative Disclosure about Market Risk			20

Item 4. Controls and Procedures			20

PART II — OTHER INFORMATION

Item 1. Legal Proceedings			21

Item 1A. Risk Factors			21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			21

Item 3. Defaults Upon Senior Securities			21

Item 4. Mine Safety Disclosures			21

Item 5. Other Information			21

Item 6. Exhibits			22

Signatures			23

PART I. FINANCIAL INFORMATION

Item 1 Financial Information


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
	As of
	September 30, 2019		December 31, 2018
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	9,944,128	$	10,101,932
Short-term investments	864,629		961,256
Short-term investments - other	2,000,000		3,596,484
Accounts receivable, net	6,568,599		6,885,296
Inventories, net (note 3)	9,782,643		9,659,571
Prepaid expenses & other current assets	1,076,138		473,726
Income tax receivable	524,695		173,124
Total Current Assets	30,760,832		31,851,389
LONG-TERM ASSETS
Net deferred tax asset	—		85,092
Long-term investments	7,319,099		7,978,380

Financing right-of-use asset	128,738		—
Property and equipment, net	10,896,855		8,020,462
Intangible assets, net	3,934,727		429,956
Goodwill	1,120,381		997,701
Total Long-Term Assets	23,399,800		17,511,591
TOTAL ASSETS	$	54,160,632	$	49,362,980

CURRENT LIABILITIES
Accounts payable	$	2,181,592	$	1,177,985
Accrued vacation	446,451		311,435
Accrued liabilities	2,209,303		1,445,510
Current financing lease liability (note 8)	67,984		—
Income taxes payable	627,010		1,172,191
Total Current Liabilities	5,532,340		4,107,121
LONG-TERM LIABILITIES
Net deferred income tax liability	134,046		—
Long-term financing lease liability	63,951		—
TOTAL LIABILITIES	5,730,337		4,107,121

STOCKHOLDERS' EQUITY (note 4)
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: 50,761,491 issued and 47,618,604 outstanding at September 30, 2019, and 49,707,805 issued and 47,932,305 outstanding at December 31, 2018	50,762		49,708
Treasury stock, at cost	(4,859,230)		(2,609,485)
Additional paid-in capital	29,608,685		28,027,742
Accumulated other comprehensive loss	(2,629,369)		(2,895,683)
Retained earnings	26,259,447		22,683,577
TOTAL STOCKHOLDERS' EQUITY	48,430,295		45,255,859
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	54,160,632	$	49,362,980

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


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019		2018		2019		2018
REVENUES (note 6)
Sales of goods, net	$	9,251,947	$	10,830,592	$	29,009,837	$	33,009,616
Sales of services, net	653,814		669,310		1,853,013		1,999,764
Total Revenues	9,905,761		11,499,902		30,862,850		35,009,380

COST OF SALES
Cost of goods sold-product	4,326,335		4,917,449		13,465,989		15,434,698
Cost of goods sold-services	410,130		484,327		1,275,655		1,437,749
Total Cost of Goods Sold	4,736,465		5,401,776		14,741,644		16,872,447

GROSS PROFIT	5,169,296		6,098,126		16,121,206		18,136,933

OPERATING EXPENSES
General and administrative expenses	3,256,023		3,180,725		9,984,251		9,887,451
Research and development	641,716		377,676		1,503,645		1,097,897
Depreciation and amortization expense	130,105		143,327		357,238		401,114
Total Operating Expenses	4,027,844		3,701,728		11,845,134		11,386,462

INCOME FROM OPERATIONS	1,141,452		2,396,398		4,276,072		6,750,471

OTHER INCOME (EXPENSE)
Gain on sale of fixed assets	34,826		43,904		73,166		129,989
Other expense	(2,065)		(1,506)		(3,029)		(7,462)
Interest income	38,478		85,167		216,068		310,646
Total Other Income	71,239		127,565		286,205		433,173

INCOME BEFORE INCOME TAXES	1,212,691		2,523,963		4,562,277		7,183,644

INCOME TAX EXPENSE	290,943		864,874		986,407		1,934,057

NET INCOME	$	921,748	$	1,659,089	$	3,575,870	$	5,249,587

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss)	$	(91,397)	$	170,641	$	160,453	$	(223,431)
Unrealized gains (losses) on investments	(12,386)		(11,963)		105,861		(35,972)
Total Other Comprehensive Income (Loss)	(103,783)		158,678		266,314		(259,403)

COMPREHENSIVE INCOME	$	817,965	$	1,817,767	$	3,842,184	$	4,990,184

BASIC EARNINGS PER SHARE (note 7)	$	0.02	$	0.03	$	0.08	$	0.11
FULLY DILUTED EARNINGS PER SHARE	$	0.02	$	0.03	$	0.07	$	0.11

BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING	47,739,192		48,082,506		47,509,357		48,337,517
FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING	48,469,246		48,852,167		48,259,900		49,107,178

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


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
	For the Nine Months Ended September 30,
	2019		2018
OPERATING ACTIVITIES
Net income	$	3,575,870	$	5,249,587
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	732,396		667,085
Gain on sale of fixed assets	(73,166)		(120,825)
Bad debt expense	255,943		134,901
Stock awards issued for services	358,270		916,795
Changes in operating assets and liabilities:
Changes in accounts receivable	1,244,104		(184,951)
Changes in income taxes receivable/payable	(890,523)		(432,575)
Changes in inventories	1,711,446		(3,863,287)
Changes in prepaid expenses	(586,576)		(172,497)
Changes in deferred tax asset/liability	219,138		22,564
Changes in accounts payable and accrued liabilities	855,207		1,506,396
Net Cash Provided by Operating Activities	7,402,109		3,723,193

INVESTING ACTIVITIES
Proceeds from sale of equipment	75,310		219,269
Sale (purchase) of investments	2,476,227		(876,463)
Purchase of fixed assets	(3,309,191)		(1,271,997)
Payments for acquisitions	(4,322,722)		—
Net Cash Used in Investing Activities	(5,080,376)		(1,929,191)

FINANCING ACTIVITIES
Value of equity awards surrendered by employees for tax liability	(185,004)		(737,024)
Cash received in exercise of stock options	8,870		174,002
Purchase of treasury stock	(2,249,745)		(4,000,000)
Principal paid towards lease liability	(53,190)		—
Net Cash Used in Financing Activities	(2,479,069)		(4,563,022)

Effect of exchange rate changes on cash	(468)		(38,941)

NET DECREASE IN CASH	(157,804)		(2,807,961)
CASH AT BEGINNING OF PERIOD	10,101,932		11,445,799
CASH AT END OF PERIOD	$	9,944,128	$	8,637,838

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH PAID FOR:
Interest	$	4,469	$	—
Income taxes	$	1,793,281	$	2,164,149
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of common stock - Midflow acquisition	$	1,020,000	$	—

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


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, 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)								—
Stock issued in settlement of RSUs	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)								—
Tax withholdings paid related to stock based compensation					(41,411)								(41,411)
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)								—
Stock issued 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

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


PROFIRE ENERGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Continued)
(Unaudited)
	Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Retained Earnings		Total Stockholders' Equity
	Shares		Amount
Balance, December 31, 2017	48,606,425		$	53,931	$	27,535,469	$	(2,200,462)	$	(6,890,349)	$	25,548,835	$	44,047,424
Stock based compensation					575,235								575,235
Stock issued in exercise of stock options	81,213		81		74,161								74,242
Stock issued in settlement of RSUs	118,778		119		(119)								—
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 income											1,876,228		1,876,228
Balance, March 31, 2018	48,806,416		$	54,131	$	28,101,146	$	(2,472,826)	$	(6,890,349)	$	27,425,063	$	46,217,165
Stock based compensation					281,012								281,012
Stock issued in exercise of stock options	410,421		410		99,350								99,760
Stock issued in settlement of RSUs	143,540		144		(144)								—
Tax withholdings related to stock based compensation					(652,560)								(652,560)
Treasury stock repurchased	(1,277,954)								(4,000,000)				(4,000,000)
Foreign currency translation							(154,943)						(154,943)
Unrealized gains on investments							9,226						9,226
Net income											1,714,270		1,714,270
Balance, June 30, 2018	$	48,082,423	$	54,685	$	27,828,804	$	(2,618,543)	$	(10,890,349)	$	29,139,333	$	43,513,930
Stock based compensation					62,232								62,232
Stock issued in settlement of RSUs	640		1		(1)								—
Tax withholdings related to stock based compensation					(864)								(864)
Foreign currency translation							170,641						170,641
Unrealized losses on investments							(11,963)						(11,963)
Net income											1,659,089		1,659,089
Balance, September 30, 2018	$	48,083,063	$	54,686	$	27,890,171	$	(2,459,865)	$	(10,890,349)	$	30,798,422	$	45,393,065

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

PROFIRE ENERGY, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the three and nine months ended September 30, 2019, and as of December 31, 2018

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 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 September 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 nine month periods ended September 30, 2019 and 2018 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 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.

Leases

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 simple 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.

Reclassification

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.

PROFIRE ENERGY, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2019, and as of December 31, 2018

NOTE 3 – INVENTORY

Inventories consisted of the following at each balance sheet date:


	As of
	September 30, 2019		December 31, 2018
Raw materials	$	457,549	$	76,319
Finished goods	10,168,955		10,474,522
Work in process	—		—
Subtotal	10,626,504		10,550,841
Reserve for obsolescence	(843,861)		(891,270)
Total	$	9,782,643	$	9,659,571

NOTE 4 – STOCKHOLDERS' EQUITY

As of September 30, 2019, and December 31, 2018, the Company held 3,142,887 and 1,775,500 shares of its common stock in treasury at a total cost of $4,859,230 and $2,609,485, respectively.

On April 22, 2019, the Board of Directors (the “Board”) of 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 year 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 the grants of 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 target bonus amount assigned to such participant.

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 agreement covers 33% of each award recipient’s Units that are subject to time-based vesting, and the other agreement covers 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.

PROFIRE ENERGY, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2019, and as of December 31, 2018

On March 14, 2019, the Board approved a grant of 85,000 restricted stock units ("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, the Board approved a grant of 183,942 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 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.

NOTE 5 – 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,
Sales	2019		2018		2019		2018
Canada	$	1,890,592	$	1,803,957	$	3,883,010	$	4,374,844
United States	8,015,169		9,695,945		26,979,840		30,634,536
Total Consolidated	$	9,905,761	$	11,499,902	$	30,862,850	$	35,009,380

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Profit (Loss)	2019		2018		2019		2018
Canada	$	(242,182)	$	24,224	$	(1,171,424)	$	(676,268)
United States	1,163,930		1,634,865		4,747,294		5,925,855
Total Consolidated	$	921,748	$	1,659,089	$	3,575,870	$	5,249,587

					As of
Long-Lived Assets					September 30, 2019		December 31, 2018
Canada					$	5,281,869	$	2,509,129
United States					18,117,931		15,002,462
Total Consolidated					$	23,399,800	$	17,511,591