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 [X]   No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)Yes [X]   No [  ]

 

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 [X]

As of August 4,November 3, 2017, the registrant had 53,684,29353,695,610 shares issued and 48,553,246 shares outstanding of common stock issued and 48,423,370 shares of common stock outstanding, par value $0.001.

PROFIRE ENERGY, INC.

Except where the context otherwise requires, references herein to the "Company" 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, except for the adoption of ASU 2016-09 discussed below) necessary to present fairly the financial position, results of operations and cash flows at JuneSeptember 30, 2017 and for all periods presented 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 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 transition report on Form 10-K for the transition period ended December 31, 2016.  The results of operations for the period ended JuneSeptember 30, 2017 and 2016 are not necessarily indicative of the operating results for the full years.

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

Profire Energy, Inc. was established on October 9, 2008 upon the closing of transactions contemplated by an Acquisition Agreement among The Flooring Zone, Inc., Profire Combustion, Inc. (the "Subsidiary") and the shareholders of the Subsidiary. Following the closing of the transactions, The Flooring Zone, Inc. was renamed Profire Energy, Inc. (the "Parent").

 

Pursuant to the terms and conditions of the Acquisition Agreement, 35,000,000 shares of restricted common stock of the Parent were issued to the three shareholders of the Subsidiary in exchange for all of the issued and outstanding shares of the Subsidiary. As a result of the transaction, the Subsidiary became a wholly-owned subsidiary of the Parent and the shareholders of the Subsidiary became the controlling shareholders of the Parent.

The Parent was incorporated on May 5, 2003 in the State of Nevada. The Subsidiary was incorporated on March 6, 2002 in the province of Alberta, Canada.  

The Company provides burner and chemical management products and services for the oil and gas industry primarily in the Canadian and US markets.

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 10-K, except as discussed below.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share BasedShare-Based Payment Accounting. Several aspects of the accounting for share basedshare-based payment awards are simplified with this update,under ASU No. 2016-09, including accounting for and classification of various taxes, classification of awards as equity or liabilities, classification of various amounts on the statement of cash flows, and accounting for forfeitures. This standard became effective for the Company on January 1, 2017.

As part of this standard, companies can choose whether to recognize forfeitures as they occur or continue to estimate forfeitures with periodic true-ups. The Company has elected to recognize forfeitures as they occur. This election was made on a modified

retrospective basis with the cumulative effect recognized in beginning retained earnings of the current period; therefore, amounts in prior periods have not been restated. The total adjustment was $171,315 as a reduction of APIC and increase in retained earnings.

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.

Inventories consisted of the following at each balance sheet date:

As of JuneSeptember 30, 2017 and December 31, 2016, the Company held 5,022,1245,220,570 and 2,876,317 shares of its common stock in treasury at a total cost of $6,423,737$6,703,521 and $3,582,805, respectively. All purchases of treasury stock have been made at market rates.

On May 25, 2017, the Company repurchased 1,300,000 shares of Companyits common stock from ourthe Company's CEO for a total price of $1,703,000. This repurchase is included in the treasury stock described in the preceding paragraph. For further details, refer to the Stock Redemption Agreement filed herewith as exhibit 10.2.10.2 to the Company's quarterly report for the quarterly period ended June 30, 2017.

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs.

A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is divided into the following three categories:

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision.  Changes in assumptions can significantly affect estimated fair value.

The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Investments are presented at fair value as of the balance sheet date and accumulated gains or losses on those investments are reported in other comprehensive income. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from financial instruments and any declines in the value of investments are temporary in nature.

The following tables show the adjusted cost, unrealized losses and fair value of the Company's money market funds and investments held as of JuneSeptember 30, 2017 and December 31, 2016:

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

On February 27, 2017, the Company issued 74,711 shares of common stock to one of ourits directors in settlement of previously vested restricted stock units ("RSUs"). During May and June,the nine-month period, the Company issued 27,33229,999 shares of common stock to an employee in settlement of previously vested RSUs.RSUs and the Company issued 5,500 shares of common stock to employees in exercise of previously vested stock options. The compensation cost for all of these issuances was already recognized in prior periods as the awards vested.

The following table is a reconciliation of the numerator and denominators used in the earnings per share calculation:

Options to purchase 1,195,1001,569,730 shares of common stock at a weighted average price of $2.03$3.17 per share were outstanding during the three and sixnine months ended JuneSeptember 30, 2017, but were not included in the computation of diluted EPS because the options'

Options to purchase 332,794,1,343,500 and 1,018,5002,343,579 shares of common stock at a weighted average price of $2.29$2.17 and $2.83 per share were outstanding during the three and sixnine months ended JuneSeptember 30, 2016, respectively, but were not included in the computation of diluted EPS because the Company reported a net loss during the periods and the impact of these shares would be antidilutive. These options, which expire between February 2017 and October 2025, were still outstanding at JuneSeptember 30, 2016.

In accordance with ASC 855 "Subsequent Events," Company Management reviewed all material events through August 4,November 3, 2017, the date this report was available to be issued, and the following subsequent events occurred:

During the period beginning JulyOctober 1, 2017 and ended August 4,November 3, 2017, the Company repurchased 108,92351,670 shares of common stock for a total repurchase price of $139,705 under the shareholder$92,758 pursuant to its previously authorized repurchase program. All purchasesrepurchases were made at market rates.

Forward-looking statements are predictions and not guarantees of future performance or events.  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.  Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  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.

These forward-looking statements speak only as of their dates and should not be unduly relied upon.  We undertake no obligation to amend this report or revise publicly these forward-looking statements (other than pursuant to reporting obligations imposed on registrants pursuant to the Exchange Act) 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 design, assemble, install, service, and sell oilfield-management technologies. Our flagship products are burner-management systems that monitor and manage burners found throughout the industry. We believe our products provide major benefits to our customers including improved efficiency, increased safety, and enhanced compliance with evolving industry regulation. We also sell related products such as flare ignition systems, fuel trainfuel-train components, secondary airplates, valve actuators, solar packages, and chemical-management systems. Our products and services aid oil and natural gas producers in the safe and efficient production and transportation of oil and natural gas.

In the oil and natural gas industry, there are numerous demands for heat generation and control.  Oilfield vessels of all kinds, including line-heaters, dehydrators, separators, treaters, amine reboilers, and free-water knockout systems require heat to satisfy their various functions, which is provided by a burner flame inside the vessel.  This burner flame is integral to the operation of the vessel because these vessels use the flame's heat to facilitate the proper function of the vessel. Such functions include separating, storing, transporting and purifying oil and gas (or even water).  For example, the viscosity of oil and moisture content (and temperature) of gas are critical to a number of oilfield processes, and are directly affected by the heat provided by the burner flame inside the vessel. Our burner-management systems help ignite, monitor, and manage this burner flame, reducing the need for employee interaction with the burner, such as for the purposes of re-ignition or temperature monitoring.

As a result, oilOil and gas producers can use our burner-management systems to achieve increased safety, greater operational efficiencies, and improved compliance with changing industry regulations.  We believe, despite the currentrecent industry down-turn, there is a growing trend in the oil and gas industry toward enhanced control, process automation, and data logging, partly for potential regulatory-satisfaction purposes. We continue to assess compliance-interest in the industry, especially given the budgetary constraints we have observed over the last two years. 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 in Canada and throughout the United States.

We initially developed our first burner-management system in 2005. Since 2005, we have released several iterations of our initial burner-management system, increasing features and capabilities, while maintaining compliance with Canadian Standards Association (CSA) and Underwriters Laboratories (UL) ratings.

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, Energy, ConocoPhillips, Devon, Energy, Encana, Exxon-Mobil, Petro-Canada, Shell and others.  Our systems have also been sold or installed in other parts of the world, including France, Italy, Ukraine, India, Nigeria, the Middle East, Australia, and Brazil. While we have an interest in expanding our long-term international distribution capabilities, our current principal focus is on the North American oil and gas market.

In September of 2015, the Company unveiled its next generation burner-management system which is designed to operate, monitor, and control more complex, multi-faceted oilfield applications. The PF3100, is an advanced management system designed to work with any number ofother Profire-engineered modules, specific to different applications, thus allowing the system to expertly manage a wide variety of applications and possibly whole new environments in future years.applications.

Throughout the industry, Programmable Logic Controllers (PLC) are used to operate and manage custom-built oilfield applications. Though capable, PLC's can be expensive, tedious, and difficult to use. Our unique solution, 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.  The Company is selling the PF3100 for initial use in the oil and gas industry's natural-draft and forced-air markets.

The Company frequently assesses market needs by participating in industry conferences and soliciting feedback from existing and potential customers, and looks for opportunities to provide quality solutions to the oil and gas producing companies it serves. Upon identifying a potential market need, the Company begins researching the market and developing products that might have feasibility for future sale.

In addition to our burner-management systems, we also sell complementary oilfield products to help facilitate improved oilfield safety and efficiency. Such products help manage fuel flow (e.g., valves and fuel trains)fuel-trains), meter air flow (e.g., airplates), generate power on-site (e.g., solar packages), ignite and direct flame (e.g., flare stack igniter and nozzles), and other necessary functions. We have invested heavily to develop innovative complementary products which we anticipate will help bolster continued long-term growth. Some of these products are resold from third parties (e.g., solar packages), while some are proprietary (e.g., flare stack igniter) or patent-pending (e.g., inline pilot and valve technologies).

In addition to the burner-management systems and complementary technologies we have sold historically, we acquired the assets of VIM Injection Management ("VIM") in November 2014, which extended our product offering to include chemical-management systems.

Chemical injection is used for a wide variety of purposes in the oil and gas industry including down-hole inhibition of wax, hydrates, and corrosion agents, so that product can flow more efficiently to the wellhead. Once at the wellhead, chemical injection can also be used to further process the oil or gas before it is sent into a pipeline, and with other applications.

Currently, a variety of pumps are used to meter the chemicals injected, but are often inaccurate in injecting the proper amount of chemical, as they may not account for all of the variables that affect how much chemical should be injected (e.g., pressure, hydrogen sulfide concentration, etc.) nor the optimal efficiency rates of varying pump systems.

Inaccurate injection levels are problematic because the chemicals injected are expensive, and over-injection causes unnecessary expense for producers. Under-injection can also be problematic because it often results in the creation of poor product (i.e., with wax, hydrate, or corrosion agents) and causes problems with pipeline audits.

Our chemical-management systems monitor and manage the chemical-injection process to ensure that optimal levels of chemicals are injected. This improves the efficiency of the pump and production quality of the well, improves safety for workers that would otherwise be exposed to these chemicals, and improves compliance with pipeline operators. Like our burner-management systems, our chemical-management systems can be monitored and managed remotely via SCADA or other remote-communication systems. We hold a U.S. patent related to our chemical management system and its process for supplying a chemical agent to a process fluid.

The table below presents certain financial data comparing the current quarter to prior quarters:

As oil prices have stabilized between $40-50 per barrel inincreased over the past nine-months,twelve-months, we have seen increased capital budgets from our customers and an increased willingness to invest in new equipment. Revenues have steadily increased each quarter for the past year primarily due to increased sales volumes. If oil prices continue to stabilizeremain at or above current levels and our customers' capital budgets increase, we expect that sales volumes will continue to increase at a moderate pace. From the quarter ended JuneSeptember 30, 2016 to the quarter ended JuneSeptember 30, 2017, revenues increased 138%101% with only a 13%17% increase in operating expenses, which enabled us to significantly increase net income 317%1536% between the two periods.

Our gross profit percentage fluctuates each quarter due to changes in product mix. Over the past year we have managed to increase our gross profit percentage 4%it has stayed fairly consistent and we expect it to remain fairly consistent,so, with normal product mix fluctuations, in future periods. We believe that theour gross profit percentage could growimprove as the PF3100 becomes a larger contributor to revenue in future periods.

For over a year we have been focusing on optimizing and right sizingright-sizing our operations to be able to facilitate growth without increasing costs more than necessary. FromOur operating expenses for the quarter ended JuneSeptember 30, 2016 have increased $464,360 compared to the same quarter ended June 30, 2017, our operating expenses have increased $350,141,in the prior year, primarily due to additional staffing and labor costs required to support the revenue growth we have experienced.

Due to the reasons discussed above, we have been able to increase net income 317%increased 1536% compared to the same quarter last year. We have also increased operating cash flows 9%42% in that same time frame. We believe we are positioned well for continued growth in future periods.

We have made changes to right sizeright-size our operations to enable us to increase revenues while keeping costs low and we are seeing the results of those changes. Revenues during the current sixnine month period ended September 30, 2017 compared to the same six months in the priornine month period last year have increased 103%102% while operating expenses have only increased 12%13%. As a result of our right sizingright-sizing efforts, those changes have flowed through to our bottom line, withresulting in a 240%342% increase in net income. Our gross profit percentage has remained fairly consistent, with a slight change due to product mix.

During the past sixnine months, we were able to finance our treasury stock repurchases of $2,840,932 nearly$3,120,716 entirely from our cash flow from operations. We continue to believe that repurchasing our stock is an appropriate use of our excess cash at this time.

Working capital at JuneSeptember 30, 2017 was $25,979,719$26,213,811 compared to $26,875,874 at December 31, 2016. This change was primarily due to a change in our investment mix from short term to long term, an increase in revenues and related collections offset by increased accruals for income taxes payable as a result of generating net income during the period,and payroll-related costs and the repurchase of 1.3million$3,120,716 worth of common stock (including 1,300,000 shares of our common stock from our CEO for an aggregate purchase price of $1,720,737.$1,703,000). We currently do not have any material commitments for capital expenditures, although we are committed to maintaining the assets we have already acquired. We believe our available cash resources are sufficient to cover expected capital expenditures for the foreseeable future, and we have no current plans to incur debt financing.

We have not engaged in any off-balance sheet arrangements, nor do we plan to engage in any in the foreseeable future.

As a smaller reporting company, this section is not required.

Our management,Management, with the participation of the principal executive officerPrincipal Executive Officer and principal financial officer,Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 as of the end of the period covered by this Report. Based on this evaluation, the principal executive officerPrincipal Executive Officer and principal financial officerPrincipal Financial Officer concluded that as of the end of the period covered by this Report, our disclosure controls and control procedures were not effective due to material weaknesses identified as part of our 2016 year-end review of internal controls over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis. For more information on material weaknesses identified by managementManagement during our internal assessment, see our transition report on Form 10-K for the nine-month transition period ended December 31, 2016.

There was no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management has been actively developing a remediation plan and been implementing new controls and processes to address the aforementioned deficiencies. Upon receiving the results of our internal controls review, we have taken actions to strengthen our internal control structure, including the following:

Management continues to meet with key managers and control owners to evaluate the effectiveness of internal controls and to ensure implementation of remediation initiatives.

An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by managementManagement override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

To the best of our knowledge, there are no legal proceedings pending or threatened against us that may have a material impact on us and there are no actions pending or threatened against any of our directors or officers that are averse to us.

In addition to the other information set forth in this quarterly report on Form10-Q, you should carefully consider the risks discussed in our Transition Report on Form 10-K for the nine-month transition period ended December 31, 2016, which risks could materially affect our business, financial condition or future results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material, adverse effect on our business, financial condition or future results.

As previously reported, on June 26, 2014, the SEC declared effective our registration statement on Form S-1 (File No. 333-196462).  The registration statement related to 6,000,000 shares of our common stock; 4,500,000 shares of our common stock were sold by the Company and 1,500,000 shares of our common stock were sold by certain selling stockholders.  On July 2, 2014, we sold 4,500,000 shares of our common stock at the price of $4.00 per share, for an aggregate sale price of $18,000,000.

Although we have used a portion of the proceeds from the offering to fund our operations, acquire the CMS technology, and stock repurchases, a portion of our existing cash balances continuescontinue to reflect some unused proceeds from the offering. We expect to use the remaining proceeds from the offering for expansion of our sales and service team to match the demand for our product, in research and development efforts to create new products, and for other working capital purposes. We may also use a portion of the remaining proceeds to fund possible investments in, or acquisitions of, complementary businesses, solutions or technologies. In addition, the amount and timing of what we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and other factors.  Accordingly, our Management will have discretion and flexibility in applying the remaining proceeds of the offering. Pending any uses, as described above, we intend to invest the net proceeds in high quality, investment grade, short-term fixed income instruments which include corporate, financial institution, federal agency or U.S. government obligations.

On May 26, 2016, the Company announced that its Board of Directors had approved a share repurchase program authorizing the Company to repurchase up to $2,000,000 worth of the Company's common stock from time to time through May 25, 2017. On May 25, 2017, when the original repurchase program expired, the Board of Directors approved another repurchase program authorizing the Company to repurchase up to $2,000,000 worth of common stock through May 31, 2018. As of JuneSeptember 30,

2017, the Company had repurchased 1,322,124a total of 1,520,570 shares of common stock pursuant to the repurchase programprograms for an aggregate purchase price of $1,720,737.

On May 25, 2017, the Company entered into a Stock Redemption Agreement (the “Stock Redemption Agreement”) with Hatch Family Holdings Company, LLC, which is wholly owned by Brenton W. Hatch, the Company’s Chairman and Chief Executive Officer. Pursuant to the Stock Redemption Agreement, the Company repurchased 1,300,000 shares of its common stock for an aggregate purchase price of $1,703,000. The shares repurchased pursuant to the Stock Redemption Agreement were not purchased as part of the Company’s share repurchase program.

The table below sets forth additional information regarding our share repurchases during the three months ended JuneSeptember 30, 2017:

We do not have any debt nor any current plans to obtain debt financing.

This item is not applicable.

This item is not applicable.