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 [ ]☐
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]☒
PROFIRE ENERGY, INC.
PART I. FINANCIAL INFORMATION
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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)adjustments) necessary to present fairly the financial position, results of operations, stockholders' equity, and cash flows at SeptemberJune 30, 20172021 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 transitionannual report on Form 10-K for the transition periodyear ended December 31, 2016.2020 ("Form 10-K"). The results of operations for the periodthree and six month periods ended SeptemberJune 30, 20172021 and 20162020 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 condensed consolidated financial statements. The Company's accounting policies conform to accounting principles generally accepted in the United States of America ("US GAAP")."US GAAP."
There have been no changes to the significant accounting policies of the Company from the information provided in Note 1 of the Notesnotes to the Consolidated Financial Statementsconsolidated financial statements in the Company's most recent 10-K, except as discussed below.Form 10-K.
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.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Stock Redemption Agreement filed as exhibit 10.2 toCondensed Consolidated Financial Statements
For the Company's quarterly report for the quarterly periodthree and six months ended June 30, 2017.2021 and 2020
any, will be determined by the Compensation Committee upon the completion of fiscal 2021 and paid by March 15, 2022, subject to all applicable tax withholding.
NOTE 5 - FINANCIAL INSTRUMENTS AND INVESTMENTS
In addition to the 2021 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 “2021 LTIP”). The 2021 LTIP consists of total awards of up to 204,543 restricted stock units (“Units”) to Mr. Oviatt, up to 204,543 Units to Mr. Tidball, up to 85,908 Units to Mr. Fugal, and up to 47,973 Units to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “Restricted Stock Unit Award Agreements”) 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 2021 LTIP began on January 1, 2021, and terminates on December 31, 2023 (the “Performance Vesting Date”).
The fair value ofUnits subject to time-based vesting, including 68,181 Units to Mr. Oviatt, 68,181 Units for Mr. Tidball, 28,636 Units to Mr. Fugal, and 15,991 Units to Mr. Fisher, will vest in three equal annual installments beginning December 31, 2021 and ending on December 31, 2023 if the award recipients’ employment continues with the Company through such dates.
The performance-vesting Units, including up to 136,362 Units for Mr. Oviatt, 136,362 Units for Mr. Tidball, 57,272 Units for Mr. Fugal, and 31,982 Units to Mr. Fisher, are eligible to vest over a financial instrument is the amount that could be receivedthree-year performance period beginning January 1, 2021 (the “Performance Period”) based upon the salefollowing Company performance metrics:
| | | | | | | | | | | | | | |
| Performance Metric | Weight | Target | Above Target | Outstanding |
Total Shareholder Return
| 1/3 | 135% | 194% | 253% |
| Relative Total Shareholder Return | 1/3 | Third Quartile | Second Quartile | First Quartile |
| EBITDA as a Percentage of Total Revenue | 1/3 | 10% | 15% | 20% |
One-third of an asset or paidsuch performance-vesting Units, consisting of 45,454 Units for Mr. Oviatt, 45,454 Units for Mr. Tidball, 19,091 Units for Mr. Fugal, and 10,661 Units for Mr. Fisher, are eligible 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 reliabilityvest for each of the information used to determine fair values. Categorization within3 performance metrics identified in the fair value hierarchy is basedtable above. The number of Units that will vest for each performance metric 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:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
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 cannotPerformance Vesting Date shall be determined with precision. Changes in assumptions can significantly affect estimated fair value.as follows:
•if the “Target” level for such performance metric is not achieved, 0ne of the Units relating to such performance metric will vest;
•if the “Target” level (but no higher level) for such performance metric is achieved, 50% of the Units relating to such performance metric will vest;
•if the “Above Target” level (but no higher level) for such performance metric is achieved, 75% of the Units relating to such performance metric will vest; and
•if the “Outstanding” level for such performance metric is achieved, 100% of the Units relating to such performance metric will vest.
The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value becauseforegoing summary of the short-term nature of these instruments. Investments are presented at fair value as2021 EIP, the 2021 LTIP and the Restricted Stock Unit Award Agreements is qualified in its entirety by the text of the balance sheet date2021 EIP and accumulated gains or losses on those investments are reported in other comprehensive income. Management iseach of the opinion thatRestricted Stock Unit Award Agreements, which the Company is not exposedhas filed as an exhibits to significant interest or credit risks arising from financial instrumentsthis report.
2020 EIP and any declines inLTIP
Due to economic uncertainties including those caused by the value of investments are temporary in nature.
NOTE 5 - FINANCIAL INSTRUMENTS AND INVESTMENTS (CONTINUED)
The following tables showCOVID-19 pandemic, the adjusted cost, unrealized losses and fair valueBoard, with the support of the Company's money market fundsexecutives, elected not to adopt an executive incentive plan ("2020 EIP") or long-term incentive plan ("2020 LTIP") for 2020. The Board and investments held as of September 30, 2017 and December 31, 2016:executives believed this was an appropriate short-term measure that helped align the Company's cost structure with the extraordinary conditions that affected the industry in which we operate.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| September 30, 2017 |
|
| Adjusted Cost |
| Gross Unrealized Losses |
| Fair Value |
| Cash and Cash Equivalents |
| Short Term Investments |
| Long Term Investments |
| Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
| Money Market Funds |
| $ | 336,372 |
|
| $ | — |
|
| $ | 336,372 |
|
| $ | 336,372 |
|
| $ | — |
|
| $ | — |
|
| Mutual Funds |
| 1,626,236 |
|
| (35,246 | ) |
| 1,590,990 |
|
| — |
|
| — |
|
| 1,590,990 |
|
| Subtotal |
| 1,962,608 |
|
| (35,246 | ) |
| 1,927,362 |
|
| 336,372 |
|
| — |
|
| 1,590,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Certificates of Deposit |
| $ | 3,010,000 |
|
| $ | — |
|
| $ | 3,010,000 |
|
| $ | — |
|
| $ | 3,010,000 |
|
| $ | — |
|
| Corporate Bonds |
| 2,384,269 |
|
| (18,896 | ) |
| 2,365,373 |
|
| — |
|
| 454,252 |
|
| 1,911,121 |
|
| Municipal Bonds |
| 4,705,311 |
|
| (8,503 | ) |
| 4,696,808 |
|
| — |
|
| 400,071 |
|
| 4,296,737 |
|
| Subtotal |
| 10,099,580 |
|
| (27,399 | ) |
| 10,072,181 |
|
| — |
|
| 3,864,323 |
|
| 6,207,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 12,062,188 |
|
| $ | (62,645 | ) |
| $ | 11,999,543 |
|
| $ | 336,372 |
|
| $ | 3,864,323 |
|
| $ | 7,798,848 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| December 31, 2016 |
|
| Adjusted Cost |
| Gross Unrealized Losses |
| Fair Value |
| Cash and Cash Equivalents |
| Short Term Investments |
| Long Term Investments |
| Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
| Money Market Funds |
| $ | 1,053,844 |
|
| $ | — |
|
| $ | 1,053,844 |
|
| $ | 1,053,844 |
|
| $ | — |
|
| $ | — |
|
| Mutual Funds |
| 1,473,536 |
|
| (90,495 | ) |
| 1,383,041 |
|
| — |
|
| — |
|
| 1,383,041 |
|
| Subtotal |
| 2,527,380 |
|
| (90,495 | ) |
| 2,436,885 |
|
| 1,053,844 |
|
| — |
|
| 1,383,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Certificates of Deposit |
| $ | 2,250,000 |
|
| $ | — |
|
| $ | 2,250,000 |
|
| $ | — |
|
| $ | 2,250,000 |
|
| $ | — |
|
| Corporate Bonds |
| 2,246,956 |
|
| (29,419 | ) |
| 2,217,537 |
|
| — |
|
| 400,053 |
|
| 1,817,484 |
|
| Municipal Bonds |
| 4,929,249 |
|
| (59,294 | ) |
| 4,869,955 |
|
| — |
|
| 2,565,483 |
|
| 2,304,472 |
|
| Subtotal |
| 9,426,205 |
|
| (88,713 | ) |
| 9,337,492 |
|
| — |
|
| 5,215,536 |
|
| 4,121,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 11,953,585 |
|
| $ | (179,208 | ) |
| $ | 11,774,377 |
|
| $ | 1,053,844 |
|
| $ | 5,215,536 |
|
| $ | 5,504,997 |
|
NOTE 6 – 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 | 2017 | | 2016 | | 2017 |
| 2016 |
| Canada | 1,982,739 |
| | 1,273,863 |
| | 5,024,957 |
| 3,461,708 |
| United States | 8,067,453 |
| | 3,716,950 |
| | 22,314,720 |
| 10,046,801 |
| Total Consolidated | 10,050,192 |
| | 4,990,813 |
| | 27,339,677 |
| 13,508,509 |
|
| | | |
|
|
|
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| Profit (Loss) | 2017 | | 2016 | | 2017 |
| 2016 |
| Canada | 193,636 |
| | (114,114) |
| | (141,874) |
| (572,136) |
| United States | 1,024,282 |
| | 188,566 |
| | 3,272,550 |
| (723,324) |
| Total Consolidated | 1,217,918 |
| | 74,452 |
| | 3,130,676 |
| (1,295,460) |
| | | | | | | | |
| | As of | | | | |
| Long-lived assets | September 30, 2017 | | December 31, 2016 | | | | |
| Canada | $ | 1,547,689 |
| | $ | 1,472,207 |
| | | | |
| United States | 14,971,544 |
| | 13,040,236 |
| | | | |
| Total Consolidated | $ | 16,519,233 |
| | $ | 14,512,443 |
| | | | |
NOTE 7 – STOCK BASED COMPENSATION
On February 27, 2017,18, 2021, the Company issued 74,711Board, upon the recommendation of the Compensation Committee, approved a restricted stock award of 18,852 shares of common stock to oneeach of its directors in settlementCameron M. Tidball and Ryan W. Oviatt. Messrs. Tidball and Oviatt entered into Restricted Stock Unit Award Agreements, the forms of previously vested which were approved pursuant to the Plan. These
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2021 and 2020
restricted stock units ("RSUs"). Duringawards, which vested immediately, were settled by the nine-month period, the Company issued 29,999issuance of a total of 27,334 shares of common stock, to an employeenet of tax withholding and resulted in settlement$45,999 of previously vested 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.expense.
On September 20, 2017,June 16, 2021, pursuant to the Company issuedannual renewal of director compensation, the Board approved a totalgrant of 96,081189,471 RSUs to the directors of the Company.Company's independent directors. Half of the RSUs vested immediately on the date of grant and the remaining half50% 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 approximately $216,000 to be recognized over the vesting period.
2020 RSUs
On June 15, 2018. The Company estimates17, 2020, pursuant to the fair valueannual renewal of director compensation, the Board approved a grant of 270,966 RSUs to the Company's independent directors. Half of the RSUs at their intrinsic valuevested 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.
Mr. Arlen B. Crouch resigned from his position as a member of the Board, effective August 3, 2020. Mr. Crouch’s resignation did not result from any disagreements with management or the Board. On the effective date of Mr. Crouch's resignation, all of his unvested RSUs were forfeited. The related compensation expense associated with Mr. Crouch's unvested RSUs will be recaptured. On July 30, 2020, the Board appointed Colleen Larkin Bell to serve as a director to fill the vacancy resulting from Mr. Crouch’s resignation, effective August 3, 2020. Ms. Bell was also appointed as Chair of the Nominating Committee and as a member of the Audit and Compensation Committees. As part of her compensation for her service as a director and committee member, on August 21, 2020, the board approved a grant of 92,934 RSUs. Half of the RSUs vested immediately on the date of the grant and the remaining 50% of the RSUs will vest on the first anniversary of the grant date. The awards will result in total compensation expense of $72,953 to be recognized over the vesting period.
2020 Stock Options
On March 17, 2020 (the "March Grant Date"), the Board approved a grant of options to purchase 115,200 shares of the Company's common stock at a strike price of $0.81 to various employees (the "March 2020 Options"). The March 2020 Options terminate four years from the March Grant Date and become exercisable as to one-third of the shares of common stock covered thereby on each anniversary of the March Grant Date for the next three years following the March Grant Date. The March 2020 Options resulted in a total compensation expense of $40,280.
On July 2, 2020 (the "July Grant Date"), upon the recommendation of the Compensation Committee, the Board approved the grant of a non-qualified stock option to purchase 100,000 shares of the Company’s common stock to each of Mr. Oviatt and Mr. Tidball under the Plan and pursuant to the standard form of notice of stock option grant and stock option agreement under the plan (the “July 2020 Options”). The exercise price of the July 2020 Options is equal to the closing bid price of the Company's common stock on July 2, 2020, or $0.8439 per share. The July 2020 Options vest equally over a period of three years from the July Grant Date. Vesting occurs on the anniversary date of the July Grant Date, with one-third of the total shares vesting on each of the first three anniversaries of the July Grant Date. Vesting is contingent upon the executive’s continued employment with the Company on each applicable vesting date. The July 2020 Options expire on July 2, 2024. The July 2020 Options will result in a total compensation expense of $79,431 to be recognized over the vesting period.
On August 21, 2020 (the "August Grant Date"), the Board approved a grant of options to purchase 630,000 shares of the Company's common stock at a strike price of $0.785 to various employees (the "August 2020 Options"). The August 2020 Options terminate four years from the August Grant Date and become exercisable as to one-third of the shares of common stock covered thereby on each anniversary of the August Grant Date for the next three years following the August Grant Date. The August 2020 Options will result in a total compensation expense of $233,111 to be recognized over the vesting period.
NOTE 8 – REVENUE
Performance Obligations
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2021 and 2020
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 grant, which was $1.85the 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 applicable sales contract or service contract.
Our customers have the right to return certain unused and unopened products within 90 days for a restocking fee. We provide a warranty on some of our products ranging from 90 days to 2 years, depending on the product. See Note 5 for the amount accrued for expected returns and warranty claims as of June 30, 2021.
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 contract) for costs related to contracts that are estimated to be completed within one year. All of our current sales contracts and service 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.
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, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Electronics | | $ | 2,016,876 | | | $ | 1,644,668 | | | $ | 3,868,675 | | | $ | 4,301,755 | |
| Manufactured | | 324,830 | | | 142,234 | | | 561,640 | | | 543,092 | |
| Re-Sell | | 3,032,833 | | | 2,212,237 | | | 5,601,759 | | | 6,015,250 | |
| Service | | 659,744 | | | 360,340 | | | 1,094,558 | | | 946,524 | |
| Total Revenue | | $ | 6,034,283 | | | $ | 4,359,479 | | | $ | 11,126,632 | | | $ | 11,806,621 | |
NOTE 9 – BASIC AND DILUTED EARNINGS PER SHARE
The following table is a reconciliation of the numerator and denominators used in the earnings per share forcalculation:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, |
| | 2021 | | 2020 |
| | Loss (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount | | Loss (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount |
| Basic EPS | | | | | | | | | | | | |
| Net loss available to common stockholders | | $ | (397,166) | | | 48,054,136 | | | $ | (0.01) | | | $ | (808,503) | | | 47,723,208 | | | $ | (0.02) | |
| | | | | | | | | | | | |
| Effect of Dilutive Securities | | | | | | | | | | | | |
| Stock options & RSUs | | 0 | | | 0 | | | | | 0 | | | 0 | | | |
| | | | | | | | | | | | |
| Diluted EPS | | | | | | | | | | | | |
| Net loss available to common stockholders + assumed conversions | | $ | (397,166) | | | 48,054,136 | | | $ | (0.01) | | | $ | (808,503) | | | 47,723,208 | | | $ | (0.02) | |
Stock options and RSUs to purchase 1,776,776 shares of common stock at a totalweighted average price of $177,750.$1.15 per share were outstanding during the three months ended June 30, 2021, but were not included in the computation of diluted EPS because
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements For the three and six months ended June 30, 2021 and 2020
the impact of these shares would be antidilutive. These RSUs, which expire between December 2022 and December 2024, were still outstanding at June 30, 2021.
Stock options and RSUs to purchase 534,924 shares of common stock at a weighted average price of $0.83 per share were outstanding during the three months ended June 30, 2020, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expire between March 2021 and March 2024, were still outstanding at June 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended June 30, |
| | 2021 | | 2020 |
| | Income (loss) (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount | | Income (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount |
| Basic EPS | | | | | | | | | | | | |
| Net income (loss) available to common stockholders | | $ | (998,666) | | | 48,022,295 | | | $ | (0.02) | | | $ | (1,173,767) | | | 47,607,825 | | | $ | (0.02) | |
| | | | | | | | | | | | |
| Effect of Dilutive Securities | | | | | | | | | | | | |
| Stock options & RSUs | | 0 | | | 0 | | | | | 0 | | | 0 | | | |
| | | | | | | | | | | | |
| Diluted EPS | | | | | | | | | | | | |
| Net income (loss) available to common stockholders + assumed conversions | | $ | (998,666) | | | 48,022,295 | | | $ | (0.02) | | | $ | (1,173,767) | | | 47,607,825 | | | $ | (0.02) | |
Stock options and RSUs to purchase 1,776,776 shares of common stock at a weighted average price of $1.15 per share were outstanding during the six months ended June 30, 2021, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These RSUs, which expire between December 2022 and December 2024, were still outstanding at June 30, 2021.
Stock options and RSUs to purchase 555,866 shares of common stock at a weighted average price of $0.98 per share were outstanding during the six months ended June 30, 2020, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expire between March 2021 and March 2024, were still outstanding at June 30, 2020.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2021 and 2020
NOTE 810 – BASIC AND DILUTED EARNINGS PER SHARESEGMENT INFORMATION
The following table is a reconciliation of the numerator and denominators usedCompany operates in the earnings per share calculation: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 | | 2021 | | 2020 | | 2021 | | 2020 |
| Canada | | $ | 1,035,377 | | | $ | 585,695 | | | $ | 1,863,822 | | | $ | 1,609,417 | |
| United States | | 4,998,906 | | 3,773,784 | | 9,262,810 | | | 10,197,204 | |
| Total Consolidated | | $ | 6,034,283 | | | $ | 4,359,479 | | | $ | 11,126,632 | | | $ | 11,806,621 | |
| | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| Profit (Loss) | | 2021 | | 2020 | | 2021 | | 2020 |
| Canada | | $ | (556,713) | | | $ | (264,163) | | | $ | (877,475) | | | $ | (586,232) | |
| United States | | 159,547 | | (544,340) | | (121,191) | | | (587,535) | |
| Total Consolidated | | $ | (397,166) | | | $ | (808,503) | | | $ | (998,666) | | | $ | (1,173,767) | |
| | | | | | | | |
| | | | | | As of |
| Long-Lived Assets | | | | | | June 30, 2021 | | December 31, 2020 |
| Canada | | | | | | $ | 5,971,607 | | | $ | 6,049,790 | |
| United States | | | | | | 5,778,843 | | | 6,022,115 | |
| Total Consolidated | | | | | | $ | 11,750,450 | | | $ | 12,071,905 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| | | Income
(Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount | | Income
(Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount |
| Basic EPS | | | | | | | | | | | | |
| Net income available to common stockholders | | 1,217,918 |
| | 48,552,770 |
| | $ | 0.03 |
| | 3,130,676 |
| | 49,613,704 |
| | $ | 0.06 |
|
| | | | | | | | | | | | | |
| Effect of Dilutive Securities | | |
| | |
| | |
| | |
| | |
| | |
|
| Stock options & RSUs | | — |
| | 817,065 |
| | |
| | — |
| | 732,629 |
| | |
|
| | | | | | | | | | | | | |
| Diluted EPS | | |
| | |
| | |
| | |
| | |
| | |
|
| Net income available to common stockholders + assumed conversions | | 1,217,918 |
| | 49,369,835 |
| | $ | 0.02 |
| | 3,130,676 |
| | 50,346,333 |
| | $ | 0.06 |
|
Options to purchase 1,569,730 shares of common stock at a weighted average price of $3.17 per share were outstanding during the three and nine months ended September 30, 2017, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price per share of common stock. These options, which expire between March 2018 and October 2025, were still outstanding at September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
| | | Income
(Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount | | Income
(Numerator) | | Weighted Average Shares (Denominator) | | Per-Share
Amount |
| Basic EPS | | | | | | | | | | | | |
| Net income available to common stockholders | | 74,452 |
| | 53,215,385 |
| | $ | — |
| | (1,295,460 | ) | | 53,274,855 |
| | $ | (0.02 | ) |
| | | | | | | | | | | | | |
| Effect of Dilutive Securities | | |
| | |
| | |
| | |
| | |
| | |
|
| Stock options & RSUs | | — |
| | 876,034 |
| | |
| | — |
| | — |
| | |
|
| | | | | | | | | | | | | |
| Diluted EPS | | |
| | |
| | |
| | |
| | |
| | |
| Net income available to common stockholders + assumed conversions | | 74,452 |
| | 54,091,419 |
| | $ | — |
| | (1,295,460 | ) | | 53,274,855 |
| | $ | (0.02 | ) |
Options to purchase 1,343,500 and 2,343,579 shares of common stock at a weighted average price of $2.17 and $2.83 per share were outstanding during the three and nine months ended September 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 September 30, 2016.
NOTE 911 – SUBSEQUENT EVENTS
In accordance with ASC 855 "Subsequent Events," Company Managementmanagement reviewed all material events through November 3, 2017, the date this report was available to be issued and the followingthere were no subsequent events occurred:to report.
During the period beginning October 1, 2017 and ended November 3, 2017, the Company repurchased 51,670 shares of common stock for a total repurchase price of $92,758 pursuant to its previously authorized repurchase program. All repurchases were made at market rates.
On October 12, 2017, the Compensation Committee of the Board of Directors approved a long term inventive plan for the Company's Chief Financial Officer. For further details, refer to the Restricted Stock Unit Award Agreement filed as exhibit 10.1 to the Company's current report on Form 8-K filed on October 17, 2017.
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 nine monthsix-month periods ended SeptemberJune 30, 20172021 and 2016. For a complete understanding, this2020. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Financial Statementsfinancial statements and Notesnotes to the Financial Statementsfinancial statements contained in this quarterly report on Form 10-Q and our transitionannual report on Form 10-K for the nine-month transition periodyear ended December 31, 2016.2020.
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'smanagement's beliefs and assumptions and on information currently available to Management.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. Without limiting the foregoing, wordsWords 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. TheseForward-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 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. OurDue to risks and uncertainties associated with our business, 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.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 of our forward-looking statements by these cautionary statements.
These forward-lookingForward-looking statements in this report are based only on information currently available to us and speak only as of their dates and should not be unduly relied upon.the date on which they are made. 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)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.
Overview of Products & Services
We design, assemble, install, service,are a technology company providing solutions that enhance the efficiency, safety, and sell oilfield-management technologies.reliability of industrial combustion appliances while mitigating potential environmental impacts related to the operation of these devices. Our flagship products are burner-management systems that monitorlegacy business is primarily focused in the upstream, midstream, and manage burners found throughoutdownstream transmission segments of the industry. Weoil and gas industry; however, we have commenced identifying applications in other industries where we believe our products provide major benefits tosolutions will be applicable as we expand our customers including improved efficiency, increased safety,addressable market over time. We specialize in the engineering and enhanced compliance with evolving industry regulation.design of burner and combustion management systems and solutions used on a variety of natural and forced draft applications. We also sell related products such as flare ignition systems, fuel-train components, secondary airplates, valve actuators, solar packages, and chemical-management systems. Ourour products and services aid oilprimarily throughout North America. Our experienced team of sales and natural gas producers inservice professionals are strategically positioned across the safeUnited States and efficient productionCanada providing support and transportation of oil and natural gas.service for our products.
Principal Products and Services
InAcross the oil and natural gasenergy industry, there are numerous demands for heat generation and control. Oilfield vessels of all kinds, including line-heaters, dehydrators, separators,Applications such as combustors, enclosed flares, gas production units, treaters, glycol and amine reboilers, indirect line-heaters, heated tanks, and free-water knockout systemsprocess heaters require heat to satisfyas part of their various functions,production and or processing functions. This heat is generated through the process of combustion, which is provided by a burner flame insidemust be controlled, managed, and supervised. Combustion and the vessel. This burner flame isresulting generation of heat are integral to the operationprocess of separating, treating, storing, incinerating, and transporting oil and gas. Factors such as specific gravity, the vessel because these vessels usepresence of hydrates, temperature and hydrogen sulfide content contribute to the flame'sneed for heat to facilitate the proper function of the vessel. Such functions include separating, storing, transporting and purifyinggeneration in oil and gas (or even water). For example, the viscosity of oilproduction 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.processing applications. Our burner-management systems help ignite, monitor, and manage pilot and burner systems that are utilized in this burner flame,process. Our technology affords remote operation, reducing the need for employee interaction with the appliance's burner for purposes such as for the purposes of re-ignition or temperature monitoring. In addition, our burner-management systems can help reduce emissions by efficiently reigniting a failed flame, thereby improving efficiencies and up-time. Our extensive service and combustion experience provide customers with solutions that are consistent with industry trends and regulatory requirements to mitigate environmental impacts and reduce emissions through increased efficiency.
Oil and gas producers can use ourcompanies, including upstream, midstream, downstream, pipeline, and gathering operators, utilize burner-management systems to achieve increased safety, greater operational efficiencies, and improved compliance with changing industry regulations. We believe, despiteWithout a burner-management system, a field employee must discover and reignite an extinguished burner flame, then restart the recent industry down-turn, there isapplication manually. Therefore, without a growing trendproper burner-management system, all application monitoring must be accomplished in-person, directly on-site. This requirement for on-site monitoring, in an environment with limited field personnel, can result in the oilpotential interruption of production for long periods of time and increased risks associated with reigniting a flame, which can lead to site hazards, including explosions and the possibility of venting gas industry toward enhanced control, process automation,into the atmosphere. In addition, without a burner -management system, burners often operate for longer durations, frequently with lower efficiency, resulting in increased equipment fatigue and data logging, partly for potential regulatory-satisfaction purposes.greater expense related to fuel consumption. We continue to assess compliance-interest in the industry, especially given the budgetary constraints we have observed over the last two years.regulatory requirements on behalf of our customers. We believe that enhanced burner-management productssystems and services can help ouroffer solutions for customers be compliant with such regulatory requirements,to meet compliance standards where applicable. In addition to selling products,product sales, we train and dispatch specialized service technicians to service burner flame installations in Canadaprovide maintenance and installation support throughout the United States.States and Canada.
We initially developed our first burner-management systemcontroller in 2005. Since 2005, we have released several iterations ofthat time, 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, andadopted throughout many regions in the United States. We have sold ourStates and Western Canada. Profire burner-management systems have been designed to many large energycomply with widely accepted safety and industrial codes and standards in North America, including those proscribed and certified by the Canadian Standards Association (CSA), Underwriters Laboratories (UL), and Safety Integrity Level (SIL) standards.
Our systems and solutions have been widely adopted by exploration and production companies including Anadarko, Chesapeake, ConocoPhillips,(E&P), midstream operators, pipeline operators, as well as downstream transmission and utility providers. Our customers include, Antero, ATCO, Cenovus, Chevron, CNRL, Concho Resources, Devon Encana, Exxon-Mobil, Petro-Canada, ShellEnergy, Dominion Energy, EQT, Hess, Pioneer Natural Resources, Williams, XTO, and others. Our systems have also been sold orand installed in other parts of the world including France, Italy, Ukraine, India, Nigeria,many countries in South America, Europe, Africa, the Middle East, Australia, and Brazil. While we have an interest in expanding our long-term international distribution capabilities, our current principal focus isAsia. Though firmly established and primarily focused on the North American oil and gas market.markets, we continue to invest in expansion efforts in international markets and the broader combustion industries.
Environmental, Social and Governance Focus
Product Extension: PF3100As guiding principles and core to our strategy, our products and solutions are developed with a focus on safety, environmental impacts, reliability and efficiency. Protecting human life, protecting the environment, and protecting our customers’ investments are key guiding principles. Our products play a key role in supporting our customers’ existing and future initiatives regarding improving workplace safety and environmental impacts.
In September 2015, the Company unveiled its next generationOur burner-management system whichtechnology is designed to monitor, operate, monitor, and control more complex, multi-faceted oilfield applications. The PF3100, is an advanced management system designed to work with other Profire-engineered modules, specific to different applications, thus allowing the system to expertly manage a wide varietyarray of applications.complex industrial heat-applications. Our safety-approved and certified technology, which is purposefully designed and built to meet regulatory requirements and process needs, is a critical component of our customers’ safety protocols and initiatives.
Throughout the industry, Programmable Logic Controllers (PLC)Proper burner and combustion management control, coupled with peripheral solutions, increase site and location safety while reducing emissions. Profire technology and solutions 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.
Additional Complementary Products
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), 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).
Chemical-Management Systems
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 sentintegrated into a pipeline, and with other applications.
Currently, a variety of pumpsapplications to significantly reduce the release of methane and volatile organic compounds into the environment.
Profire burner-management controls and complementary solutions provide users with the ability to monitor field equipment remotely. This reduces truck rolls and the need for field personnel to travel to and manually inspect burner malfunctions in remote sites and locations. Our automated solutions help our customers improve safety, reduce emissions, and decrease operating costs.
Operator safety is at the heart of our burner-management solution technology. The use of these systems helps our customers increase the likelihood that their employees perform their job safely and return home each day. Adding greater physical distance between humans and the combustion process, as well as ensuring gas supplies are used to meter the chemicals injected, butproperly shutoff when no flame is present, are often inaccurate in injecting the proper amount of chemical, as they may not account for alltwo of the variables that affectcritical elements of 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.solutions help protect human life.
Results of Operations
Comparison quarter over quarter
The table below presents certain financial data comparing the currentmost recent quarter to prior quarters: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended |
| June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 |
| Total Revenues | $ | 6,034,283 | | | $ | 5,092,349 | | | $ | 5,651,883 | | | $ | 4,000,106 | | | $ | 4,359,479 | |
| Gross Profit Percentage | 44.0 | % | | 42.7 | % | | 48.8 | % | | 38.0 | % | | 47.9 | % |
| Operating Expenses | $ | 3,252,169 | | | $ | 2,978,912 | | | $ | 2,762,437 | | | $ | 2,849,921 | | | $ | 3,164,318 | |
| Net Income (Loss) | $ | (397,166) | | | $ | (601,500) | | | $ | 55,918 | | | $ | (1,057,748) | | | $ | (808,503) | |
| Operating Cash Flow | $ | (264,843) | | | $ | 1,820,665 | | | $ | 141,723 | | | $ | (724,342) | | | $ | 575,941 | |
|
| | | | | | | | | | | | | | |
| | For the three months ended |
| | September 30, 2017 | | June 30, 2017 | | March 31,2017 | | December 31, 2016 | | September 30, 2016 |
| Total Revenues | $10,050,192 | | $9,464,951 | | $7,824,495 | | $7,022,330 | | $4,990,813 |
| Gross Profit Percentage | 50.4 | % | | 52.6 | % | | 55.8 | % | | 50.7 | % | | 52.6 | % |
| Operating Expenses | $3,216,388 | | $3,145,669 | | $3,296,131 | | $2,890,716 | | $2,752,028 |
| Net Income (Loss) | $1,217,918 | | $1,312,647 | | $600,071 | | $608,896 | | $74,452 |
| Operating Cash Flow | $1,579,809 | | $800,580 | | $1,964,946 | | $538,358 | | $1,108,674 |
As oil prices have increased over the past 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 remain 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 SeptemberJune 30, 20162021, increased by 38% or $1,674,804 compared to the quarter ended SeptemberJune 30, 2017, revenues increased 101%2020, which was mostly driven by improved customer demand associated with onlymodest recoveries from the macro industry challenges and the effects of the COVID-19 pandemic. The average oil price during the three months ended June 30, 2021, was $66.19 per barrel compared to $27.96 per barrel for the same period of last year, representing an increase of 137%. Additionally, the second quarter of 2021 weekly average rig count for North America was 508 compared to 401 in the same period of last year, which represents an increase of 27%. Although oil prices have recovered from the historic lows of 2020, which was caused by a 17% increaseflood of supply from Russia and Saudi Arabia and a dramatic drop in global demand due to the COVID-19 pandemic, the operating expenses, which enabled usenvironment in the second quarter of 2021 continued to significantly increase net income 1536% betweenbe characterized by uncertainty surrounding economic recovery from the two periods.COVID-19 pandemic and geopolitical factors. This uncertainty continued to create strain in oil supply and demand dynamics. As a result of these extraordinary macro pressures and uncertainties, exploration and production companies have remained cautious and have not invested in new production like they were prior to the pandemic. Until our customers return to higher capital expenditure levels, our business is likely to continue to be adversely affected.
Our gross profit margin for the second quarter of 2021 was down 3.9% from the same quarter of last year and was below our normally expected range. The gross margin percentage normally fluctuates each quarter due to changes in product mix. Overmix and product related reserves, which contributed to the past year it has stayed fairly consistent and we expect it to remain so, with normal product mix fluctuations,change in future periods. We believe that our gross profit percentage could improve asmargin for the PF3100 becomessecond quarter of 2021. During the second quarter of 2021, a larger contributor toportion of our revenue in future periods.
For over a year we have been focusing on optimizing and right-sizing our operations to be able to facilitate growth without increasing costs more than necessary. Our operating expenses for the quarter ended September 30, 2016 have increased $464,360 comparedwas generated from service work which also contributed to the same quarterdecrease 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, net income increased 1536%profit margin compared to the same quarter last year. Fixed costs will continue to impact our gross profit margin until revenues recover.
Operating expenses increased $87,851 from the same quarter of last year, which reflected a focus on strategic investments in business development and our employees as we seek to recover from the uncertainty caused by the COVID-19 pandemic and the resulting oil market supply and demand imbalance. We have alsoexpect that our operating expenses, particularly labor and travel costs, will further increase in the second half of 2021 as we position ourselves to respond to the anticipated economic recovery from the pandemic and increased operatingdemand for oil and gas production.
Due to the factors discussed above, we reported a net loss of $397,166 for the quarter ended June 30, 2021, compared to a net loss of $808,503 for the same quarter in 2020.
Operating cash flows 42%decreased during the second quarter of 2021 compared to the second quarter of 2020, due primarily to changes in that same time frame. We believe we are positionedcustomer accounts receivable balances, as well foras accounts payable and inventory accounts.
The global COVID-19 pandemic continued growthto impact our business during the second quarter of 2021 and will likely continue to impact our business in future periods.quarters. However, we remain optimistic that our results of operations will improve as vaccine distribution increases, which we anticipate will result in improved economic conditions and improved demand for oil and gas.
Comparison of the ninesix months ended SeptemberJune 30, 20172021 and 20162020
The table below presents certain financial data comparing the ninesix months ended SeptemberJune 30, 20172021 to the same period ended SeptemberJune 30, 2016:2020: | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
| Total Revenues | $ | 11,126,632 | | | $ | 11,806,621 | | | $ | (679,989) | | | (5.8) | % |
| Gross Profit Percentage | 43.4 | % | | 44.5 | % | | | | (1.1) | % |
| Operating Expenses | $ | 6,231,081 | | | $ | 6,994,054 | | | $ | (762,973) | | | (10.9) | % |
| Net Loss | $ | (998,666) | | | $ | (1,173,767) | | | $ | 175,101 | | | (14.9) | % |
| Operating Cash Flow | $ | 1,555,822 | | | $ | 847,019 | | | $ | 708,803 | | | 83.7 | % |
|
| | | | | | | |
| | For the nine months ended | | | | |
| | September 30, 2017 | | September 30, 2016 | | $ Change | | % Change |
| Total Revenues | $27,339,677 | | $13,508,509 | | $13,831,168 | | 102% |
| Gross Profit Percentage | 53% | | 51% | | N/A | | 2% |
| Operating Expenses | $9,658,188 | | $8,513,716 | | $1,144,472 | | 13% |
| Net Income (Loss) | $3,130,676 | | $(1,295,460) | | $4,426,136 | | 342% |
| Operating Cash Flow | $4,345,335 | | $3,398,211 | | $947,124 | | 28% |
We have made changes to right-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 nine monthsix-month period ended SeptemberJune 30, 20172021, decreased 5.8% compared to the same nine month period of last year have increased 102% whileyear. The decrease in revenue was largely due to continued uncertainties surrounding economic recovery from the COVID-19 pandemic and geopolitical factors. Operating expenses decreased 10.9% year-over-year due to our focus on cost control measures in 2020. The decrease in operating expenses have only increased 13%.helped offset the decrease in revenues. As a result, we reported a net loss of our right-sizing efforts, those changes have flowed through$998,666 for the six months ended June 30, 2021, compared to our bottom line, resultinga net loss of $1,173,767 for the same period in a 342% increase in net income.2020. Our gross profit percentage has remained fairly consistent, with a slight changedecreased slightly by 1.1% during the six months ended June 30, 2021, compared to the same period in 2020, primarily due to changes in product mix.mix, direct labor costs, inventory adjustments and the fixed cost structure within cost of goods and services.
During the past nine months, we were able to finance our treasury stock repurchases of $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.
Liquidity and Capital Resources
Working capital at SeptemberJune 30, 20172021 was $26,213,811$22,492,270, compared to $26,875,874$23,420,475 at December 31, 2016. This change was2020.
Our liquidity position is impacted by operating, investing and financing activities. During the six months ended June 30, 2021, we generated $1,555,822 of positive cash flow from operating activities, primarily due to an increasecash received from sale of the remaining bays from our old office building in revenuesCanada and related collectionsfrom changes in inventory levels, partially offset by increased accruals forthe impact of changes in income taxestax accounts. Operating activity trends consist of cash inflows and payroll-related costsoutflows related to changes in operating assets and liabilities. During the repurchasesix months ended June 30, 2021, we used $743,382 of $3,120,716 worthcash in investing activities, primarily due to the reinvestment of common stock (including 1,300,000 sharescash from financial investment maturities in our bond and CD portfolio. Investing activity trends consist of common stock fromchanges in the mix of our CEO for an aggregate purchase priceinvestment portfolio, purchases or sales of $1,703,000).fixed assets, and acquisition activities. We currently do not haveanticipate any material commitments for capital expenditures althoughover the next 12 months. During the six months ended June 30, 2021, we used $64,578 of cash in financing activities, primarily related to equity awards issued to management. Financing activity trends consist of transactions related to equity awards and purchases or sales of treasury stock. We did not purchase any treasury stock during the first half of 2021. The extent to which the global COVID-19 pandemic will continue to affect our liquidity position will depend on future developments, which are committedhighly uncertain and cannot be predicted with confidence. As of June 30, 2021, we held $19,141,382 of cash and investments that form our core excess liquidity which could be utilized, if required, due to maintaining the assets we have already acquired. We believeissues described above. See also Item 1A. Risk Factors for further discussion on the impact of COVID-19 on 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.business.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements, nor do we plan to engage in any in the foreseeable future.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
As a smaller reporting company, thisThis section is not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Management,management, with the participation of the Principal Executive OfficerOfficers and 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.quarterly report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officers and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on thisthe evaluation performed, our management, including the Principal Executive OfficerOfficers and Principal Financial Officer, concluded that as of the end of the period covered by this Report, our disclosure controls and 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 Management during our internal assessment, see our transition report on Form 10-K for the nine-month transition period ended December 31, 2016.June 30, 2021.
Changes in Internal Control over Financial Reporting
There wasOur management, with the participation of our Principal Executive Officers and Principal Financial Officer, evaluated the changes in our internal control over financial reporting that occurred during the quarterly period covered by this quarterly report on Form 10-Q. Based on that evaluation, management concluded that no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this reportquarter ended June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management's Remediation Initiatives
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:
Hired third parties to provide advice on COSO framework and risk control matrices;
Implemented Company-wide trainings over internal controls in relation with new accounting standard operating procedures, including the requirement of supplying supporting evidence, proving the level of precision with which a control is performed, etc.;
Required evidence of review in nearly all controls;
Reviewed and updated each employee's access within the enterprise resource management system;
Required purchase orders agree with sales orders within a certain threshold;
Required written and verbal confirmation for wire transfers;
Revised the processes over financial reporting, including preparation of the cash flow statement and tax provision; and
Implemented new controls over equity awards to ensure compliance with laws, regulations, and plan limitations.
Management continues to meet with key managers and control owners to evaluate the effectiveness of internal controls and to ensure implementation of remediation initiatives.
Limitations on the Effectiveness of Internal Controls
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 Management 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 averseadverse to us.
Item 1A. Risk Factors
In addition to the other information set forth in this quarterly report on Form10-Q,Form 10-Q, you should carefully consider the risks discussed in our Transition Reportannual report on Form 10-K for the nine-month transition periodyear ended December 31, 2016,2020, 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.
Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations.
Information technology is critically important to our business operations. We use information technology to manage all business processes including manufacturing, financial, logistics, sales, marketing and administrative functions. These processes collect, interpret and distribute business data and communicate internally and externally with employees, suppliers, customers and others.
We invest in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber attack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods and remediate significant findings. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification standards.
While we believe that our security technology and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks, disruptions in or failures of information technology systems are possible and could have a negative impact on our operations or business reputation. Failure of our systems, including failures due to cyber attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to our Company, our employees, and those with whom we do business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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.This item is not applicable
Although we have used a portion of the proceeds from the offering to fund our operations, acquire the CMS technology, and stock repurchases, our existing cash balances continue 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 September 30,
2017, the Company had repurchased a total of 1,520,570 shares of common stock pursuant to the repurchase programs for an aggregate purchase price of $2,000,521.
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 September 30, 2017:
|
| | | | | | | | | | | | | | |
| Period | | (a) Total Number of Shares Purchased(1) | | (b) Weighted Average Price Paid Per Share | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans | | (d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans |
| July, 2017 |
| 89,073 |
|
| $ | 1.38 |
|
| 89,073 |
|
| $ | 1,756,565 |
|
| August, 2017 |
| 61,132 |
|
| $ | 1.32 |
|
| 61,132 |
|
| $ | 1,672,604 |
|
| September, 2017 |
| 48,241 |
|
| $ | 1.31 |
|
| 48,241 |
|
| $ | 1,590,051 |
|
| Total | | 198,446 |
| | |
| | 198,446 |
| | |
|
(1) All shares were repurchased in open market transactions pursuant to the $2 million repurchase program authorized by our Board of Directors, which commenced on May 26, 2017 and expires on May 31, 2018.
Item 3. Defaults Upon Senior Securities
We doThis item is not have any debt nor any current plans to obtain debt financing.applicable.
Item 4. Mine Safety Disclosures
This item is not applicable.
Item 5. Other Information
This item is not applicable.
Item 6. Exhibits
Exhibits. The following exhibits are included as part of this report:
| | | | | |
| First Amendment to Second Amended and Restated Employment Agreement between Profire Energy and Brenton W. Hatch dated April 30, 2021(1) |
| |
| First Amendment to Second Amended and Restated Employment Agreement dated August 3, 2017, by and between Profire Energy Inc. and Ryan W. Oviatt (incorporated by reference to Exhibit 10.1 to Company's Current Report on Form 8-K filed on August 9, 2017).
dated April 30, 2021(2)
|
| |
| First Amendment to Amended and Restated Employment Agreement dated August 3, 2017, by and between Profire Energy Inc. and Brenton W. Hatch (incorporated by reference to Exhibit 10.1 to Company's Current Report on Form 8-K filed on August 9, 2017).Cameron Tidball dated April 30, 2021(3) |
| |
| First Amendment to Employment Agreement between Profire Energy and Jay G. Fugal dated April 30, 2021(4) |
| |
| First Amendment to Employment Agreement between Profire Energy and Patrick D. Fisher dated April 30, 2021(5) |
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| Profire Energy, Inc. 2021 Executive Incentive Plan |
| |
| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Ryan Oviatt dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement dated October 12, 2017,(Time Vesting) between Profire Energy Inc. and Ryan Oviatt (incorporated by reference to Exhibit 10.1 to Company's Current Report on Form 8-K filed on October 17, 2017).dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Cameron Tidball dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Cameron Tidball dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Jay G. Fugal dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Jay G. Fugal dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement (Performance Vesting) between Profire Energy and Patrick D. Fisher dated June 4, 2021. |
| |
| Restricted Stock Unit Award Agreement (Time Vesting) between Profire Energy and Patrick D. Fisher dated June 4, 2021. |
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| Certification of PrincipalCo-Principal Executive Officer Pursuant to Rule 13a-14(a) Ryan W. Oviatt |
| |
| Certification of Co-Principal Executive Officer Pursuant to Rule 13a-14(a) Cameron M. Tidball |
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| | | | | |
| Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) |
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| Certification of Principal Executive Officer PursuantOfficers pursuant to 18 U.S.C. Section 1350 |
| |
| Certification of Ryan W. Oviatt, Principal Financial Officer Pursuantpursuant to 18 U.S.C. Section 1350 |
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| Exhibit 101.INS* | XBRL Instance Document |
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| Exhibit 101.SCH* | XBRL Taxonomy Extension Schema Document |
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| Exhibit 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
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| Exhibit 101.DEF* | XBRL Taxonomy Definition Linkbase Document |
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| Exhibit 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
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| Exhibit 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
+ Indicates Management contract or compensatory plan or arrangement
* Filed herewith
(1) Incorporated by reference to Exhibit 10.3 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(2) Incorporated by reference to Exhibit 10.4 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(3) Incorporated by reference to Exhibit 10.5 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(4) Incorporated by reference to Exhibit 10.6 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
(5) Incorporated by reference to Exhibit 10.7 to the Registration Quarterly Report on Form 10-Q filed on May 5, 2021.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | |
| | | PROFIRE ENERGY, INC. |
| | | |
Date: | November 8, 2017 | By: | /s/ Brenton W. Hatch |
| | | Brenton W. Hatch |
| | | Chief Executive Officer |
|
| | | |
| Date: | November 8, 2017August 4, 2021 | By: | /s/ Ryan W. Oviatt |
| | | Ryan W. Oviatt |
| | | Co-Chief Executive Officer and Chief Financial Officer |
| | | | | | | | | | | |
| Date: | August 4, 2021 | By: | /s/ Cameron M. Tidball |
| | | Cameron M. Tidball |
| | | Co-Chief Executive Officer |