| Note 2 - Significant Accounting Policies | Note 2 Organization and Summary of Significant Accounting Policies This Organization and Summary of Significant Accounting Policies of Profire Energy, Inc. and Subsidiary (the Company) is presented to assist in understanding the Companys consolidated financial statements. The Companys accounting policies conform to accounting principles generally accepted in the United States of America (US GAAP). On September 30, 2008, The Flooring Zone, Inc. (the Parent) entered into an Acquisition Agreement with Profire Combustion, Inc. and the shareholders of Profire Combustion, Inc. (the Subsidiary), subject to customary closing conditions. All conditions for closing were satisfied or waived and the transaction closed on October 9, 2008. Pursuant to the terms and conditions of the Acquisition Agreement, 35,000,000 shares of restricted common stock of the Company 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 Company. For accounting purposes, the Subsidiary is considered the accounting acquirer, and the historical Balance Sheets, Statements of Operations and Other Comprehensive Income, and Statement of Cash Flow of the Subsidiary are presented as those of the Company. The historical equity information is that of the Subsidiary, the accounting acquiree. The recapitalization required pursuant to this merger resulted in a negative additional paid-in capital balance. Organization and Line of Business 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 in the Canadian and US markets. Reclassification Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportable amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include our wholly-owned subsidiary. Intercompany balances and transactions have been eliminated. Basic and Diluted Earnings (Loss) Per Share The computation of basic earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during the periods presented using the treasury stock method. The computation of fully diluted earnings (loss) per share includes common stock equivalents outstanding at the balance sheet date. The Company had 69,190 and 657,359 stock options included in the fully diluted earnings (loss) per share as of June 30, 2015 and 2014, respectively. The common stock equivalents outstanding at June 30, 2015 have been excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive. Basic and diluted earnings (loss) per share for the three months ended June 30, 2015 and 2014 are as follows: For the Three Months Ended June 30, 2015 2014 Net income (loss) applicable to common shareholders $ (458,813) $ 2,220,706 Weighted average shares outstanding 53,214,594 47,922,059 Weighted average fully diluted shares outstanding 53,214,594 48,579,418 Basic earnings per share $ (0.01) $ 0.05 Fully diluted earnings per share $ (0.01) $ 0.05 Foreign Currency and Comprehensive Income The Companys functional currency is the Canadian Dollar (CAD). The financial statements of the Company were translated to U.S. Dollars (USD) using year-end exchange rates for the balance sheet, and average exchange rates for the statements of operations. Equity transactions were translated using historical rates. The period-end exchange rates of 0.809300 and 0.788786 were used to convert the Companys June 30, 2015 and March 31, 2015 balance sheets, respectively, and the statements of operations used weighted average rates of 0.811950 and 0.917096 for the three months ended June 30, 2015 and 2014, respectively. All amounts in the financial statements and footnotes are presumed to be stated in USD, unless otherwise identified. Foreign currency translation gains or losses as a result of fluctuations in the exchange rates are reflected in the Consolidated Statement of Operations and Comprehensive Income, and the Consolidated Statements of Stockholders Equity. Fair Value of Financial Instruments 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 defined 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 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. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. Cash and Cash Equivalents For purposes of the statement of cash flows, cash and cash equivalents include cash and all debt securities with an original maturity of 90 days or less. As of June 30, 2015 and March 31, 2015, cash and cash equivalents totaled $17,186,238 and $14,144,796, respectively. As of June 30, 2015 $250,000 USD was guaranteed by the FDIC and $3,413,596 USD was guaranteed by the Province of Alberta, Canada. Accounts Receivable Receivables from the sale of goods and services are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The allowance is calculated based on past collectability and customer relationships. The Company recorded an allowance for doubtful accounts of $134,635 and $108,641 as of June 30, 2015 and March 31, 2015, respectively. Inventories In accordance with ARB No. 43 Inventory Pricing, the Companys inventory is valued at the lower of cost (the purchase price, including additional fees) or market based on using the entire value of inventory. Inventories are determined based on the average cost basis. Inventory consists of finished goods held for sale. As of June 30, 2015 and March 31, 2015, inventory consisted of the following: June 30, 2015 March 31, 2015 Raw materials $ - $ - Finished goods 11,256,637 11,951,108 Work in process - - Subtotal 11,256,637 11,951,108 Reserve for Obsolescence (185,601) (184,573) Total $ 11,071,036 $ 11,766,535 Marketable Securities The Company reports its investments in marketable securities under the provisions of ASC 320, Investments in Debt and Equity Securities. The Company evaluates securities for other-than-temporary impairment at least on a yearly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to the length of time and amount of the loss relative to cost, the nature and financial condition of the issuer and the ability and intent of the Company to hold the investment for a time sufficient to allow any anticipated recovery in fair value. Pursuant to ASC 320-5, other than temporary impairment losses are recorded as impairment expense in the statement of operations during the period in which the impairment is determined. Long-Lived Assets We periodically review the carrying amount of our long-lived assets for impairment. An asset is considered impaired when estimated future cash flows are less than the assets carrying amount. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. Beginning in fiscal year 2016, we revised the estimated useful lives from 5 to 7 years for furniture and fixtures, and machinery and equipment, 25 to 30 years for buildings, 3 to 5 years for vehicles, and added a software asset type that has a useful life of 2 years. The change in depreciable lives is considered a change in accounting estimate on a prospective basis from April 1, 2015 and had an immaterial impact on overall financial statements for the period ended June 30, 2015. Other Intangible Assets The Company accounts for Other Intangible Assets under the guidance of ASC 350, IntangiblesGoodwill and Other. The Company capitalizes certain costs related to patent technology, as a substantial portion of the purchase price related to the Companys acquisition of VIM assets has been assigned to patents. Under the guidance, Other Intangible Assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Goodwill Goodwill, representing the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition, is reviewed for impairment annually, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceed their fair value. The Company does not amortize goodwill in accordance with Financial Accounting Standards Board (the FASB) Accounting Standards Codification (ASC) 350, IntangiblesGoodwill and Other (ASC 350). Goodwill is tested for impairment at the reporting unit level. The Companys three operating segments comprise the reporting unit for goodwill impairment testing purposes. Revenue Recognition The Company records sales when a firm sales agreement is in place, delivery has occurred or services have been rendered, and collectability of the fixed or determinable sales price is reasonably assured. If customer acceptance of products is not assured, the Company records sales only upon formal customer acceptance. Cost of Sales The Company includes product costs (i.e. material, direct labor and overhead costs), shipping and handling expense, production-related depreciation expense and product license agreement expense in cost of sales. Advertising Costs The Company classifies expenses for advertising as general and administrative expenses. The Company incurred advertising costs of $20,240 and $15,497 during the three months ended June 30, 2015 and 2014, respectively. Stock-Based Compensation The Company follows the provisions of ASC 718, Share-Based Payment. which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation. Income Taxes The Parent is subject to US income taxes on a stand-alone basis. The Parent and its Subsidiary file separate stand-alone tax returns in each jurisdiction in which they operate. The Subsidiary is a corporation operating in Canada and is subject to Canadian income taxes on its stand-alone taxable income. The effective rates of income tax expense (benefit) are (-25%) and 35% for the three months ended June 30, 2015 and 2014, respectively. The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences in the basis of assets and liabilities as reported for financial statement and income tax purposes. Deferred income taxes reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of certain deferred tax assets is dependent upon future earnings, if any. The Company makes estimates and judgments in determining the need for a provision for income taxes, including the estimation of our taxable income for each full fiscal year. Research and Development All costs associated with research and development are expensed when incurred. Costs incurred for research and development were $304,489 and $271,227 for the three months ended June 30, 2015 and 2014, respectively. Shipping and Handling Fees and Costs The Company records all amounts billed to customers related to shipping and handling fees as revenue. The Company classifies expenses for shipping and handling costs as cost of goods sold. The Company incurred shipping and handling costs of $85,326 and $119,193 during the three months ended June 30, 2015 and 2014, respectively. Comprehensive Income (Loss) Comprehensive income (loss) includes net income (loss) as currently reported by the Company adjusted for other comprehensive items. Other comprehensive items for the Company consist of foreign currency translation gains and losses and unrealized holding gains and losses on available for sale securities. Recent Accounting Pronouncements The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Companys financial position, results of operations or cash flows. Property and Equipment Useful Lives Property and equipment is stated at cost. Depreciation on property and equipment is computed using the diminishing balance method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows: Assets Estimated useful life Furniture and fixtures 7 Years Machinery and equipment 7 Years Buildings 30 Years Vehicles 5 Years Computers 3 Years Software 2 Years |
