NOTE 1 - CONDENSED FINANCIAL STATEMENTS
Except where the context otherwise requires, all references herein to the "Company," "Profire," "we," "us," "our," or similar words and phrases are to Profire Energy, Inc. and its wholly owned subsidiary, taken together.
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, stockholders' equity, and cash flows at June 30, 2020 and for all periods presented herein have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements contained in its annual report on Form 10-K for the year ended December 31, 2019 ("Form 10-K"). The results of operations for the three and six month periods ended June 30, 2020 and 2019 are not necessarily indicative of the operating results for the full years.
NOTE 2 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
This Organization and Summary of Significant Accounting Policies of the Company is presented to assist in understanding the Company's condensed consolidated financial statements. The Company's accounting policies conform to "US GAAP."
The Company provides burner-management products, solutions and services for the oil and gas industry primarily in the US and Canadian markets.
Significant Accounting Policies
There have been no changes to the significant accounting policies of the Company from the information provided in Note 1 of the Notes to the Consolidated Financial Statements in the Company's most recent Form 10-K.
Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Reclassification
Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation within the Condensed Consolidated Statements of Cash Flows. The reclassification had no impact on financial position, net income (loss), or stockholders' equity.
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
NOTE 3 – INVENTORIES
Inventories consisted of the following at each balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Raw materials
|
$
|
209,393
|
|
|
$
|
—
|
|
Finished goods
|
9,786,297
|
|
|
10,517,858
|
|
Work in process
|
—
|
|
|
—
|
|
Subtotal
|
9,995,690
|
|
|
10,517,858
|
|
Reserve for obsolescence
|
(999,467)
|
|
|
(946,051)
|
|
Total
|
$
|
8,996,223
|
|
|
$
|
9,571,807
|
|
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at each balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Prepaid Inventory
|
784,373
|
|
|
1,291,577
|
|
Assets classified as held for sale
|
774,832
|
|
|
—
|
|
Vehicle trade-in credits
|
174,630
|
|
|
—
|
|
Prepaid insurance
|
107,367
|
|
|
133,611
|
|
Interest receivables
|
93,027
|
|
|
80,609
|
|
Other
|
209,921
|
|
|
166,625
|
|
Total
|
$
|
2,144,150
|
|
|
$
|
1,672,422
|
|
In the first quarter of 2020, we completed the construction of a new office building and research and development facility in Acheson, Canada. As a result, during the second quarter of 2020 we started the process of selling our old office building in Spruce Grove, Canada. In the table above, the assets classified as held for sale as of June 30, 2020, consist of this old office building which we intend to sell within a one year period. The amount shown above is recorded at cost, less accumulated depreciation.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following at each balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
Employee-related payables
|
$
|
657,501
|
|
|
$
|
1,657,826
|
|
Inventory-related payables
|
208,128
|
|
|
—
|
|
Warranty liabilities
|
115,731
|
|
|
166,301
|
|
Acquisition liabilities
|
20,225
|
|
|
162,907
|
|
Other
|
120,657
|
|
|
102,357
|
|
Total
|
$
|
1,122,242
|
|
|
$
|
2,089,391
|
|
NOTE 6 – LEASES
We have leases for office equipment and office space. The leases for office equipment are classified as financing leases and the typical term is 36 months. We have the option to extend most office equipment leases, but we do not intend to do so. Accordingly, no extensions have been recognized in the right-of-use asset or lease liability. The office equipment lease payments are not variable and the lease agreements do not include any non-lease components, residual value guarantees, or
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
restrictions. There are no interest rates implicit in the office equipment lease agreements, so we have used our incremental borrowing rate to determine the discount rate to be applied to our financing leases. The weighted average discount rate applied to our financing leases is 4.50% and the weighted average remaining lease term is 20.5 months.
The following table shows the components of financing lease cost:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Lease Cost
|
|
For the Three Months Ended June 30, 2020
|
|
For the Six Months Ended June 30, 2020
|
Amortization of right-of-use assets
|
|
$
|
15,121
|
|
|
$
|
33,497
|
|
Interest on lease liabilities
|
|
3,375
|
|
|
4,247
|
|
Total financing lease cost
|
|
$
|
18,496
|
|
|
$
|
37,744
|
|
The following table reconciles future minimum lease payments to the discounted finance lease liability:
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
|
Amount
|
2020 - remaining
|
|
$
|
25,013
|
|
2021
|
|
40,921
|
|
2022
|
|
12,803
|
|
2023
|
|
—
|
|
2024
|
|
—
|
|
Thereafter
|
|
—
|
|
Total future minimum lease payments
|
|
$
|
78,737
|
|
Less: Amount representing interest
|
|
3,088
|
|
Present value of future payments
|
|
$
|
75,649
|
|
Current portion
|
|
$
|
45,411
|
|
Long-term portion
|
|
$
|
30,238
|
|
Because our office space leases are short-term, we have elected not to recognize them on our balance sheet under the short-term recognition exemption. During the three and six months ended June 30, 2020, we recognized $19,059 and $38,531, respectively, in short-term lease costs associated with office space leases.
NOTE 7 – STOCKHOLDERS' EQUITY
As of June 30, 2020 and December 31, 2019, the Company held 3,412,378 shares of its common stock in treasury at a total cost of $5,353,019, respectively.
As of June 30, 2020 , the Company had 279,447 restricted stock units, 252,701 performance based restricted stock units, and 115,200 stock options outstanding with $365,717 in remaining compensation expense to be recognized over the next 2.01 years.
2020 EIP and LTIP
Due to market uncertainties including those caused by the COVID-19 pandemic, the Board of Directors of the Company (the "Board") and the Company's executives have elected to not adopt an executive incentive plan ("EIP") or long-term incentive plan ("LTIP") for 2020. The Board and executives believe this is an appropriate short-term measure that will help to align the Company's cost structure with the current extraordinary market conditions.
2019 EIP
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
On April 22, 2019, the Board approved the 2019 Executive Incentive Plan (the “2019 EIP”) for Brenton W. Hatch, the Company’s then President and Chief Executive Officer, Ryan W. Oviatt, the Company’s Chief Financial Officer, Cameron M. Tidball, the Company’s Chief Business Development Officer, Jay G. Fugal, the Company’s Vice President of Operations, and Patrick D. Fisher, the Company’s Vice President of Product Development. The 2019 EIP provided for the potential award of bonuses to the participants based on the Company’s financial performance in fiscal year 2019. On March 4, 2020, the Company's Board of Directors approved a one-time executive bonus in the amount of $828,787 for meeting targets pursuant to the 2019 EIP. Half of the bonus was paid in cash and half of the bonus was settled by issuing 343,748 shares of common stock under the Company's 2014 Equity Incentive Plan, as amended (the "2014 Plan") which was fully vested on the date of grant.
Participants were eligible to receive bonuses based upon reaching or exceeding performance goals established by the Board or its Compensation Committee for fiscal 2019. The performance goals in the 2019 EIP were based on the Company’s total revenue, net income, free cash flow, and product development milestones. Each of these performance goals were weighted 25% in calculating bonus amounts.
2019 LTIP
On April 22, 2019 the Board also adopted the 2019 Long-Term Incentive plan (the "2019 LTIP") for certain of the Company's executive officers. The 2019 LTIP consists of total awards of up to 66,213 restricted stock units (“RSUs”) to Mr. Oviatt, up to 51,646 RSUs to Mr. Tidball, up to 35,313 RSUs to Mr. Fugal, and up to 24,862 RSUs to Mr. Fisher pursuant to two separate Restricted Stock Unit Award Agreements that were entered into between the Company and each participant under the 2014 Plan. One agreement covers 33% of each award recipient’s RSU's that are subject to time-based vesting, and the other agreement covers the remaining 67% of such award recipient’s RSU's 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 RSU. The vesting period of the 2019 LTIP began on January 1, 2019 and terminates on December 31, 2021.
2017 LTIP
On March 4, 2020, the Board approved a one-time executive bonus that was settled by issuing 16,689 shares of common stock for meeting targets pursuant to the previously announced "2017 Long-Term Incentive Plan", which shares were issued under the 2014 Plan. These shares were fully vested as of March 4, 2020.
2020 RSUs
On June 17, 2020, pursuant to the annual renewal of Director compensation, the Board approved a grant of 270,966 RSUs to Independent Directors. Half of the RSUs vested 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.
2019 RSUs
On March 14, 2019, the Board approved a grant of 85,000 RSUs to various employees. The awards vest annually over five years and will result in a total compensation expense of $149,600 to be recognized over the vesting period.
On June 12, 2019, pursuant to the annual renewal of Director compensation, the Board approved a grant of 183,942 RSUs to Independent Directors. Half of the RSUs vested immediately on the date of grant and the remaining 50% of the RSUs vested on the first anniversary of the grant date. The awards have resulted in total compensation expense of $252,000 to be recognized over the vesting period.
2020 Stock Options
On March 17, 2020 (the "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 "Options"). The Options terminate four years from the Grant Date and the Options shall become exercisable as to 1/3 of the shares of common stock covered thereby on each anniversary of the Grant Date for the next three years. The Options will result in a total compensation expense of $40,280 to be recognized over the vesting period.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
NOTE 8 – ACQUISITIONS
Millstream Energy Products
On June 18, 2019, our wholly-owned subsidiary, Profire Combustion, Inc., acquired substantially all the assets from Millstream Energy Products, LTD., a Canadian corporation ("MEP"). MEP is a privately-held Canadian company that developed a line of high-performance burners, economy burners, flame arrestor housings, secondary air control plates, and other related combustion components. MEP’s full line of products became available for sale by Profire’s existing sales team immediately after closing of the transaction. These products complement our burner-management system (BMS) product offerings and should enable us to supply a larger portion of the total BMS package sale to our customers.
The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase price of $2,219,782 was funded through existing cash. Of this cash purchase amount $140,257 was held back for 6 months pending satisfaction of seller obligations under the purchase agreement and was settled with the seller on February 20, 2020. The seller is also entitled to receive a 4.5% royalty on proprietary MEP product revenue generated during the next five years.
Profire hired a valuation firm to perform the purchase price allocation based on net assets received and the price paid. Based on the fair value of net assets at the time of purchase, the Company recorded intangible assets in the amount of $990,000 and goodwill of $17,681. Intangible assets include customer relationships, the trade name and developed technology.
|
|
|
|
|
|
The purchase price calculation is a follows:
|
|
Cash
|
$
|
2,079,525
|
|
Liabilities
|
140,257
|
|
|
$
|
2,219,782
|
|
|
|
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of purchase:
|
|
Accounts receivable
|
$
|
207,145
|
|
Inventory
|
1,119,143
|
|
Intangible assets
|
990,000
|
Goodwill
|
17,681
|
|
Accounts payable
|
(114,187)
|
|
|
$
|
2,219,782
|
|
Transaction and related costs directly related to the acquisition of MEP, consisting primarily of professional fees and integration expenses, have amounted to approximately $136,811, were expensed as incurred and are included in general and administrative expenses.
Midflow Services
On August 5, 2019, we acquired all of the outstanding membership interests of Midflow Services, LLC ("Midflow"). Midflow is based in Millersburg, Ohio. Midflow provides packaged combustion solutions and services to the upstream and midstream oil and gas industry.
The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The purchase price of $3,439,371 was funded through a combination of existing cash and shares of the Company's common stock. The cash portion of the purchase price includes $500,000 placed in an escrow account for 12 months pending satisfaction of certain obligations under the purchase agreement.
Profire hired a valuation firm to perform the purchase price allocation based on the net assets received and the price paid. Based on the fair value of the net assets at the time of purchase, the Company recorded intangible assets in the amount of $1,110,000 and goodwill of $1,564,000. Intangible assets include customer relationships, the trade name and developed technology.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
|
|
|
|
|
|
The purchase price calculation is as follows:
|
|
Cash
|
$
|
2,419,371
|
|
Stock
|
1,020,000
|
|
|
$
|
3,439,371
|
|
|
|
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of purchase:
|
|
Cash
|
$
|
172,850
|
|
Accounts receivable
|
324,989
|
|
Inventory
|
269,746
|
|
Prepaid expenses
|
13,180
|
|
Property and equipment
|
126,000
|
|
Intangible assets
|
1,110,000
|
|
Goodwill
|
1,564,000
|
|
Accounts payable
|
(134,956)
|
|
Accrual liabilities
|
(6,438)
|
|
|
$
|
3,439,371
|
|
Transaction costs directly related to the acquisition of Midflow, consisting primarily of professional fees and integration expenses, amounted to approximately $44,087. All of these costs were expensed as incurred and are included in general and administrative expenses.
NOTE 9 – REVENUE
Performance Obligations
Our performance obligations include providing product and servicing our product. We recognize product revenue performance obligations in most cases when the product is delivered to the customer. Occasionally, if we are shipping the product on a customer’s account, we recognize revenue when the product has been shipped. At that point in time, the control of the product is transferred to the customer. When we perform service work, we apply the practical expedient that allows us to recognize service revenue when we have the right to invoice the customer for the work completed. We do not engage in transactions acting as an agent. The time needed to complete our performance obligations varies based on the size of the project; however, we typically satisfy our performance obligations within a few months of entering into the applicable sales contract or service contract.
Our customers have the right to return certain unused and unopened products within 90 days for an appropriate 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, 2020.
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.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
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,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Electronics
|
|
$
|
1,644,668
|
|
|
$
|
4,139,283
|
|
|
$
|
4,301,755
|
|
|
$
|
8,785,880
|
|
Manufactured
|
|
142,234
|
|
|
492,969
|
|
|
543,092
|
|
|
923,562
|
|
Re-Sell
|
|
2,212,237
|
|
|
4,927,003
|
|
|
6,015,250
|
|
|
10,048,448
|
|
Service
|
|
360,340
|
|
|
564,776
|
|
|
946,524
|
|
|
1,199,199
|
|
Total Revenue
|
|
$
|
4,359,479
|
|
|
$
|
10,124,031
|
|
|
$
|
11,806,621
|
|
|
$
|
20,957,089
|
|
NOTE 10 – BASIC AND DILUTED EARNINGS PER SHARE
The following table is a reconciliation of the numerator and denominators used in the earnings per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Income (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
|
|
$
|
(808,503)
|
|
|
47,723,208
|
|
|
$
|
(0.02)
|
|
|
$
|
985,504
|
|
|
47,348,137
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options & RSUs
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
776,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders + assumed conversions
|
|
$
|
(808,503)
|
|
|
47,723,208
|
|
|
$
|
(0.02)
|
|
|
$
|
985,504
|
|
|
48,124,208
|
|
|
$
|
0.02
|
|
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 stock options and RSUs, which expire between March 2021 and March 2024, were still outstanding at June 30, 2020.
Stock options to purchase 244,600 shares of common stock at a weighted average price of $3.88 per share were outstanding during the three months ended June 30, 2019, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expired between November 2019 and May 2020, were still outstanding at June 30, 2019.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
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
|
|
$
|
(1,173,767)
|
|
|
47,607,825
|
|
|
$
|
(0.02)
|
|
|
$
|
2,654,122
|
|
|
47,392,534
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options & RSUs
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
800,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders + assumed conversions
|
|
$
|
(1,173,767)
|
|
|
47,607,825
|
|
|
$
|
(0.02)
|
|
|
$
|
2,654,122
|
|
|
48,192,849
|
|
|
$
|
0.06
|
|
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 stock options and RSUs, which expire between March 2021 and March 2024, were still outstanding at June 30, 2020.
Stock options to purchase 244,600 shares of common stock at a weighted average price of $3.88 per share were outstanding during the six months ended June 30, 2019, but were not included in the computation of diluted EPS because the impact of these shares would be antidilutive. These options, which expired between November 2019 and May 2020, were still outstanding at June 30, 2019.
NOTE 11 – SEGMENT INFORMATION
The Company operates in the United States and Canada. Segment information for these geographic areas is as follows:
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|
|
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|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
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|
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For the Six Months Ended June 30,
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|
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Sales
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|
2020
|
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2019
|
|
2020
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|
2019
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Canada
|
|
$
|
585,695
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|
|
$
|
1,056,781
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|
|
$
|
1,609,417
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|
|
$
|
1,992,419
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|
United States
|
|
3,773,784
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|
9,067,250
|
|
10,197,204
|
|
18,964,670
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Total Consolidated
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|
$
|
4,359,479
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|
|
$
|
10,124,031
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|
|
$
|
11,806,621
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|
|
$
|
20,957,089
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|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
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|
|
|
For the Six Months Ended June 30,
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|
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Profit (Loss)
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|
2020
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2019
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|
2020
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|
2019
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Canada
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|
$
|
(264,163)
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|
|
$
|
(547,202)
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|
|
$
|
(586,232)
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|
|
$
|
(929,242)
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|
United States
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|
(544,340)
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|
1,532,706
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|
(587,535)
|
|
3,583,364
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Total Consolidated
|
|
$
|
(808,503)
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|
|
$
|
985,504
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|
|
$
|
(1,173,767)
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|
|
$
|
2,654,122
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
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|
|
Long-Lived Assets
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
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Canada
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|
|
|
|
|
$
|
5,640,323
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|
|
$
|
6,068,061
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|
United States
|
|
|
|
|
|
16,659,430
|
|
|
18,080,075
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|
Total Consolidated
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|
|
|
|
|
$
|
22,299,753
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|
|
$
|
24,148,136
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|
|
|
|
|
|
|
|
|
|
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
NOTE 12 – SUBSEQUENT EVENTS
On July 2, 2020, the Board of Directors of Profire Energy, Inc. (the “Company”) approved certain changes to the executive management team of the Company. Pursuant to these changes, Brenton W. Hatch is transitioning from Chief Executive Officer and President of the Company to Executive Chairman. Ryan W. Oviatt has been promoted to Co-Chief Executive Officer, Co-President, and Chief Financial Officer of the Company. Cameron M. Tidball has also been promoted to Co-Chief Executive Officer and Co-President of the Company. In connection with these appointments, the Company entered into amended employment agreements with Mr. Hatch, Mr. Oviatt and Mr. Tidball, as more fully described below.
On July 2, 2020, the Company and Mr. Hatch entered into a Second Amended and Restated Employment Agreement (“Hatch Agreement”) as approved by the Company’s Board of Directors (the “Board”) and recommended by its Compensation Committee (the “Committee”). Pursuant to the Hatch Agreement, Mr. Hatch has transitioned from his prior role as Chief Executive Officer and President of the Company to serve as Executive Chairman through June 30, 2021. As the Company’s Executive Chairman, in addition to other executive-level duties determined by the Board, Mr. Hatch will continue to serve as Chairman of the Board. Also pursuant to the Hatch Agreement, beginning July 1, 2021, Mr. Hatch will transition from the role of Executive Chairman to Special Advisor for the executive officers of the Company. Mr. Hatch will serve as a Special Advisor through June 30, 2022 (“Special Advisor Term”). During this Special Advisor Term, Mr. Hatch will continue to serve as Chairman of the Board and will advise the Company executives on items including, but not limited to, major projects, investor relations, and management succession planning.
In connection with Mr. Hatch’s appointment as Executive Chairman, Mr. Hatch will be paid an annual rate of base salary in periodic installments consistent with the Company’s payroll practices as in effect from time to time. For the period from July 2, 2020 through December 31, 2020 Mr. Hatch will be paid a salary based on an annualized base salary of $350,000. For the period from January 1, 2021 through June 30, 2021, Mr. Hatch will be paid a salary based on an annualized base salary of $400,000. For the 2021 calendar year, Mr. Hatch is eligible to receive an annual bonus pursuant to an Annual Incentive Plan adopted by the Board’s Compensation Committee. Mr. Hatch’s annual bonus will be at a lower level than the then serving Chief Executive Officer (or Co-Chief Executive Officers). Given that Mr. Hatch will serve as Executive Chairman for a maximum of 50% of the calendar year 2021, his final annual bonus amount will be 50% of the amount it otherwise would be if he had served as Executive Chairman for the full 2021 calendar year.
During the Special Advisor Term, Mr. Hatch will be paid a salary based on an annualized base salary of $400,000, the sum of $150,000 for serving as Chairman of the Board and $250,000 for advisory services.
Also, on July 2, 2020, the Company entered into a Second Amended and Restated Employment Agreement with Ryan W. Oviatt (the “Oviatt Agreement”) and an Amended and Restated Employment Agreement with Cameron M. Tidball (the “Tidball Agreement” and, together with the Oviatt Agreement, the “CEO Agreements”) as recommended by the Committee and approved by the Company’s Board.
Pursuant to the Oviatt Agreement, effective July 2, 2020, Mr. Oviatt commenced serving as the Company’s Co-Chief Executive Officer, Co-President, and Chief Financial Officer of the Company. Mr. Oviatt’s duties will include being responsible for the strategic direction and day-to-day operations of the Company as well as the day-to-day management of the Company’s finances and financial and accounting records and statements. Mr. Oviatt will continue to serve as a member of the Board.
Pursuant to the Tidball Agreement, effective July 2, 2020, Mr. Tidball commenced serving as the Company’s Co-Chief Executive Officer and Co- President. Mr. Tidball’s duties will include being responsible for the strategic direction and day-to-day operations of the Company and management of sales and marketing efforts, development of products and technologies, and expansion of markets and industries.
The CEO Agreements provide that each Mr. Oviatt and Mr. Tidball will receive a salary based on an annualized base salary of $275,000 USD for the period of July 2, 2020 through December 31, 2020. On January 1, 2021, the annualized base salary of Messrs. Oviatt and Tidball will increase to $300,000. The CEO Agreements state that the executives will be eligible for annual bonuses through the Company’s then-current Annual Incentive Plan as adopted by the Compensation Committee of the Board. The executives will also be eligible to participate in the Company’s then-current Long-Term Incentive Plan as determined by the Board or the Compensation Committee. The Term of the CEO Agreements is from July 1, 2020 through June 30, 2021 and unless terminated in accordance with the terms of the CEO Agreements, they will renew for successive periods of one year.
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the three and six months ended June 30, 2020 and 2019
In addition to the salary compensation above, on July 2, 2020 (the “Grant Date”), upon the recommendation of the Committee, the Board approved granting 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 to the Company’s 2014 Plan and pursuant to the standard form of Notice of Stock Option Grant and Stock Option Agreement under the plan (the “Options”). The exercise price of the Options is the closing bid price on July 2, 2020 or $0.8439 per share. The Options shall vest equally over a period of three years from the Grant Date. Vesting shall occur on the anniversary date of the Grant Date, with one-third of the total shares vesting on the first three anniversaries of the Grant Date. Vesting is contingent upon the executive’s continued employment with the Company on each applicable vesting date. The Options expire on July 2, 2024.
On July 30, 2020 Mr. Arlen B. Crouch notified the Chairman of the Board of the Directors (the “Board”) of Profire Energy, Inc. (the “Company”) of his decision to resign, effective August 3, 2020, from his position as a member of the Board. Mr. Crouch’s resignation did not result from any disagreements with Management or the Board.
On July 30, 2020, the Board appointed Colleen L. Bell to serve as a director to fill the vacancy resulting from Mr. Crouch’s resignation, effective August 3, 2020.
Ms. Bell will serve as Chair of the Nominating Committee and will serve on the Audit and Compensation Committees. As compensation for her service on the Board and Committee Assignments, it is anticipated that Ms. Bell will receive the Company’s standard compensation for non-employee directors. There are no understandings or arrangements between Ms. Bell and any other person pursuant to which she was selected as a director. The Board considered the independence of Ms. Bell under the Nasdaq listing standards and concluded that she is independent under the applicable Nasdaq standards.
In accordance with ASC 855 "Subsequent Events," Company Management reviewed all material events through the date this report was issued and there were no other subsequent events to report.