UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the quarterly period ended | ||||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the Transition Period From ________ to _________ | ||||||||
Commission File Number 001-36378
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
(801 ) 796-5127
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated Filer ☐ | |||||||
Smaller reporting company | ||||||||
Emerging growth company | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of August 6, 2024, the registrant had 53,589,902 shares of common stock issued and 46,825,381 shares of common stock outstanding, par value $0.001.
PROFIRE ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
Page | ||||||||
| PART I — FINANCIAL INFORMATION | ||||||||
| Item 1. Financial Statements | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) | ||||||||
| Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | ||||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||||
| Notes to the Condensed Consolidated Financial Statements (Unaudited) | ||||||||
| Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations | ||||||||
| Item 3. Quantitative and Qualitative Disclosure about Market Risk | ||||||||
| Item 4. Controls and Procedures | ||||||||
| PART II — OTHER INFORMATION | ||||||||
| Item 1. Legal Proceedings | ||||||||
| Item 1A. Risk Factors | ||||||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||||||
| Item 3. Defaults Upon Senior Securities | ||||||||
| Item 4. Mine Safety Disclosures | ||||||||
| Item 5. Other Information | ||||||||
| Item 6. Exhibits | ||||||||
| Signatures | ||||||||
PART I. FINANCIAL INFORMATION
Item 1 Financial Information
| PROFIRE ENERGY, INC. AND SUBSIDIARIES | ||||||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||||
As of | ||||||||||||||
| June 30, 2024 | December 31, 2023 | |||||||||||||
| ASSETS | (Unaudited) | |||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Short-term investments | ||||||||||||||
| Accounts receivable, net | ||||||||||||||
| Inventories, net (note 3) | ||||||||||||||
| Prepaid expenses and other current assets (note 4) | ||||||||||||||
| Total Current Assets | ||||||||||||||
| LONG-TERM ASSETS | ||||||||||||||
| Net deferred tax asset | ||||||||||||||
| Long-term investments | ||||||||||||||
| Lease right-of-use asset (note 6) | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Total Long-Term Assets | ||||||||||||||
| TOTAL ASSETS | $ | $ | ||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued liabilities (note 5) | ||||||||||||||
| Current lease liability (note 6) | ||||||||||||||
| Income taxes payable | ||||||||||||||
| Total Current Liabilities | ||||||||||||||
| LONG-TERM LIABILITIES | ||||||||||||||
| Net deferred income tax liability | ||||||||||||||
| Long-term lease liability (note 6) | ||||||||||||||
| TOTAL LIABILITIES | ||||||||||||||
| STOCKHOLDERS' EQUITY (note 7) | ||||||||||||||
Preferred stock: $ | ||||||||||||||
Common stock: $ | ||||||||||||||
| Treasury stock, at cost | ( | ( | ||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PROFIRE ENERGY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||
Condensed Consolidated Statements of Income and Comprehensive Income | ||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| (See Note 1) | (See Note 1) | |||||||||||||||||||||||||
| REVENUES (note 8) | ||||||||||||||||||||||||||
| Sales of products, net | $ | $ | $ | $ | ||||||||||||||||||||||
| Sales of services, net | ||||||||||||||||||||||||||
| Total Revenues | ||||||||||||||||||||||||||
| COST OF SALES | ||||||||||||||||||||||||||
| Cost of sales - products | ||||||||||||||||||||||||||
| Cost of sales - services | ||||||||||||||||||||||||||
| Total Cost of Sales | ||||||||||||||||||||||||||
| GROSS PROFIT | ||||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||||||||
| INCOME FROM OPERATIONS | ||||||||||||||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||
| Gain on sale of property and equipment | ||||||||||||||||||||||||||
| Other expense | ( | ( | ( | |||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Total Other Income | ||||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | ||||||||||||||||||||||||||
| INCOME TAX EXPENSE | ( | ( | ( | ( | ||||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | ||||||||||||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Unrealized gains on investments | ( | |||||||||||||||||||||||||
| Total Other Comprehensive Income (Loss) | ( | ( | ||||||||||||||||||||||||
| COMPREHENSIVE INCOME | $ | $ | $ | $ | ||||||||||||||||||||||
| BASIC EARNINGS PER SHARE | $ | $ | $ | $ | ||||||||||||||||||||||
| FULLY DILUTED EARNINGS PER SHARE | $ | $ | $ | $ | ||||||||||||||||||||||
| BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING | ||||||||||||||||||||||||||
| FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PROFIRE ENERGY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidated Statements of Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock issued in exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock issued in settlement of RSUs and accrued bonuses | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Tax withholdings paid related to stock based compensation | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Unrealized gains on investments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock issued in exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock issued in settlement of RSUs | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Tax withholdings paid related to stock based compensation | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Treasury stock repurchased | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Unrealized gains on investments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock issued in settlement of RSUs and accrued bonuses | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Tax withholdings paid related to stock based compensation | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Unrealized gains on investments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock issued in exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock issued in settlement of RSUs | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Tax withholdings paid related to stock based compensation | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Treasury stock repurchased | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Unrealized losses on investments | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
PROFIRE ENERGY, INC. AND SUBSIDIARIES | |||||||||||
Condensed Consolidated Statements of Cash Flows | |||||||||||
(Unaudited) | |||||||||||
| For the Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Gain on sale of property and equipment | ( | ( | |||||||||
| Bad debt expense | |||||||||||
| Stock awards issued for services | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Income taxes receivable/payable | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Deferred tax asset/liability | |||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||
| Net Cash Provided by (Used in) Operating Activities | ( | ||||||||||
| INVESTING ACTIVITIES | |||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Purchase of investments | ( | ( | |||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Net Cash Used in Investing Activities | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Value of equity awards surrendered by employees for tax liability | ( | ( | |||||||||
| Cash received in exercise of stock options | |||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Principal paid toward lease liability | ( | ( | |||||||||
| Net Cash Used in Financing Activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| NET CHANGE IN CASH | ( | ||||||||||
| CASH AT BEGINNING OF PERIOD | |||||||||||
| CASH AT END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||||||||||
| CASH PAID FOR: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | $ | $ | |||||||||
| NON-CASH FINANCING AND INVESTING ACTIVITIES | |||||||||||
| Common stock issued in settlement of accrued bonuses | $ | $ | |||||||||
| Common stock issued for stock options | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
For the Six Months Ended June 30, 2024 and 2023
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 subsidiaries, taken together.
The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments have been made (which include only normal recurring adjustments) which are necessary to present fairly the financial position, results of operations, stockholders' equity, and cash flows at June 30, 2024 and for all periods presented herein.
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, 2023 ("Form 10-K"). The results of operations for the three- and six-month periods ended June 30, 2024 and 2023 are not necessarily indicative of the operating results for the full years. Certain amounts in the accompanying June 30, 2023 condensed consolidated statement of income and comprehensive income (loss) and footnotes have been reclassified to conform to the June 30, 2024 presentation.
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 primarily for the oil and gas industry within the US and Canadian markets. The Company has made progress in expansion efforts outside of these markets into other industries with combustion and burner management requirements as well as into other international locations.
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
Accounting Standards Update No. 2023-07 —Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures The update is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extend certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM. The new disclosures have been adopted in this report. See NOTE 10 – SEGMENT INFORMATION.
Accounting Standards Update No. 2023-09 —Income Taxes (Topic 740): Improvements to Income Tax Disclosures The update requires the annual financial statements to include consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual reporting periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, with a retrospective option. We are currently evaluating the effect that adoption of ASU 2023-09 will have on our disclosures.
The Company has evaluated all other recent accounting pronouncements and determined that the adoption of other pronouncements applicable to the Company has not had, nor is expected to have, a material impact on the Company's financial position, results of operations, or cash flows.
9
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
NOTE 3 – INVENTORIES
Inventories consisted of the following at each balance sheet date:
| As of | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Finished goods | |||||||||||
| Subtotal | |||||||||||
| Reserve for obsolescence | ( | ( | |||||||||
| Total | $ | $ | |||||||||
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, 2024 | December 31, 2023 | ||||||||||
| Prepaid inventory | $ | $ | |||||||||
| Accrued receivables | |||||||||||
| Prepaid insurance | |||||||||||
| Interest receivables | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following at each balance sheet date:
| As of | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Employee-related payables | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Inventory-related payables | |||||||||||
| Tax-related payables | |||||||||||
| Warranty liabilities | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
10
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
NOTE 6 – LEASES
| As of | ||||||||||||||
| Components of lease right-of-use assets and liabilities | June 30, 2024 | December 31, 2023 | ||||||||||||
| $ | $ | |||||||||||||
| Total Lease right-of-use assets | $ | $ | ||||||||||||
| $ | $ | |||||||||||||
| Total Current lease liability | $ | $ | ||||||||||||
| $ | $ | |||||||||||||
| Total Long-term lease liability | $ | $ | ||||||||||||
We have leases for office equipment and office space. The leases for office equipment are classified as financing leases, and the typical term is between 36 and 60 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 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 for the purpose of determining our lease liabilities. The weighted average discount rate applied to our financing leases was 4.50 % through 2023 and is 7.5 % in 2024, and the weighted average remaining lease term is 2.2 years.
The following table shows the components of financing lease cost:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||
| Financing Lease Cost | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | |||||||||||||
| Interest on lease liabilities | |||||||||||||||||
| Total financing lease cost | $ | $ | $ | $ | |||||||||||||
We lease two warehouse spaces, one with a two-year lease, and another with a four-year lease, both of which are recorded as operating leases. The weighted average discount rate applied to our operating leases was 4.5 % through 2023 and is 7.5 % in 2024, and the weighted average remaining lease term is 3.2 years. The remainder of our office space leases are considered to be short-term, and we have elected not to recognize those on our balance sheet under the short-term recognition exemption. Operating lease expense recognized during the three- and six-months ended June 30, 2024 and June 30, 2023 was $38,423 18,352
11
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
As of June 30, 2024, maturities of lease liabilities are as follows:
| Years ending December 31, | Amount | |||||||
| 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total future minimum lease payments | $ | |||||||
| Less: Amount representing interest | ||||||||
| Present value of future payments | $ | |||||||
| Current portion | $ | |||||||
| Long-term portion | $ | |||||||
NOTE 7 – STOCKHOLDERS' EQUITY
As of June 30, 2024 and December 31, 2023, the Company held 6,377,154 and 6,243,363 shares of its common stock in treasury at a total cost of $9,514,893 and $9,324,272 , respectively.
On May 22, 2024, the Company announced that its Board of Directors (the "Board") had authorized a share repurchase program allowing the Company to repurchase up to $2,000,000 worth of the Company’s common stock from time to time through June 30, 2025. Purchases under the program will be made at the discretion of management pursuant to a Rule 10b5-1 plan. The size and timing of any purchases were and will be dependent on price, market and business conditions and other factors.
On May 9, 2023, the Company announced that the Board had authorized a share repurchase program allowing the Company to repurchase up to $2,000,000 worth of the Company’s common stock from time to time through April 30, 2024. Purchases under the program were made at the discretion of management pursuant to a Rule 10b5-1 plan. The size and timing of any purchases were dependent on price, market and business conditions and other factors. As of December 2023, the Company had spent the full allotment under this program.
As of June 30, 2024, the Company had 889,722 restricted stock units ("RSUs"), 1,049,336 performance-based RSUs, and 126,000 stock options outstanding with $1,177,115 in remaining compensation expense to be recognized over the next 1.6 years. See further details below about certain subsets of these outstanding equity-based awards.
On June 12, 2024, pursuant to the annual renewal of director compensation, the Board approved a grant of 192,699 RSUs to the Company's independent directors. Half of the RSUs vested immediately on the date of grant and the remaining 50 264,000 to be recognized over the vesting period.
On April 9, 2024, the Compensation Committee of the Board (the "Compensation Committee") approved the 2024 Executive Incentive Plan (the “2024 EIP”) for Ryan W. Oviatt, the Company's Co-CEO, Co-President, and CFO, Cameron M. Tidball, the Company's Co-CEO and Co-President, and Patrick D. Fisher, the Company's Vice President of Product Development. The 2024 EIP provides for the potential award of incentive compensation to the participants based on the Company’s financial performance in fiscal 2024. If earned, the incentive compensation will be payable in cash and stock, and the stock portion of the incentive compensation is intended to constitute an award under the Company's 2023 Equity Incentive Plan (the "2023 Plan"). In addition to the 2024 EIP, the Board also approved as a long-term incentive plan the grants of a restricted stock unit awards to Messrs. Oviatt, Tidball, and Fisher pursuant to the 2023 Plan (the “2024 LTIP”).
12
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
2024 EIP
Under the terms of the 2024 EIP, each participating executive officer has been assigned a target incentive compensation amount for fiscal 2024. The target incentive compensation amount for Mr. Oviatt is equal to 65 % of his base salary as of December 31, 2024, the target incentive compensation amount for Mr. Tidball is equal to 65 % of his base salary as of December 31, 2024, and the target incentive compensation for Mr. Fisher is equal to 40 % of his base salary as of December 31, 2024. Under no circumstance can the participants receive more than two times the assigned target incentive compensation.
Participants will be eligible to receive incentive compensation based upon reaching or exceeding performance goals established by the Compensation Committee for fiscal 2024. The performance goals in the 2024 EIP are based on the Company’s total revenue, EBITDA, and two non-financial factors including strategic growth initiatives and safety and other. Each of the revenue, EBITDA, and strategic growth initiatives performance goals will be weighted 30 % while the safety and other goal will be weighted 10 % in calculating incentive compensation amounts.
The incentive compensation amounts earned under the 2024 EIP, if any, will be paid 50 % in cash and 50 % in shares of restricted stock under the 2023 Plan. In no event shall the total award exceed 200 % of the target incentive compensation amount for each participant, or exceed any limitations otherwise set forth in the 2023 Plan. The actual incentive compensation amounts, if any, will be determined by the Compensation Committee upon the completion of fiscal 2024 reporting period and paid by March 15, 2025, subject to all applicable tax withholding.
2024 LTIP
The 2024 LTIP consists of total awards of up to 204,651 restricted stock units (“Units”) to Mr. Oviatt, up to 204,651 Units to Mr. Tidball, and up to 36,195 Units to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “2024 LTIP Restricted Stock Unit Award Agreements”) entered between the Company and each participant. One such agreement covers 33 % of each award recipient’s Units that are subject to time-based vesting, and the other such 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 2024 LTIP began on January 1, 2024 and terminates on December 31, 2026 (the “2024 LTIP Performance Vesting Date”).
The Units subject to time-based vesting, including 68,217 Units to Mr. Oviatt, 68,217 Units for Mr. Tidball, and 12,065 Units to Mr. Fisher, will vest in three equal and annual installments beginning January 1, 2024 and ending on December 31, 2026 if the award recipients’ employment continues with the Company through such dates.
The performance-vesting Units, including up to 136,434 Units for Mr. Oviatt, 136,434 Units for Mr. Tidball, and 24,130 Units to Mr. Fisher, may vest over a three-year performance period beginning January 1, 2024 (the “2024 LTIP Performance Period”) based upon the following Company performance metrics:
| Performance Metrics | Weight | Target | Above Target | Outstanding | ||||||||||
| Total Shareholder Return (based on the Company’s closing price of its common stock at the end of the 2024 LTIP Performance Period relative to its closing price as of the last trading day in 2023) | 1/3 | |||||||||||||
| Relative Total Shareholder Return (based on the Company’s ranked performance in closing stock price growth relative to a peer group of companies during the 2024 LTIP Performance Period) | 1/3 | Third Quartile | Second Quartile | First Quartile | ||||||||||
| EBITDA as a Percentage of Total Revenue | 1/3 | |||||||||||||
One-third of such performance-vesting Units, consisting of 45,477 Units for Mr. Oviatt, 45,477 Units for Mr. Tidball, and 8,043 Units for Mr. Fisher, may vest for each of the three performance metrics identified in the table above. The number of Units that will vest for each performance metric on the 2024 LTIP Performance Vesting Date shall be determined as follows:
a.if the “Target” level for such performance metric is not achieved, none of the Units relating to such performance metric will vest;
13
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
b.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;
c.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
d.if the “Outstanding” level for such performance metric is achieved, 100 % of the Units relating to such performance metric will vest.
The foregoing summary of the 2024 EIP and the 2024 LTIP Restricted Stock Unit Award Agreements relating to the 2024 LTIP is qualified in its entirety by the text of the 2024 EIP and each of the 2024 LTIP Restricted Stock Unit Award Agreements, which were filed as exhibits to the Quarterly Report on Form 10-Q for the quarter ending March 31, 2024.
2023 RSUs
On June 29, 2023, pursuant to the annual renewal of director compensation, the Board approved a grant of 195,966 RSUs to the Company's 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 approximately $243,000 to be recognized over the vesting period.
2023 EIP and LTIP
On April 25, 2023, the Compensation Committee approved the 2023 Executive Incentive Plan (the “2023 EIP”) for Messrs. Oviatt, Tidball, and Fisher. The 2023 EIP provided for the potential award of incentive compensation to the participants based on the Company’s financial performance in fiscal 2023. The incentive compensation was payable in cash and stock, and the stock portion of the incentive compensation constituted an award under the 2023 Plan.
Participants were eligible to receive incentive compensation based upon reaching or exceeding performance goals established by the Compensation Committee for fiscal 2023. The performance goals in the 2023 EIP were based on the Company’s total revenue, EBITDA, and two non-financial factors including revenue source diversification and safety and environmental performance. Each of the revenue, EBITDA, and revenue diversification performance goals were weighted 30 % while the safety and environment goal was weighted 10 % in calculating incentive compensation amounts.
On March 6, 2024, the Compensation Committee approved the incentive compensation amounts based on achieving certain targets pursuant to the 2023 EIP. The incentive compensation amounts earned under the 2023 EIP were paid 50 % in cash and 50 % in shares of restricted stock under the 2023 Plan. In satisfaction of the 50 % of the 2023 EIP plan that was payable in stock, the Compensation Committee approved a one-time bonus for Company executives that was settled by issuing a total of 225,698 shares of common stock, or 121,624 shares net of tax withholding. These shares were fully vested as of March 6, 2024.
In addition to the 2023 EIP, the Board also approved as a long-term incentive plan the grants of RSU awards to Messrs. Oviatt, Tidball, and Fisher pursuant to the 2023 Plan (the “2023 LTIP”). The 2023 LTIP consists of total awards of up to 287,076 RSUs (“Units”) to Mr. Oviatt, up to 287,076 Units to Mr. Tidball, and up to 50,868 Units to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “2023 LTIP Restricted Stock Unit Award Agreements”) to be entered between the Company and each participant. One such agreement covers 33 % of each award recipient’s Units that are subject to time-based vesting, and the other such 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 2023 LTIP began on January 1, 2023 and terminates on December 31, 2025 (the “2023 LTIP Performance Vesting Date”).
The Units subject to time-based vesting, including 95,692 Units to Mr. Oviatt, 95,692 Units for Mr. Tidball, and 16,956 Units to Mr. Fisher, will vest in three equal and annual installments beginning December 31, 2023 and ending on December 31, 2025 if the award recipients’ employment continues with the Company through such dates.
The performance-vesting Units, including up to 191,384 Units for Mr. Oviatt, 191,384 Units for Mr. Tidball, and 33,912 Units to Mr. Fisher, may vest over a three-year performance period beginning January 1, 2023 (the “2023 LTIP Performance Period”) based upon the following Company performance metrics:
14
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| Performance Metrics | Weight | Target | Above Target | Outstanding | ||||||||||
| Total Shareholder Return (based on the Company’s closing price of its common stock at the end of the 2023 LTIP Performance Period relative to its closing price as of the last trading day in 2022) | 1/3 | |||||||||||||
| Relative Total Shareholder Return (based on the Company’s ranked performance in closing stock price growth relative to a peer group of companies during the 2023 LTIP Performance Period) | 1/3 | Third Quartile | Second Quartile | First Quartile | ||||||||||
| EBITDA as a Percentage of Total Revenue | 1/3 | |||||||||||||
One-third of such performance-vesting Units, consisting of 63,794 Units for Mr. Oviatt, 63,794 Units for Mr. Tidball, and 11,304 Units for Mr. Fisher, may vest for each of the three performance metrics identified in the table above. The number of Units that will vest for each performance metric on the 2023 LTIP Performance Vesting Date shall be determined as follows:
a.if the “Target” level for such performance metric is not achieved, none of the Units relating to such performance metric will vest;
b.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;
c.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
d.if the “Outstanding” level for such performance metric is achieved, 100 % of the Units relating to such performance metric will vest.
The foregoing summary of the 2023 EIP and the 2023 LTIP Restricted Stock Unit Award Agreements relating to the 2023 LTIP is qualified in its entirety by the text of the 2023 EIP and each of the 2023 LTIP Restricted Stock Unit Award Agreements, which were filed as exhibits to the Quarterly Report on Form 10-Q for the quarter ending March 31, 2023.
2022 LTIP
On April 6, 2022, the Compensation Committee approved as a long-term incentive plan the grants of restricted stock unit awards to Messrs. Oviatt, Tidball, and Fisher (the "2022 LTIP") pursuant to the Company's 2014 Equity Incentive Plan, as amended (the “2014 Plan”). The 2022 LTIP consists of total awards of up to 230,232 RSUs to Mr. Oviatt, up to 230,232 RSUs to Mr. Tidball, and up to 43,023 RSUs to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “2022 LTIP Restricted Stock Unit Award Agreements”) entered into between the Company and each participant. One such agreement covers the 33 % of each award recipient’s RSUs that are subject to time-based vesting, and the other such agreement covers the remaining 67 % of such award recipient’s RSUs 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 2022 LTIP began on January 1, 2022 and terminates on December 31, 2024 (the “2022 LTIP Performance Vesting Date”).
The RSUs subject to time-based vesting, including 76,744 RSUs to Mr. Oviatt, 76,744 RSUs for Mr. Tidball, and 14,341 RSUs to Mr. Fisher, will vest in three equal and annual installments beginning December 31, 2022 and ending on December 31, 2024 if the award recipients’ employment continues with the Company through such dates.
The performance-vesting RSUs, including up to 153,488 RSUs for Mr. Oviatt, 153,488 RSUs for Mr. Tidball, and 28,682 RSUs to Mr. Fisher, may vest at the end of the three-year performance period beginning January 1, 2022 (the "2022 LTIP Performance Period") based upon the following Company performance metrics:
15
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| Performance Metric | Weight | Target | Above Target | Outstanding | ||||||||||
Total Shareholder Return (based on the Company’s closing price of its common stock at the end of the 2022 LTIP Performance Period relative to its closing price as of the last trading day in 2021) | 1/3 | |||||||||||||
Relative Total Shareholder Return (based on the Company’s ranked performance in closing stock price growth relative to a peer group of companies during the 2022 LTIP Performance Period) | 1/3 | Third Quartile | Second Quartile | First Quartile | ||||||||||
| EBITDA as a Percentage of Total Revenue | 1/3 | |||||||||||||
One-third of such performance-vesting RSUs, consisting of 51,163 RSUs for Mr. Oviatt, 51,163 RSUs for Mr. Tidball, and 9,561 RSUs for Mr. Fisher, may vest for each of the three performance metrics identified in the table above. The number of RSUs that will vest for each performance metric on the 2022 LTIP Performance Vesting Date shall be determined as follows:
a.if the “Target” level for such performance metric is not achieved, none of the RSUs relating to such performance metric will vest;
b.if the “Target” level (but no higher level) for such performance metric is achieved, 50 % of the RSUs relating to such performance metric will vest;
c.if the “Above Target” level (but no higher level) for such performance metric is achieved, 75 % of the RSUs relating to such performance metric will vest; and
d.if the “Outstanding” level for such performance metric is achieved, 100 % of the RSUs relating to such performance metric will vest.
The foregoing summary of the 2022 LTIP Restricted Stock Unit Award Agreements is qualified in its entirety by the text of each of the 2022 LTIP Restricted Stock Unit Award Agreements, which were filed as exhibits to the Company's Form 10-Q for the quarter ending March 31, 2022.
2021 LTIP
On May 28, 2021, the Board approved as a long-term incentive plan, the grants of restricted stock unit awards to Messrs. Oviatt, Tidball, Fugal, and Fisher pursuant to the 2014 Plan (the “2021 LTIP”). The 2021 LTIP consists of total awards of up to 204,543 RSUs to Mr. Oviatt, up to 204,543 RSUs to Mr. Tidball, up to 85,908 RSUs to Mr. Fugal, and up to 47,973 RSUs to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “2021 LTIP Restricted Stock Unit Award Agreements”) between the Company and each participant. One agreement covers the 33 % of each award recipient’s RSUs that are subject to time-based vesting, and the other agreement covers the remaining 67 % of such award recipient’s RSUs 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 2021 LTIP began on January 1, 2021 and terminated on December 31, 2023 (the “2021 LTIP Performance Vesting Date”).
The RSUs subject to time-based vesting, including 68,181 RSUs to Mr. Oviatt, 68,181 RSUs for Mr. Tidball, 28,636 RSUs to Mr. Fugal, and 15,991 RSUs to Mr. Fisher, vested in three equal annual installments that began on December 31, 2021 and ended on December 31, 2023.
The performance-vesting RSUs, including up to 136,362 RSUs for Mr. Oviatt, 136,362 RSUs for Mr. Tidball, 57,272 RSUs for Mr. Fugal, and 31,982 RSUs to Mr. Fisher, were eligible to vest over a three-year performance period beginning January 1, 2021 based upon the following Company performance metrics:
| Performance Metric | Weight | Target | Above Target | Outstanding | ||||||||||
| Total Shareholder Return | 1/3 | |||||||||||||
| Relative Total Shareholder Return | 1/3 | Third Quartile | Second Quartile | First Quartile | ||||||||||
| EBITDA as a Percentage of Total Revenue | 1/3 | |||||||||||||
One-third of such performance-vesting RSUs, consisting of 45,454 RSUs for Mr. Oviatt, 45,454 RSUs for Mr. Tidball, 19,091 RSUs for Mr. Jay Fugal, the Company's former Vice President of Operations, and 10,661 RSUs for Mr. Fisher, were
16
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
eligible to vest for each of the three performance metrics identified in the table above. The number of RSUs that vested for each performance metric on the 2021 LTIP Performance Vesting Date was determined as follows:
•if the “Target” level for such performance metric is not achieved, none of the RSUs relating to such performance metric will vest;
•if the “Target” level (but no higher level) for such performance metric is achieved, 50 % of the RSUs 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 RSUs relating to such performance metric will vest; and
•if the “Outstanding” level for such performance metric is achieved, 100 % of the RSUs relating to such performance metric will vest.
Mr. Fugal resigned effective October 31, 2021 from his position as Vice President of Operations to pursue an opportunity as CEO of another company. Accordingly, Mr. Fugal did not receive incentive compensation under the 2021 LTIP, and his unvested RSUs have been forfeited.
On March 6, 2024, the Compensation Committee approved the incentive compensation amounts based on achieving certain targets pursuant to the 2021 LTIP. The performance vesting RSUs were settled by issuing a total of 152,354 shares of common stock, or 80,059 shares net of tax withholding.
The foregoing summary of the 2021 LTIP is qualified in its entirety by the text of each of the 2021 LTIP Restricted Stock Unit Award Agreements, which the Company filed as exhibits to its quarterly report on Form 10-Q for the quarter ended June 30, 2021.
NOTE 8 – REVENUE
Performance Obligations
Our performance obligations include providing product and servicing our product as well as other combustion related equipment. 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 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, 2024.
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. Occasionally, we collect milestone payments up front from customers on larger jobs. These payments are classified as deferred revenue until the deliverables have been met and revenue can be properly recognized in our financial statements. Each of the contracts related to these milestone payments is short-term in nature and we expect to recognize associated revenues within one year. As a result, we consider it appropriate to record deferred revenue for these transactions and do not have any other contract liability balances.
Disaggregation of Revenue
17
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
We consider all revenue recognized in the income statement 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, | |||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Electronics | $ | $ | $ | $ | ||||||||||||||||||||||
| Manufactured | ||||||||||||||||||||||||||
| Re-Sell | ||||||||||||||||||||||||||
| Service | ||||||||||||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
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 calculation:
| For the Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Effect of Dilutive Securities | ||||||||||||||||||||||||||||||||||||||
| Stock options & RSUs | ||||||||||||||||||||||||||||||||||||||
| Diluted EPS | ||||||||||||||||||||||||||||||||||||||
| Net income available to common stockholders + assumed conversions | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| For the Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Loss (Numerator) | Weighted Average Shares (Denominator) | Per-Share Amount | Loss (Numerator) | Weighted Average Shares (Denominator) | Per-Share Amount | |||||||||||||||||||||||||||||||||
| Basic EPS | ||||||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Effect of Dilutive Securities | ||||||||||||||||||||||||||||||||||||||
| Stock options & RSUs | ||||||||||||||||||||||||||||||||||||||
| Diluted EPS | ||||||||||||||||||||||||||||||||||||||
| Net income available to common stockholders + assumed conversions | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
18
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
19
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2024 and 2023
NOTE 10 – SEGMENT INFORMATION
We are required to report segment information in the same way that we internally organize our business for assessing performance and making decisions regarding allocation of resources. Our product and services lines are similar in their production processes, customers, and economic characteristics; and we do not manage the business or allocate costs based on individual product or service lines. Revenues are regularly reviewed on a disaggregated basis between our US and Canada subsidiaries; however, individual subsidiary operating performance is not reviewed regularly. Each subsidiary has a different purpose within the consolidated organization as a whole and they are not comparable to one another. As a result, we have concluded that we only have one operating segment, which is the consolidated company as a whole. We record inter-subsidiary revenues and costs for transfer pricing purposes related to income tax planning.
Segment information for these geographic areas is as follows:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
| Revenues | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Revenue from external customers | ||||||||||||||||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| Inter-subsidiary revenue | ||||||||||||||||||||||||||
| Canada | ||||||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| Inter-subsidiary eliminations | - | - | ( | ( | ||||||||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||
| Income from Operations | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| Total Income from Operations | ||||||||||||||||||||||||||
| Gain on sale of property and equipment | ||||||||||||||||||||||||||
| Other expense | ( | ( | ( | |||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
| As of | ||||||||||||||||||||||||||
| Long-Lived Assets | June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||
| Canada | $ | $ | ||||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| Total Consolidated | $ | $ | ||||||||||||||||||||||||
NOTE 11 – SUBSEQUENT EVENTS
20
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 six-month periods ended June 30, 2024 and 2023. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes to the financial statements contained in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended December 31, 2023.
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's beliefs and assumptions and on information currently available to 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. Words 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. Forward-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 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. Due to risks and uncertainties associated with our business, our actual results could differ materially from those stated or implied by such forward-looking 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.
Forward-looking statements in this report are based only on information currently available to us and speak only as of the date on which they are made. We undertake no obligation to amend this report or revise publicly these forward-looking statements (other than 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
We are a technology company providing solutions that enhance the efficiency, safety, and reliability of industrial combustion appliances while mitigating potential environmental impacts related to the operation of these devices. Our legacy business is primarily focused in the upstream, midstream, and downstream transmission segments of the oil and gas industry. However, in recent years, we have completed many installations of our burner-management solutions in other industries for which we believe our solutions will be applicable as we expand our addressable market over time. We specialize in the engineering and design of burner and combustion management systems and solutions used on a variety of natural and forced draft applications. We sell our products and services primarily throughout North America. Our experienced team of sales and service professionals are strategically positioned across the United States and Canada providing support and service for our products.
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Principal Products and Services
Across the energy industry, there are numerous demands for heat generation and control. Applications such as combustors, enclosed flares, gas production units, treaters, glycol and amine reboilers, indirect line-heaters, heated tanks, and process heaters require heat to support the production and or processing function. This heat is generated through the process of combustion, which must be controlled, managed, and supervised. Combustion and the resulting generation of heat are integral to the process of separating, treating, storing, incinerating, and transporting oil and gas. Factors such as specific gravity, the presence of hydrates, temperature and hydrogen sulfide content contribute to the need for heat generation in oil and gas production and processing applications. Our burner-management systems ignite, monitor, and manage pilot and burner systems that are utilized in this process. Our technology affords remote operation, reducing the need for employee interaction with the appliance's burner for purposes such as re-ignition or temperature monitoring. In addition, our burner-management systems can help reduce emissions by safely reigniting a failed flame, thereby improving efficiencies and up-time. Our extensive service and combustion experience provides customers with solutions that are consistent with industry trends and regulatory requirements to mitigate environmental impacts and reduce emissions through optimized burner operation.
Oil and gas companies, including upstream, midstream, downstream, pipeline, and gathering operators, utilize burner-management systems to achieve increased safety, greater operational efficiencies, and improved compliance with industry regulations. Without a burner-management system, a field employee must discover and reignite an extinguished burner flame, then restart the application manually. Without a proper burner-management system, all application monitoring must be accomplished in-person, directly on-site. This requirement for on-site monitoring, in an operational environment with limited field personnel, can result in the potential 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 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 greater expense related to fuel consumption.
We continue to assess regulatory requirements applicable to our customers. We believe our burner-management systems and services offer solutions for customers to meet compliance standards where applicable. In addition to product sales, we dispatch specialized service technicians to provide maintenance and installation support throughout the United States and Canada.
We initially developed our first burner-management controller in 2005. Since that time, our systems have become widely adopted throughout the United States and Western Canada. Profire burner-management systems have been designed to comply with widely accepted safety and industrial codes and standards in North America, including those prescribed 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 (E&P), midstream operators, pipeline operators, as well as downstream transmission and utility providers. Our customers include Antero, ATCO, Chesapeake, Chevron, CNRL, ConocoPhillips, Devon Energy, Dominion Energy, EQT, Kinder Morgan, National Grid, Ovintiv, Oxy, Range Resources, Williams, XTO, and others. Our systems have also been sold and installed in other parts of the world including many countries in South America, Europe, Africa, the Middle East, and Asia. Though firmly established and primarily focused on North American oil and gas markets, we continue to invest in expansion efforts in developing sales in diversified industries where we can utilize our combustion technology.
Environmental, Social and Governance Focus
As 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 essential to our business objectives. Our products play a crucial role in supporting our customers’ existing and future initiatives regarding improving workplace safety and environmental impacts.
Our burner-management technology is designed to monitor, operate, and manage a wide array of complex industrial heat applications. Providing our customers with safety-approved and certified technology, purposefully designed and built to meet regulatory requirements and process needs, is a critical component of our customers’ safety protocols and initiatives.
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Proper burner and combustion management control, coupled with peripheral solutions, increase site and location safety while reducing emissions. Profire's technology and solutions are integrated into a variety of applications 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. By dramatically reducing the number and frequency of physical trips to site, 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. Integration of our solutions and products helps our customers increase the likelihood that their employees return home safe each day. Adding greater physical distance between humans and the combustion process, as well as ensuring gas supplies are properly shut off when no flame is present, are two of the critical elements of how our burner-management solutions help protect human life.
Results of Operations
Comparison quarter over quarter
The table below presents certain financial data comparing the most recent quarter to prior quarters:
| For the three months ended | |||||||||||||||||||||||||||||
| June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | |||||||||||||||||||||||||
| Total Revenues | $ | 15,160,513 | $ | 13,641,140 | $ | 14,495,724 | $ | 14,943,899 | $ | 14,558,922 | |||||||||||||||||||
| Gross Profit Percentage | 51.8 | % | 49.5 | % | 53.9 | % | 50.0 | % | 50.9 | % | |||||||||||||||||||
| Operating Expenses | $ | 5,268,034 | $ | 5,019,681 | $ | 5,026,596 | $ | 4,933,479 | $ | 4,190,535 | |||||||||||||||||||
| Income from Operations | $ | 2,591,540 | $ | 1,737,090 | $ | 2,780,784 | $ | 2,543,360 | $ | 3,223,910 | |||||||||||||||||||
| Net Income | $ | 2,062,725 | $ | 1,434,373 | $ | 3,290,546 | $ | 2,039,389 | $ | 2,857,158 | |||||||||||||||||||
| Operating Cash Flow | $ | 2,476,306 | $ | (2,692,138) | $ | 4,395,818 | $ | 885,573 | $ | 1,260,879 | |||||||||||||||||||
Revenues for the quarter ended June 30, 2024 increased by 4% or $601,591 compared to the quarter ended June 30, 2023, due to increases in oil prices, which drives investment in equipment and technology by oil field operators. The second quarter of 2024 average oil price was $81.81 compared to $73.54 in the same period of last year. As indicated by these industry trends, overall customer demand for hydrocarbons increased during the quarter ended June 30, 2024 which caused an increase in revenue for Profire.
Revenues for the quarter ended June 30, 2024 increased by 11% or $1,519,373 compared to the quarter ended March 31, 2024, also due to the higher oil and natural gas prices in the second quarter of 2024.
Our gross profit margin for the second quarter of 2024 was up 0.9% from the same quarter of last year and up 2.3% from quarter ended March 31, 2024. The gross margin percentage was impacted by normal fluctuations in product, service and customer mix.
Operating expenses for the quarter ended June 30, 2024 increased $1,077,499 from the same quarter of last year, due to increases in headcount and cost inflation across the business. Operating expenses in the prior year quarter ended June 30, 2023 were also lower from receipt of the employee retention payroll tax credit, that became available to the Company through the CARES Act which reduced payroll tax expense in the quarter by $760,000. Operating expenses for the quarter ended June 30, 2024 increased $248,353 from the prior quarter ended March 31, 2024 primarily due to increases in headcount and labor related costs.
Due to the factors discussed above, we reported income from operations of $2,591,540 for the quarter ended June 30, 2024 compared to income from operations of $3,223,910 for the same quarter in 2023 and income from operations of $1,737,090 in the quarter ended March 31, 2024.
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Due to the combination of factors discussed above relating to revenues, gross profit margin and operating expenses, we reported net income of $2,062,725 for the quarter ended June 30, 2024 compared to net income of $2,857,158 for the same quarter in 2023 and net income of $1,434,373 in the quarter ended March 31, 2024.
The Company generated operating cash of $2,476,306 during the quarter ended June 30, 2024 compared to operating cash flows of $1,260,879 during the same quarter of 2023 and use of operating cash of $2,692,138 in the quarter ended March 31, 2024. The fluctuations in operating cash flows are due primarily to the changes in net income and working capital balances.
Comparison of the six months ended June 30, 2024 and 2023
The table below presents certain financial data comparing the six months ended June 30, 2024 to the same period ended June 30, 2023:
| For the Six Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Total Revenues | $ | 28,801,653 | $ | 29,243,550 | $ | (441,897) | (1.5) | % | |||||||||||||||
| Gross Profit Percentage | 50.7 | % | 52.1 | % | (1.4) | % | |||||||||||||||||
| Operating Expenses | $ | 10,287,713 | $ | 8,717,843 | $ | 1,569,870 | 18.0 | % | |||||||||||||||
| Income from Operations | $ | 4,328,632 | $ | 6,529,711 | $ | (2,201,079) | (33.7) | % | |||||||||||||||
| Net Income | $ | 3,497,100 | $ | 5,446,778 | $ | (1,949,678) | (35.8) | % | |||||||||||||||
| Operating Cash Flow | $ | (215,832) | $ | 1,782,659 | $ | (1,998,491) | 112.1 | % | |||||||||||||||
Revenues during the six-month period ended June 30, 2024, decreased 1.5% compared to the same period of last year. The decrease in revenue was driven by decreases in the weekly average rig count for North America and decreases in natural gas prices. For the six months ended June 30, 2024, the weekly average rig count for North America was 763 compared to 896 in the same period of last year. Although rig counts and natural gas prices are lower than they were in the prior year period, they remain strong and have contributed to ongoing investments in new technology by E&P operators over the past year. Our gross profit percentage decreased by 1.4% during the six months ended June 30, 2024 compared to the same period in 2023, primarily due to changes in product mix and reduced fixed cost coverage from a slightly lower revenue base. Operating expenses increased 18.0% due to increases in headcount, general cost inflation in the current year, and the employee retention payroll tax credit in the prior year six-month period noted above. Due to the decrease in revenue and gross margin, which combined with the increase in operating expenses, we recognized net income of $3,497,100 for the six months ended June 30, 2024 compared to net income of $5,446,778 for the same period in 2023. The Company used operating cash flows of $215,832 during the six-month period ended June 30, 2024 compared to generating operating cash flows of $1,782,659 during the six-month period ended June 30, 2023 due to the changes in net income and working capital balances.
Liquidity and Capital Resources
Working capital at June 30, 2024 was $39,206,880 compared to $35,377,246 at December 31, 2023.
Our liquidity position is impacted by operating, investing and financing activities. During the six months ended June 30, 2024, we used $215,832 of cash from operating activities, primarily due to a decrease in net income, purchases of inventory and payment of income taxes and other liabilities. Operating activity trends consist of cash inflows and outflows related to changes in operating assets and liabilities. During the six months ended June 30, 2024, we used $1,097,364 of cash from investing activities to purchase property and equipment. Investing activity trends consist of changes in the mix of our investment portfolio and purchases or sales of fixed assets. During the six months ended June 30, 2024, we used $494,148 of cash in financing activities, primarily related to taxes paid on employee stock award settlements during the quarter. Financing activity trends consist of transactions related to equity awards. The extent to which our liquidity position will be impacted in the future depends on industry trends and developments, which are highly uncertain and cannot be predicted with confidence. As of June 30, 2024, we held $18,442,514 of cash and investments that form our core excess liquidity which could be utilized, if required, due to the issues described above.
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.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
This section is not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Principal Executive Officers 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 Exchange Act, as of the end of the period covered by this 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 the evaluation performed, our management, including the Principal Executive Officers and Principal Financial Officer, concluded that the disclosure controls and procedures were effective as of June 30, 2024.
Changes in Internal Control over Financial Reporting
Our 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 quarter ended June 30, 2024, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 adverse to us.
Item 1A. Risk Factors
In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the risks discussed in our annual report on Form 10-K for the year ended December 31, 2023, 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of securities during the quarter ended June 30, 2024. The table below sets forth additional information regarding our share repurchases during the three months ended June 30, 2024:
| Period | (a) Total Number of Shares Purchased | (b) 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 | ||||||||||||||||||||||
| April | — | — | — | — | ||||||||||||||||||||||
| May | — | — | — | 2,000,000 | ||||||||||||||||||||||
| June | 133,791 | $ | 1.42 | 133,791 | $ | 1,808,042 | ||||||||||||||||||||
| Total | 133,791 | 133,791 | ||||||||||||||||||||||||
Item 3. Defaults Upon Senior Securities
This item is not applicable.
Item 4. Mine Safety Disclosures
This item is not applicable.
Item 5. Other Information
During the quarterly period ended June 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted terminated
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Item 6. Exhibits
The following exhibits are included as part of this report:
| Certification of Co-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 | |||||
| Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) | |||||
| Certification of Principal Executive Officers pursuant to 18 U.S.C. Section 1350 | |||||
| Certification of Ryan W. Oviatt, Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | |||||
| Exhibit 101.INS* | XBRL Instance Document | ||||
| Exhibit 101.SCH* | XBRL Taxonomy Extension Schema Document | ||||
| Exhibit 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| Exhibit 101.DEF* | XBRL Taxonomy Definition Linkbase Document | ||||
| Exhibit 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | ||||
| Exhibit 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
* Filed herewith.
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: | August 7, 2024 | By: | /s/ Ryan W. Oviatt | ||||||||
| Ryan W. Oviatt | |||||||||||
| Co-Chief Executive Officer and Chief Financial Officer | |||||||||||
Date: | August 7, 2024 | By: | /s/ Cameron M. Tidball | ||||||||
| Cameron M. Tidball | |||||||||||
| Co-Chief Executive Officer | |||||||||||
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