U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended __December 31, 2021___
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
Commission File Number 001-36378
PROFIRE ENERGY, INC.
(Name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
20-0019425
(I.R.S. Employer Identification No.)
321 South 1250 West Suite 1
Lindon, UT 84042
(Registrant's principal executive offices)
(801) 796-5127
(Registrant's telephone number, including area code)
Common Stock, $0.001 par value
(Title of each class)
NASDAQ
(Name of each exchange on which registered)
Securities registered pursuant to section 12(b) of the Exchange Act:
Securities registered pursuant to section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ☐ Yes ☒ No
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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐
Non-accelerated Filer ☒
Emerging Growth Company ☐
Accelerated Filer ☐
Smaller Reporting 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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) ☐ Yes No
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The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which our common stock was last sold as of the last business day of our most
recently completed second fiscal quarter was approximately $42,532,769.
Title of each class
Common Stock, $0.001 par value
Trading Symbol(s)
PFIE
Name of each exchange on which registered
NASDAQ
As of March 7, 2022, the registrant had 51,840,239 shares of common stock, par value $0.001, issued and 47,514,864 shares outstanding.
Documents Incorporated by Reference: Portions of the Profire Energy, Inc. Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
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PROFIRE ENERGY, INC.
FORM 10-K
TABLE OF CONTENTS
Explanatory Note
Cautionary Note Regarding Forward-Looking Statements
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
PART II
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Signatures
PART IV
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Explanatory Note
Unless otherwise indicated by the context, any reference herein to the "Company", "Profire", "we", "our" or "us" means Profire Energy, Inc., a Nevada corporation, and its corporate
subsidiaries and predecessors. Unless otherwise indicated by the context, all dollar amounts stated in this report on Form 10-K are in U.S. dollars.
Cautionary Note Regarding Forward-Looking Statements
This annual report on Form 10-K 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. Without limiting the foregoing, 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 our contracts with
customers, suppliers or other parties; sufficiency of working capital, capital resources and liquidity; conflicts of interest between our significant investors and our other
stakeholders; volatility of our operating results and share price 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 our assessment of current industry, financial and economic information, all of which are dynamic factors subject to rapid and abrupt
changes. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business.
Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements and we hereby qualify all our forward-
looking statements by these cautionary statements.
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 publicly revise 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.
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PART I
Item 1. Business
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 commenced identifying applications and completed several installations in other industries where 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.
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 as part of their production and or processing functions. 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 the purposes such as re-ignition or temperature
monitoring. In addition, our burner-management systems can help reduce emissions by efficiently reigniting a failed flame, thereby improving efficiencies and up-time. Our
extensive service and combustion experience provides customers with solutions that are consistent with industry trends and regulatory requirements to mitigate environmental
impacts and reduce emissions through increased efficiency.
Oil and gas 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. Therefore, 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 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 on behalf of our customers. We believe that 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, Chevron, CNRL, Concho Resources, 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
international markets and the broader combustion industries.
Environmental, Social and Governance Focus
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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 key guiding principles. 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.
Proper burner and combustion management control, coupled with peripheral solutions, increase site and location safety while reducing emissions. Profire 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. Our automated solutions help our customers improve safety, reduce emissions, and
decrease operating costs.
Operator safety is at the heart of 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.
Principal Markets and Distribution Methods
Our principal market is the oil and gas industry of the United States and Western Canada, specifically, the Permian, Marcellus, Niobrara, Bakken, STACK, SCOOP and Eagle Ford
US basins as well as the Duvernay and Montney and other formations located in Canada. We place a strong emphasis on developing and fostering direct relationships with end
users on many fronts including environmental, health and safety, automation, engineering, and field operations leaders and team members.
Due to the nature of our legacy business, we collaborate with and sell to many Original Equipment Manufacturers (OEMs) who manufacture production, processing, and heating
equipment as well as other strategic partners that deliver Instrumentation and Electrical (I&E) services in the industry. These channels provide us with a relatively easy-to-scale
augmentation to our sales and service teams.
Although our primary focus is on serving the oil and gas industry, we continue to look for expansion opportunities and development projects to diversify our product and market
footprint in other industries. Some industries of focus include power generation, agriculture, construction and infrastructure, hydrogen production, mining, biogas, and soil
reclamation.
Competition
Profire has several competitors including ACL, Combustex, SureFire, and Platinum. These companies offer similar products and services to Profire, but at a smaller scale. While
price is a significant method of competition within the oil and gas industry, we believe the most important competitive factors are performance, quality, reliability, durability, and
product support and service expertise. We believe a quality-focused approach will support us in remaining competitive.
As we continue to develop products and capabilities, we have begun to compete with companies such as Honeywell Thermal, Emerson, and Siemens in connection with larger, more
complex applications. As we continue to expand further into downstream oil and gas applications and outside of traditional oil and gas markets, we expect this competition to
intensify.
Sources and Availability of Raw Materials
We operate under release date purchase orders with the majority of our suppliers, including our international-based supply chain. This allows for our procurement team to work
closely with our suppliers to navigate market fluctuations and the changing needs of our customers. In the past, we have not experienced any sudden or dramatic increase in the
prices of the major parts or components needed for our systems. However, as industry activity levels fluctuate and global economic pressures change, we have begun to see upward
pressure on the prices of system components, which may persist for some time.
Some of the components that we resell, such as some of our valve products, are available from a limited number of suppliers. If our access to such products becomes constricted, we
could experience a material adverse impact on our results of
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operations or financial condition. Because many of the component parts we use are relatively low-priced and readily available, we do not anticipate that a sudden or dramatic
increase in the price (or decrease in supply) of any particular part would have a material adverse effect on our results of operations or financial condition, even if we are unable to
increase our sales prices proportionate to any particular price increase.
We utilize third-party contract manufacturers, including Logican Technologies, to assemble our burner-management system controllers, along with other proprietary products. We
believe this has provided us with improved manufacturing efficiencies. Additionally, the use of third-party fabricators enables us to concentrate our capital on liquidity
maintenance, research and development projects, and other strategies that align with our core competencies instead of investments in manufacturing equipment. Under the direction
of our product engineers, the manufacturers are able to procure all electronic parts, specialty cases and components, and from those components assemble the complete system.
Using specialty equipment and processes provided by us, our control systems are tested on-site by the manufacturer, and if the finished product is acceptable, it is shipped to us for
distribution. We subsequently perform our own quality-control testing and ensure the programming for each system is ready for the anticipated environment of the customer.
Shipments to us from our manufacturers are usually limited to a few hundred units at a time, so that in the event any one shipment is lost or damaged, inventory levels are not
seriously impacted. The entire manufacturing process is typically completed within 90 to 120 days of the manufacturer receiving our purchase order and having all the necessary
components on-hand. Due to the global supply chain challenges over the past two years, we have begun to experience significant increases to some of the long lead time
components used in our systems.
Our burner-management system manufacturers are located in Alberta, Canada. We have implemented a redundancy strategy which includes multiple contract manufacturers and
sufficient inventory reserves to meet fluctuations in demand as well as disaster recovery.
We also believe we have adequate alternative manufacturing sources available if we lose the services of our current manufacturers. While such a loss might result in a temporary
short-term disruption, we do not expect it would result in a materially adverse impact on our ability to meet demand for our products or results of operations, financial condition and
cash flows for a significant period of time. We periodically evaluate alternative manufacturing options to ensure our current fabricators are competitive in price, manufacturing
quality and fulfillment speed, and to ensure we have the ability to scale our production levels based on customer demand and market conditions.
Dependence upon Major Customers
During the fiscal years ended December 31, 2021 and December 31, 2020, no single customer accounted for more than 10% of our total revenues. Nonetheless, the loss of a major
customer could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Patents, Trademarks and Other Intellectual Property
We have filed or acquired several patent applications for various product innovations. We intend to continue to assess the strategic and financial value of each potential patent as we
develop various intellectual properties.
While our patents and patent applications as a group are important, we do not consider any patent or applications to be of such importance that the loss or expiration thereof would
have a material adverse effect on our business.
Need for Governmental Approval of our Principal Products or Services
We are required to obtain certain safety certifications/ratings for our combustion-management systems before they are released to the market. We have received the appropriate
certifications including CSA, Intertek, and UL certifications for our burner-management systems.
Although sales of our products and services have not been dependent on industry regulations, we believe industry regulations have enhanced our sales environment in certain
geographies. We believe that increased regulation in the areas of lower emissions and higher safety standards for our customers—especially when coupled with consistent
enforcement—may influence potential customers to purchase our products or services and could even increase quantities purchased by existing customers.
Effects of Existing or Probable Governmental Regulation on our Business
We believe that our products and services can help our customers achieve and maintain regulatory compliance and in some instances, exceed industry standards, regarding
emissions, safe burner ignition methods, data logging, or other safety or
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environmental compliance requirements or standards that may impact our customers and markets. Examples of such regulations include:
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B149.3-10, which has evolved in recent years and is effective for Alberta, Canada, governs the safety precautions that must be met concerning the ignition of
the pilot and the main burner in Alberta. It requires a programmable control to be used, if the controller complies with certain certification requirements
promulgated by the CSA.
Regulation 7 of the Air Quality Control Commission regulations in Colorado requires that combustion devices be equipped with an auto-igniter which will
automatically attempt to relight the pilot flame in the combustion chamber of a control device. The auto-igniter requirement is to reduce the risk of volatile
organic compound emissions.
R307-503, as passed by the Utah Department of Air Quality, mandates that all open and enclosed flares have an auto-igniter designed to automatically attempt
to relight the pilot flame of a flare in order to combust volatile organic compound emissions.
Order 25417, in North Dakota requires producers to condition crude oil before transportation and prove oil temperature is above 110 degrees Fahrenheit, to burn
off toxic gases from the oil.
Our burner-management systems help companies comply with these regulations and other clean air and emissions reduction initiatives and requirements. On behalf of our
customers, we monitor regulatory requirements that impact their businesses and industries. We are currently monitoring the impact of the Methane Waste Prevention Act of 2021,
the Clean Energy and Sustainability Accelerator Act, EPA New Source Performance Standards as part of 40 CFR Subpart OOOO and OOOOa, and others. We believe our burner-
management systems and ancillary products can help customers meet the more stringent standards being proposed. We have assigned sales and service professionals to specific
geographic areas to ensure we have a strong presence in the states and provinces with specific safety and emissions regulations.
We are focused on providing products and services that exceed existing regulatory and industry safety standards. We believe demand for our products may increase as regulators
and our customers continue to tighten safety and efficiency standards in the industry and as our customers demand technological solutions. In addition to satisfying regulatory and
safety requirements, we believe our customers continue to recognize the operational efficiencies that can be realized through the use of our burner-management systems and related
products. However, significant changes in the regulatory environment could materially impact our results of operations and financial condition in either positive or negative ways
depending on the nature of the change.
Research and Development
We place strong emphasis on product-oriented research and development relating to the development of new or improved products and systems. During the fiscal years ended
December 31, 2021 and December 31, 2020, we spent $1,120,080 and $1,299,103, respectively, on research and development programs.
Cost and Effects of Compliance with Federal, State and Local Environmental Laws
Our business is affected by local, provincial, state, federal and foreign laws and other regulations relating to the gas and electric safety standards and codes presently existing in the
oil and gas industry, as well as laws and regulations relating to worker safety and environmental protection.
During the fiscal years ended December 31, 2021 and December 31, 2020, respectively, we did not incur material direct costs to comply with applicable environmental laws. There
can be no assurance, however, that this will continue to be the case in the future as environmental laws and regulations relating to the oil and natural gas industry are routinely
subject to change.
Corporate Structure
We were incorporated on May 5, 2003 in the State of Nevada. We have four wholly-owned subsidiaries: Profire Combustion, Inc., an Alberta, Canada corporation; Prochem, ULC,
an Alberta, Canada unlimited liability corporation; Profire Holdings, LLC, a Utah limited liability company; and Midflow Services, an Ohio limited liability company.
Employees
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As of December 31, 2021, we had a total of 98 employees, 90 of whom were full-time employees.
Executive Officers of the Registrant
Name
Brenton W. Hatch
Ryan Oviatt
Cameron Tidball
Patrick Fisher
Age
71
48
45
44
Positions Held
Special Advisor & Chairman (July 2021 to present)
Executive Chairman (Jul 2020 to Jun 2021)
Chief Executive Officer and President (2008- Jun 2020)
Co-Chief Executive Officer and Co-President (2020 to present)
Chief Financial Officer (2015 to present)
Co-Chief Executive Officer and Co-President (2020 to present)
Chief Business Development Officer (2018-2020)
Vice President of Product Development (2019 to present)
Effective October 31, 2021, our Vice President of Operations, Jay Fugal, resigned from his position with the Company to pursue an opportunity as CEO of another company.
Profire completed some internal reorganizations following Jay's resignation but did not appoint an Executive Officer as a replacement.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are available free of charge on our website at www.profireenergy.com as soon as reasonably practicable after we
file such information electronically with, or furnish it to, the U.S. Securities and Exchange Commission (the “SEC”).
Item 1A. Risk Factors
The statements in this section describe the known material risks to our business and should be considered carefully.
Risks Relating to Our Business
The global COVID-19 pandemic has and will likely continue to adversely affect us, and it could have a material adverse impact on our business, financial condition, liquidity,
results of operations and prospects.
Since the beginning of 2020, the COVID-19 pandemic has spread across the globe and disrupted economies around the world, including the oil and gas industry in which we
operate. The rapid spread of the virus led to the implementation of various responses, including federal, state and local government-imposed quarantines, shelter-in-place mandates,
sweeping restrictions on travel, and other public health and safety measures, nearly all of which materially reduced global demand for crude oil. Although many of these restrictions
have been loosened or lifted around the world, the extent to which the global COVID-19 pandemic will continue to affect our business, financial condition, liquidity, results of
operations, prospects, and the demand for our products will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the
duration or any recurrence of the outbreak and responsive measures, additional or modified government actions, new information which may emerge concerning the severity of the
global COVID-19 pandemic and the effectiveness of actions taken to contain the coronavirus or treat its impact now or in the future, among others.
Some impacts of the global COVID-19 pandemic that could have an adverse effect on our business, financial condition, liquidity and results of operations, include:
• significant changes in prices for oil production, resulting from world-wide swings in demand and resulting over or under supply of existing production;
• further decreases in the demand for oil production, resulting from significantly decreased levels of global, regional and local travel as a result of new or additional
federal, state and local government-imposed quarantines, including shelter-in-place mandates, enacted to slow the spread of the virus and any new variant;
• increased likelihood that our customers will make rapid changes to capital expenditures due to oil prices fluctuations, swings in demand for oil production and
other factors that could impact production;
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• increased potential that our customers may seek to invoke force majeure provisions as a result of significantly adverse market conditions to avoid the performance
of contractual obligations;
• increased costs and staffing requirements related to facility modifications, social distancing measures or other best practices implemented in connection with
federal, state or local government, and voluntarily imposed quarantines or other regulations or guidelines concerning physical gatherings; and
• increased legal and operational costs related to compliance with significant changes in federal, state, and local laws and regulations.
To the extent the global COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects our business, financial condition, liquidity, results of
operations and prospects it may also have the effect of increasing the likelihood and/or magnitude of other risks described above.
Oil Prices could continue to be volatile due to the COVID-19 Pandemic and other factors.
Oil prices can have significant impact on the demand for our products. The global COVID-19 pandemic negatively impacted global oil demand to an unprecedented degree.
Although oil prices have recovered significantly and reached historic pre-pandemic levels in February 2022, future oil prices remain highly uncertain due to the COVID-19
pandemic and other global political and economic factors. Uncertainty regarding the supply and demand for oil is likely to lead to increased volatility in the price of oil, which could
have a material adverse effect on our business, financial condition, liquidity and results of operations.
Changes in the level of capital-spending by our customers could materially and adversely impact our business and financial condition.
Our principal customers are oil and natural gas exploration and production companies that operate in the upstream and midstream space and the original equipment manufacturers,
or OEM’s, that supply the exploration and production companies with the required production and processing equipment. Thus, the results of our operations and financial condition
depend on the level of capital spending by our customers. The energy industry's level of capital spending is significantly influenced by the prevailing commodity prices of natural
gas and crude oil because the amount of crude oil and natural gas that our customers can economically produce also depends on the prevailing prices for those commodities.
Volatility in commodity prices may make our customers reluctant to invest in the oil and gas industry where our products would be used. Although our products may enhance the
operational efficiency of producing wells, other operational decisions and behaviors by producers could lead to reductions or delays in the capital spending of our customers and
therefore reduce the demand for our products and services, which could materially and adversely impact our results of operations, financial condition and cash flow.
The energy industry’s level of capital spending may also be affected by government regulations or other efforts designed to mitigate climate change or reduce greenhouse gas
emissions. Increasing attention to climate change, increasing societal expectations on companies to address climate change, and potential consumer and customer use of substitutes
to oil and gas may result in increased costs and lower profits for our customers, and reduced demand for their products. These factors may also cause our customers to allocate more
capital spending to other areas or other types of energy production.
We depend on our customers' willingness to make operating and capital expenditures to transport, refine and produce oil and natural gas. Industry conditions are influenced by
numerous factors over which we have no control, such as:
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the level of oil and gas production;
the demand for oil and gas related products;
domestic and worldwide economic conditions;
political instability in the Middle East and other oil-producing regions;
the actions of the Organization of Petroleum Exporting Countries (OPEC);
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political and economic instability, including wars and acts of terrorism, political unrest, boycotts, curtailments of trade, tariffs and sanctions, and other business
restrictions;
the price of foreign imports of oil and gas, including liquefied natural gas;
natural disasters or weather conditions, such as hurricanes;
technological advances affecting energy consumption;
the level of oil and gas inventories globally;
the cost of producing oil and gas;
the price and availability of alternative fuels and energy sources;
increasing attention and expectations relating to climate change and reduction of greenhouse gas emissions;
• merger and divestiture activity among oil and gas producers; and
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governmental regulations, including those related to climate change.
These and other industry conditions could influence our customers’ willingness to make operating and capital expenditures to transport, refine and produce oil and natural gas. If
our customers reduce or eliminate such operating and capital expenditures, it may adversely affect our business and financial condition.
Changes in foreign exchange rates in countries where our business operates could have a material adverse impact on our business and financial condition.
A portion of our consolidated revenue and consolidated operating income is in Canadian dollars. As a result, we are subject to significant risks, including:
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Canadian currency exchange risks resulting from changes in Canadian currency exchange rates and the execution of controls in this area; and
limitations on our ability to reinvest earnings from operations in the United States to fund our operations in Canada.
If the volatility in the CAD/USD exchange rate causes a devaluation in either currency, it could have a material adverse impact on our business and financial condition.
The competitive nature of the oilfield services industry could lead to an increase of direct competitors.
As our segment within the oil and gas exploration and production industry grows and matures it is reasonable to expect additional companies may seek to enter this market. New
entrants to our industry may be more highly capitalized, better recognized or better situated to take advantage of market opportunities. If we are unable to adequately compete
against current and future competitors, or if the competition results in price reductions or decreased demand for our products, our business, financial condition and results of
operations may be materially and adversely affected.
We may not realize all of the anticipated benefits of our acquisitions, joint ventures or divestitures, or these benefits may take longer to realize than expected.
Our future business strategies may include growth through the acquisitions of other businesses. We may not be able to identify attractive acquisition opportunities or successfully
acquire those opportunities that are identified. Even if we are successful in integrating future acquisitions into existing operations, we may not derive the benefits, such as
administrative or operational synergy or earnings, that were expected from such acquisitions, which may result in the commitment of capital resources without the expected returns
on capital. Additionally, the competition for acquisition opportunities may increase which in turn would increase our cost of making acquisitions.
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In pursuing our business strategy, from time to time we evaluate targets for potential acquisitions. We conduct due diligence to identify valuation issues and potential loss
contingencies, negotiate transaction terms, complete transactions and manage post-closing matters such as the integration of acquired businesses. However, we may incur
unanticipated costs or expenses following a completed acquisition, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities,
litigation, and other liabilities.
The risks associated with our past or future acquisitions also include the following:
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the business culture of the acquired business may not match well with our culture;
we may fail to retain, motivate and integrate key management and other employees of the acquired business;
we may experience problems in retaining customers and integrating customer bases;
we may experience complexities associated with managing the combined businesses; and
consolidating multiple physical locations.
The anticipated benefits of acquisitions may not be realized, if at all, and we may incur significant time and costs beyond those anticipated with the integration of new acquisitions
to the existing business. If we are unable to accomplish the integration and management of the combined business successfully, or achieve a substantial portion of the anticipated
benefits of these acquisitions within the time frames anticipated by Management, it could have a material adverse effect on our business and financial condition.
Many of these factors are outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues, and diversion of Management's
time and attention. They may also delay the realization of the benefits we anticipate when we enter into a transaction. Failure to implement our acquisition strategy, including
successfully integrating acquired businesses, could have a material adverse effect on our business and financial condition.
Our operations involve operating hazards, which, if not insured or indemnified against, could harm our results of operations and financial condition.
Our operations are subject to hazards inherent in our technology's use in oilfield service operations, oilfield development and oil production activities, including fire, explosions,
blowouts, spills and damage or loss from natural disasters, each of which could result in substantial damage to the oil-producing formations and oil wells, production facilities,
other property, equipment and the environment, or in personal injury or loss of life. These hazards could also result in the suspension of purchasing, or in claims by employees,
customers or third parties which could have a material adverse effect on our financial condition.
Some of these risks are either not insurable or insurance is available only at rates that we consider uneconomical. Although we will maintain liability insurance in an amount that we
consider consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits. We may not always be successful in obtaining contractual
indemnification from our customers, and customers who provide contractual indemnification protection may not maintain adequate insurance or otherwise have the financial
resources necessary to support their indemnification obligations. Our insurance or indemnification arrangements may not adequately protect us against liability or loss from all the
hazards of our operations. The occurrence of a significant event that we have not fully insured or indemnified against, or the failure of a customer to meet its indemnification
obligations to us, could materially and adversely affect our results of operations and financial condition.
Changes to governmental regulation of the oil and gas industry could materially and adversely affect our business.
If the laws and regulations governing oil and natural gas exploration and production were to become less stringent, we could experience a decline in the demand for our products,
which we expect would materially and adversely impact our results of operations and financial condition. These regulations are subject to change and new regulations may curtail
or eliminate customer activities in certain areas where we currently operate.
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Furthermore, our operations are affected by local, provincial, state, federal, and foreign laws and other regulations relating to oil, gas and electric standards. Such standards can be
related to safety, environmental protection, or other regulatory dimensions for the oil and gas industry. Less stringent standards could adversely impact our business and financial
conditions.
Increased legislation, regulation and other government actions related to climate change and greenhouse gas emissions could also increase costs for our customers and reduce
demand for their products, which could cause a reduction in demand for our products and adversely affect our business and financial condition.
Our international operations subject us to certain operating risks, which could adversely impact our results of operations and financial condition.
Our international operations involve additional risks not associated with our domestic operations. We intend to continue our expansion into international oil and gas producing
areas. The effect on our international operations from the risks we describe will not be the same in all countries and jurisdictions. Risks associated with our operations outside of the
United States include risks of:
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regulatory requirements, and other government approvals, permits, and licenses;
adverse tax consequences;
political and economic instability, including wars and acts of terrorism, political unrest, boycotts, curtailments of trade, tariffs and sanctions, and other business
restrictions;
expropriation, confiscation, or nationalization of assets;
renegotiation or nullification of existing contracts;
difficulties and costs in recruiting and retaining individuals skilled in international business operations;
foreign exchange restrictions;
foreign currency fluctuations;
foreign taxation;
the inability to repatriate earnings or capital;
changing foreign and domestic monetary policies;
cultural and communication challenges;
industry-process changes in heating and flow of oil;
regional economic downturns;
foreign governmental regulations favoring or requiring the awarding of contracts to local contractors or requiring foreign contractors to employ citizens of, or
purchase supplies from, a particular jurisdiction that may harm our ability to compete; and
failure to comply with anti-corruption and anti-bribery laws, including the U.S. Foreign Corrupt Practices Act.
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Our business could result in liability for litigation, personal injury and property damage claims assessments.
Most of our products are used in hazardous production applications and involve exposure to inherent risks, including explosions and fires, where an accident or a failure of a
product could result in liability for personal injury, loss of life, property damage, pollution or other environmental hazards or loss of production. Litigation may arise from a
catastrophic occurrence at a location where our equipment and services are used. This litigation could result in large claims for damages, including consequential damages, and
could impair the market's acceptance of our products. The frequency and severity of such incidents could affect our operating costs, insurability and relationships with customers,
employees and regulators. These occurrences could result in substantial costs and diversion of Management's attention and resources, which could have an adverse effect on our
business.
Our business may be subject to product liability claims or product recalls, which could be expensive and could result in diversion of Management's attention.
The oil industry experiences significant product liability claims. As an installer and servicer of oilfield combustion management technologies and related products, we face an
inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, could malfunction and result
in personal injury or death. We may be named in product liability claims even if there is no evidence that our technology, products or services caused or contributed to the
accidents. Product liability claims could result in significant losses as a result of expenses incurred in defending claims or the awarding of damages. In addition, we may be required
to participate in recalls involving our products if any of our products prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result
of various industry or business practices, or in an effort to maintain good customer relationships. Our product liability insurance may not be sufficient to cover all product liability
claims, such claims may exceed our insurance coverage limits, or such insurance may not continue to be available on commercially reasonable terms, if at all. Any product liability
claim brought against us could have a material adverse effect on our reputation and business.
Uninsured or underinsured claims or litigation or an increase in our insurance premiums could adversely impact our results of operations.
Although we maintain insurance protection for certain risks in our business and operations, we are not fully insured against all possible risks, nor are all such risks insurable. It is
possible an unexpected judgment could be rendered against us for which we could be uninsured or underinsured and damages could be beyond the amounts we currently have
reserved or anticipate incurring. Significant increases in the cost of insurance and more restrictive coverage may have an adverse impact on our results of operations. In addition, we
may not be able to maintain adequate insurance in the future at rates we consider reasonable or our insurance coverage may not be adequate to cover future claims and assessments
that may arise.
Our assets and operations, as well as the assets and operations of our customers, could be adversely affected by weather and other natural phenomena.
Our assets and operations could be adversely affected by natural phenomena, such as tornadoes, hurricanes, earthquakes, wildfire, floods, and landslides. A significant disruption in
our operations or the operations of our customers due to weather or other natural phenomena could adversely affect our business and financial condition.
Liability to customers under warranties may materially and adversely affect our earnings.
We provide warranties as to the proper operation and conformance to specifications of the products we sell. Failure of our products to operate properly or to meet specifications may
increase our costs by requiring additional engineering resources and services, replacement of parts and equipment, or monetary reimbursement to a customer. In the past we have
received warranty claims and we expect to continue to receive them in the future. To the extent that we incur substantial warranty claims in any period, our reputation, our ability to
obtain future business, and our earnings could be adversely affected.
Some of our products use equipment and materials that are available from a limited number of suppliers.
We purchase equipment provided by a limited number of manufacturers. During periods of high demand, these manufacturers may not be able to meet our requests for timely
delivery, resulting in delayed deliveries of equipment and higher prices for equipment. There are a limited number of suppliers for certain materials used in burner-management
systems, our largest product line. Although these materials are generally available, supply disruptions may occur due to factors beyond our
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control. Such disruptions, delayed deliveries, and higher prices could limit our ability to meet our customers' needs, or could increase the related costs, thus possibly reducing our
revenues and profits.
Dependence on contract manufacturing and outsourcing other portions of our supply chain may adversely affect our ability to bring products to market and damage our
reputation.
We outsource our manufacturing processes and other functions and continue to evaluate additional outsourcing in order to maintain efficient operations. If our contract
manufacturers or other outsourcers fail to perform their obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation
could suffer. For example, during a market upturn, our contract manufacturers may be unable to meet our demand requirements, which may prevent us from fulfilling our
customers' orders on a timely basis. The ability of these manufacturers to perform is largely outside of our control. Additionally, changing or replacing our contract manufacturers
or other outsourcers could cause disruptions or delays.
We are exposed to risks of delay, cancellation, and nonpayment by customers in the ordinary course of our business activities.
We are exposed to risks of loss in the event of delay, cancellation, and nonpayment by our customers. Our customers are subject to their own operating and regulatory risks and may
be highly leveraged. We may experience financial losses in our dealings with other parties. Any delay and any increases in the cancellation of contracts or nonpayment by our
customers and/or counterparties could adversely affect our results of operations and financial condition. In addition, the same factors that may lead to a reduction in our potential
customers' spending may also increase our exposure to the risks of nonpayment and nonperformance by our existing customers. A significant reduction in our customers' liquidity
may result in a decrease in their ability to pay or otherwise perform their obligations to us. Any increase in nonpayment or nonperformance by our customers, either as a result of
recent changes in financial and economic conditions or otherwise, could have an adverse impact on our operating results and adversely affect our liquidity.
Our ability to successfully commercialize our technology and products may be materially adversely affected if we are unable to obtain and maintain effective intellectual
property rights for our technologies and planned products, or if the scope of the intellectual property protection is not sufficiently broad.
Our success may depend, in part, on our ability to obtain and maintain patent and other intellectual property protection with respect to our proprietary technology and products. In
recent years, patent rights have been the subject of significant litigation. As a result, the issuance, scope, validity, enforceability and commercial value of patent rights is highly
uncertain. Pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from
commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the same, especially in jurisdictions in which we hope to secure
protection, may diminish the value of patents or narrow the scope of patent protection. Publications of discoveries in the scientific literature often lag behind actual discoveries, and
patent applications, in the United States and other jurisdictions. As a result, such discoveries are typically not published until 18 months after filing, or in some cases not at all.
Therefore, we may not have been the first to make the inventions claimed in our patents or pending patent applications, or we may not have been the first to file for patent protection
of such inventions.
Even if the patent applications we rely on are issued as patents, they may not be issued in a form that will provide us with any meaningful protection, prevent competitors from
competing with us, or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative
technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and patents may be challenged in the courts
or patent offices in the United States and internationally. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our
ability to stop, or prevent us from stopping, others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our
technology and products. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours, or
otherwise provide us with a competitive advantage.
While we are not currently engaged in any material intellectual property litigation, in the future we may commence lawsuits against others if we believe they have infringed our
rights. We may not be successful in any such litigation. Our involvement in any intellectual property litigation could require the expenditure of substantial time and other
resources, may
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adversely affect the development of sales of our products or intellectual property, our capital resources, or may divert the efforts of our technical and management personnel, and
could have a material adverse effect on our business, results of operations, and financial condition.
We may not be able to protect or enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending our patents throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not
obtained patent protection, to develop their own products, and may export otherwise infringing products to territories where we have patent protection but where enforcement is not
as strong as in the United States. Competitors' products may compete with our products in jurisdictions where we do not have any issued patents, and our intellectual property rights
may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights
in foreign jurisdictions. The legal systems of certain countries may not favor the enforcement of patents and other intellectual property protection, which could make it difficult for
us to stop the infringement of any patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce any patent rights in foreign
jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected, harming our business and competitive
position.
Some of our proprietary intellectual property is not protected by patents or copyrights, and, despite our precautions, it may be possible for third parties to obtain and use such
intellectual property without authorization. We rely upon confidential proprietary information, including trade secrets, unpatented know-how, technology, software, and other
proprietary information, to develop and maintain our competitive position. Any disclosure to, or misappropriation by, third parties of our confidential proprietary information could
enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in the market. We seek to protect our confidential
proprietary information, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected
consultants that obligate them to assign their inventions to us.
These agreements are designed to protect our proprietary information; however, our trade secrets and other confidential information could be disclosed or competitors could
otherwise gain access to our trade secrets, or that technology relevant to our business could be independently developed by a person that is not a party to such agreements.
Furthermore, if the employees, consultants or collaborators that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies
for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could be disclosed, misappropriated or otherwise
become known or be independently discovered by our competitors. In addition, intellectual property laws in foreign countries may not protect trade secrets and confidential
information to the same extent as the laws of the United States. If we are unable to prevent disclosure of the intellectual property related to our technologies to third parties, we may
not be able to establish or maintain a competitive advantage in our market, which would harm our ability to protect our rights and have a material adverse effect on our business.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a
material adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our distributors, contract manufacturers, and suppliers to manufacture, market, and sell our products, and to use
our proprietary technologies without infringing, misappropriating, or otherwise violating the proprietary rights or intellectual property of third parties. While we are not aware of
any issued or pending patent applications that could restrict our ability to operate, we may in the future become party to, or be threatened with, adversarial proceedings or litigation
regarding intellectual property rights with respect to our products and technology. Third parties may assert infringement claims against us based on existing or future intellectual
property rights. If we are found to infringe a third party's intellectual property rights, we may be temporarily or permanently prohibited from commercializing our products that are
held to be infringing. We might, if possible, also be forced to redesign our products so that we no longer infringe the third-party intellectual property rights, or we could be required
to obtain a license from such third party to continue developing and marketing our products and technology. We may also elect to enter into such a license in order to settle pending
or threatened litigation. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be
non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and we could be required to pay significant royalties and other
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fees. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. A
finding of infringement could prevent us from commercializing our products or force us to cease some of our business operations, which could materially harm our business.
Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses
and could distract our technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially decrease our operating profits and
reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. As a result
of their substantially greater financial resources, some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can.
Uncertainties resulting from the initiation and continuation of litigation or other intellectual property-related proceedings could have a material adverse effect on our ability to
compete in the marketplace.
If we do not develop and commercialize new competitive products, our revenue may decline.
To remain competitive in the market for combustion and other emissions control technologies, we must continue to develop and commercialize new products. If we are not able to
develop commercially competitive products in a timely manner in response to industry demands, our business and revenues will be adversely affected. Our future ability to develop
new products depends on our ability to:
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design and commercially produce products that meet the needs of our customers;
attract and retain talented research-and-development management and personnel;
successfully market new products; and
protect our proprietary designs from our competitors.
We may encounter resource constraints or technical or other difficulties that could delay introduction of new products and services. Our competitors may introduce new products
before we do and achieve a competitive advantage.
Additionally, the time and expense invested in product development may not result in commercial products or revenues. Our inability to enhance existing products in a timely
manner or to develop and introduce new products that incorporate new technologies, conform to stringent regulatory standards and performance requirements, and achieve market
acceptance in a timely manner, could negatively impact our competitive position. New product development or modification is costly, involves significant research, development,
time and expense, and may not necessarily result in the successful commercialization of any new products. Moreover, we may experience operating losses after new products are
introduced and commercialized because of high start-up costs, unexpected manufacturing costs or problems, or lack of demand.
New technologies could render our existing products obsolete.
New developments in technology may negatively affect the development or sale of some or all of our products or make our products obsolete. Our success depends upon our ability
to design, develop and market new or modified technologies and related products.
Our business and financial condition could be negatively impacted if we lose the services of certain members of senior management.
Our development to date has largely depended, and in the future will continue to largely depend, on the efforts of our senior management. We currently do not have key-person
insurance on any of our senior management team. Thus, the loss of any member of our senior management could impair our ability to execute our business plan and could therefore
have a material adverse effect on our business, results of operations, and financial condition.
Failing to attract and retain skilled employees could impair our growth potential and profitability.
Our ability to remain productive and profitable depends substantially on our ability to attract and retain skilled employees. Our ability to scale our operations depends on our ability
to increase our labor force. The demand for skilled oilfield
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employees is high and the supply is limited. As a result of the volatility of the oilfield services and technology industry, our ability to offer competitive wages and retain skilled
employees may be diminished.
A portion of our total compensation program for key personnel has historically included awards of options to buy our common stock or other equity-based awards. If the price of
our common stock performs poorly, such performance may adversely affect our ability to retain or attract key personnel. In addition, if we are unable to continue to provide
attractive equity compensation awards or other compensation incentives for any reason, we may be unable to retain and motivate existing personnel and recruit new personnel.
If we are unable to expand in existing or into new markets, our ability to grow our business as profitably as planned could be materially and adversely affected.
We may not be able to expand our market share in our existing markets or successfully enter new or contiguous markets especially in light of industry volatility. In addition, such
expansion could adversely affect our profitability and results of operations. If we are unable to enter into new markets, our business could be materially and adversely affected.
If we are unable to manage growth effectively, our business, results of operations, and financial condition could be materially and adversely affected.
Our ability to successfully expand to new markets, or expand our penetration in existing markets, depends on a number of factors including:
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our ability to provide large-scale support and training materials for a growing customer base;
our ability to hire, train and assimilate new employees;
the adequacy of our financial resources; and
our ability to correctly identify and exploit new geographical markets and to successfully compete in those markets.
We may not be able to achieve our planned expansion and our products may not gain access to new markets or be accepted in new marketplaces. We may not achieve greater
market penetration in existing markets and we may not achieve planned operating results, or results comparable to those we experience in existing markets, in the new markets we
enter.
Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations.
Information technology is critically important to our business operations. We use information technology to manage all business processes including manufacturing, financial,
logistics, sales, marketing, and administrative functions. These processes collect, interpret and distribute business data and communicate internally and externally with employees,
suppliers, customers, and others.
We invest in industry standard security technology to protect our data and business processes against risk of data security breach and cyber-attack. Our data security management
program includes identity, trust, vulnerability, and threat management business processes as well as adoption of standard data protection policies. We measure our data security
effectiveness through industry accepted methods and remediate significant findings. Additionally, we certify our major technology suppliers and any outsourced services through
accepted security certification standards.
While we believe that our security technology and processes provide adequate measures of protection against security breaches and reduce cybersecurity risks, disruptions in, or
failures of, information technology systems are possible and could have a negative impact on our operations or business reputation. Failure of our systems, including failures due to
cyber-attacks that would prevent the ability of systems to function as intended, could cause transaction errors, loss of customers and sales, and could have negative consequences to
our business, our employees, and those with whom we do business.
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Risks Relating to our Common Stock
The market price of our common stock has been and may continue to be volatile and you may have difficulty reselling any shares of our common stock.
The market price of our common stock has been volatile and fluctuates widely in price in response to various factors which are beyond our control. The price of our common stock
is not necessarily indicative of our operating performance or long-term business prospects. In addition, the securities markets have from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our common stock. Factors such as the following could cause the market price of our common stock to fluctuate substantially:
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the underlying price of the commodities in the oil and gas industry;
announcements of capital budget changes by a major customer;
the introduction of new products by our competitors;
announcements of technology advances by us or our competitors;
current events affecting the political and economic environment in the United States or Canada;
foreign currency fluctuations;
conditions or industry trends, including demand for our products, services and technological advances;
changes to financial estimates by us or by any securities analysts who might cover our stock;
changes in our key personnel;
government regulation of our industry;
seasonal, economic, or financial conditions;
our quarterly operating and financial results; or
litigation or public concern about the safety of our products.
The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly. In particular, the market price
of our common stock may be influenced by variations in oil and gas prices, because demand for our products and services is closely related to commodity prices. The stock market
in general experiences, from time to time, extreme price and volume fluctuations. Periodic and/or continuous market fluctuations could result in extreme volatility in the price of our
common stock, which could cause a decline in the value of our common stock. Price volatility may be worse if the trading volume of our common stock is low.
A small number of existing stockholders own a significant amount of our common stock, which could limit your ability to influence the outcome of any stockholder vote.
As of December 31, 2021, our executive officers, directors, and certain beneficial owners owned approximately 35% of our common stock. As a result, our insiders have sufficient
voting power to significantly influence the outcome of many matters requiring stockholder approval. These matters may include:
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the composition of our Board of Directors, which has the authority to direct our business, appoint and remove our officers, and declare dividends;
approving or rejecting a merger, consolidation, or other business combination;
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raising future capital; and
amending our articles of incorporation and bylaws.
This concentration of ownership of our common stock could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs, or other purchases of our
common stock that might otherwise give our other stockholders the opportunity to realize a premium over the then-prevailing market price of our common stock. This
concentration of ownership may also adversely affect our share price. The interests of these existing stockholders may differ from the interests of our other stockholders.
While we have no existing agreements or plans for mergers or other corporate transactions that would require a stockholder vote at this time, this concentration of ownership may
delay, prevent or deter a change in control, or deprive investors of a possible premium for owned common stock as part of a sale of our Company.
Our existing stockholders could experience dilution if we elect to raise equity capital to meet our liquidity needs or to finance strategic transactions.
As part of our growth strategy, we may desire to raise capital, issue stock to employees pursuant to our 2014 Equity Incentive Plan or utilize our common stock to effect strategic
business transactions. If we issue equity securities in connection with any of these actions, such issuance will result in dilution to our existing stockholders.
Future sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing
well.
If any significant number of outstanding shares of our common stock are sold, such sales could have a depressive effect on the market price of our stock. Sales of substantial
amounts of shares in the public market, or the perception that such sales could occur, could depress prevailing market prices for the shares. Such sales may also make it more
difficult for us to sell equity securities or equity-related securities in the future at a time and price which we deem appropriate.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential
stockholders may lose confidence in our financial reporting.
We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are likewise required, on a quarterly basis, to evaluate the
effectiveness of our internal control over financial reporting and to disclose any changes in internal control over financial reporting. In Item 9A of this report, we disclose that with
respect to the standards of Section 404 of the Sarbanes-Oxley Act of 2002, the internal controls-standard to which we are subject, we concluded that our internal control over
financial reporting was effective as of December 31, 2021. For additional information on this item, please see Item 9A. Controls and Procedures.
Although we concluded that our internal controls over financial reporting were effective as of December 31, 2021, we cannot be certain that our internal control practices will
ensure that we will have or maintain adequate internal control over our financial reporting in future periods. Any failure to have or maintain such internal controls could adversely
impact our ability to report our financial results accurately and on a timely basis. If our financial statements are not accurate, investors may not have a complete understanding of
our operations.
We may be subject to stockholder litigation, thereby diverting our resources, which could materially adversely affect our profitability and results of operations.
The market for our common stock is volatile, and we expect it will continue to be volatile for the indefinite future. Plaintiffs often initiate securities class action litigation against a
company following periods of volatility in the market price for its securities. In addition, stockholders may bring actions against companies relating to past transactions or other
matters. Any such actions could give rise to substantial damages and thereby materially adversely affect our consolidated financial position, liquidity, or results of operations. Even
if an action is not resolved against us, the uncertainty and expense associated with stockholder actions could materially adversely affect our business, prospects, and financial
condition. Litigation can be costly, time-consuming and disruptive to business operations. The defense of lawsuits could also result in diversion of Management’s time and attention
away from business operations, which could harm our business.
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We could issue “blank check” preferred stock without stockholder approval with the effect of diluting existing stockholders and impairing their voting rights, and provisions in
our charter documents and under Nevada corporate law could discourage a takeover that stockholders may consider favorable.
Our articles of incorporation authorize the issuance of up to 10,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined
from time to time by our Board of Directors. Our Board of Directors is empowered, without stockholder approval, to authorize the issuance of a series of preferred stock with
dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of
preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our Board of Directors to authorize
preferred stock with voting or other rights or preferences that could impede the success of any attempt to effect a change in control of our Company. Any aspect of the foregoing,
alone or together, could delay or prevent unsolicited takeovers and changes in control or changes in our management.
We do not anticipate paying cash dividends for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.
We have never declared or paid any cash dividends or distributions on our common stock. We currently intend to retain our future earnings to support operations and to finance
expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any payment of cash dividends in the future will be
dependent on the amount of funds legally available, our earnings, financial condition, capital requirements, and other factors that our Board of Directors may deem relevant.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Investors seeking cash dividends should not purchase our common stock.
Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of our company.
Although we are not currently subject to Nevada’s control share law, we could become subject to Nevada’s control share law in the future. A corporation is subject to Nevada’s
control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or through an
affiliated corporation. The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares sufficient, but for the control share law,
to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association
with others.
The effect of the control share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a
resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered
only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the
stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free
to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law. If control
shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an
acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for such stockholder’s shares. Nevada’s control share law may have the
effect of discouraging takeovers of the corporation.
In addition to the control share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and “interested
stockholders” for two years after the “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s Board of Directors approves the combination in
advance. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of
the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to
cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s
21
assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders. The effect of Nevada’s business
combination law is to potentially discourage parties interested in taking control of our Company from doing so if it cannot obtain the approval of our Board of Directors.
We may not be able to maintain compliance with the Nasdaq Capital Market's continued listing requirements.
Our common stock is listed on the Nasdaq Capital Market. There are a number of continued listing requirements that we must satisfy in order to maintain our listing on the Nasdaq
Capital Market. Although we intend to comply with all of the continued listing requirements, it is possible we may fail to do so. If we fail to maintain compliance with all applicable
continued listing requirements for the Nasdaq Capital Market and they determine to delist our common stock, the delisting could adversely affect the market liquidity of our
common stock, our ability to obtain financing, repay any future debt we could incur, and fund our operations.
On April 24, 2020, we received written notice from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that we were not in
compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) because the closing bid price for our common stock closed below $1.00 per share for the
previous 30 consecutive business days. We did not regain compliance during the initial compliance period, as extended by Nasdaq due to conditions related to the COVID-19
pandemic, which ended on December 28, 2020, and we requested an additional 180 calendar day period to regain compliance with the Minimum Bid Price Requirement. On
January 27, 2021, Nasdaq notified us that we had regained compliance with the Minimum Bid Price Requirement and the matter was closed.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The following table lists the location and description of each of our facilities, the current lease expiration date (when applicable), and the facility's principal use, and approximate
square footage:
Location
Lindon, Utah
Acheson, Alberta
Greeley, Colorado
Victoria, Texas
Homer City, Pennsylvania
Millersburg, Ohio
Use
Corporate HQ & Warehouse Assembly
Office & Warehouse Assembly
Office & Warehouse Storage
Office & Warehouse Assembly
Office & Warehouse Storage
Office & Warehouse Assembly
Lease Expiration
Owned
Owned
Owned
July 31, 2022
May 10, 2022
Month-to-Month
Square Footage
50,500
25,500
2,750
3,250
2,100
1,600
Item 3. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in matters may arise from time to time that may harm our business. As of December 31, 2021, Management is not aware of any pending legal,
judicial or administrative proceedings to which the Company or any of its subsidiaries is a party or of which any properties of the Company or its subsidiaries is the subject that we
believe could have a material impact on our operations or financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
22
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Registrant's Common Equity and Holders
The Company's common stock is traded on the NASDAQ Capital Market under the symbol "PFIE." As of March 7, 2022, there were approximately 81 shareholders of record for
our common stock. The number of record shareholders was determined from the records of our stock transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, registered clearing houses or agencies, banks, or other fiduciaries.
Dividends
The Company has not declared or paid any dividends in the past two years and does not intend to do so in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The table below displays information relating to equity compensation:
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Issuer Purchases of Equity Securities
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities remaining available
for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
(c)
1,622,573 $
—
1,622,573 $
0.35
—
0.35
2,234,970
—
2,234,970
Pursuant to the board of directors' approval of 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 September 30, 2022, the Company entered into a 10b5-1 Plan in September 2021. After an initial 30-day cooling off period the Company began purchasing shares
of common stock pursuant to the terms of the 10b5-1 Plan in October 2021. The Company is not obligated to make any purchases and the program may be suspended or
discontinued at any time.
Period
October
November
December
Total
Item 6. Reserved
(a) Total Number of
Shares Purchased
(b) Weighted
Average Price
Paid Per Share
(c) Total Number of Shares
Purchased as Part of Publicly
Announced Plans
(d) Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the Plans
140,234
252,257
272,040
664,531
$
$
$
1.20
1.22
1.02
140,234
252,257
272,040
664,531
$
$
$
1,832,199
1,524,050
1,245,426
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
23
For a complete understanding, this Management's Discussion and Analysis should be read in conjunction with the Financial Statements and Notes to the Financial Statements
contained in this annual report on Form 10-K.
Results of Operations
Revenues, Cost of Goods Sold, and Gross Profit
The table below presents information regarding revenues, cost of goods sold, and gross profit.
Total Revenues
Total Cost of Goods Sold
Gross Profit
For the Year Ended
December 31, 2021
26,356,176
14,955,161
11,401,015
% of Revenue
100 %
57 %
43 %
For the Year Ended
December 31, 2020
21,458,609
11,932,408
9,526,201
% of Revenue
$ Change
% Change
100 % $
56 % $
44 % $
4,897,567
3,022,753
1,874,814
23 %
25 %
20 %
Total revenues increased by 23% which was primarily driven by improved customer demand associated with modest recoveries from the COVID-19 pandemic and associated
macro industry challenges. The average oil price in 2021 was $68.14 per barrel compared to $39.16 per barrel in 2020, representing an increase of 74%. The 2021 weekly average
of the onshore rig count for North America was 595, up 18% from a weekly average of 505 rigs in 2020. Although oil prices have recovered from the historic lows of 2020, which
were caused by a flood of supply from Russia and Saudi Arabia and a dramatic drop in global demand due to the COVID-19 pandemic, the operating environment in 2021
continued to be characterized by uncertainty surrounding economic recovery from the COVID-19 pandemic and geopolitical factors. This uncertainty continued to create strain in
oil supply and demand dynamics. As a result of these extraordinary macro pressures and uncertainties, exploration and production companies remain cautious and have not invested
in new production at the same pace as they did prior to the pandemic when oil prices were last at their current historic levels. Despite this ongoing challenges, we were able to
increase revenue and business activity year over year.
Total cost of goods sold increased, in large part, due to the increase in revenues. As a percentage of revenue, cost of goods sold increased during 2021 due to changes in product mix
and product related services as well as due to inflationary pressures for both direct and indirect costs. We continue to work with our suppliers in an effort to control our inventory
costs and limit the impacts of inflation. As a result of these changes, total gross profit increased by $1,874,814 during 2021 compared to 2020, but as a percentage of revenues, total
gross profit decreased due to factors described above.
Operating Expenses
The table below presents information on operating expenses:
General and administrative expenses
Research and development
Depreciation and amortization expense (inclusive of
amounts in COGS)
For the Year Ended
December 31, 2021 % of Revenue
44 %
4 %
11,533,496
1,120,080
For the Year Ended
December 31, 2020
10,641,122
1,299,103
% of Revenue
$ Change
% Change
50 % $
6 % $
892,374
(179,023)
1,255,647
5 %
1,163,722
5 % $
91,925
8 %
(14) %
8 %
General and administrative expenses increased by $892,374 or 8% during 2021 compared to 2020 but decreased as a percentage of revenue because we were able to keep the
increase in fixed costs lower than the growth in revenues during the same period. The increase in 2021 was driven primarily by employee costs as we unwound some of the
significant, but temporary, cost reduction measures implemented in 2020 in response to the COVID-19 pandemic and the resulting oil market supply and demand dynamics.
Increases also resulted from supply chain challenges and rising inflation.
24
Research and development expenses decreased by $179,023 or 14% during 2021 compared to 2020 and decreased slightly as a percentage of revenue. These decreases were largely
a result of higher certification related costs and activities in the prior year. We continue to prioritize research and development projects to ensure that we remain a leader in
technology and automation in the oil and gas industry. We intend to expand our research and development efforts during 2022 in order to further diversify and enhance our product
offerings.
Depreciation and amortization expense (inclusive of amounts in COGS) increased by $91,925 or 8% in 2021 compared to 2020 due in part to the completion of our new Canada
building in 2020 which increased depreciation after the building was finalized and placed in service. The increase in depreciation from our new building was recorded throughout all
of 2021 but not for the full year in 2020, which explains why depreciation and amortization expense increased.
Liquidity and Capital Resources
Management is committed to maintaining strong liquidity in an effort to be conservative and be able to respond quickly to changes in industry or economic conditions. The
Company currently has no long-term debt, and does not have any immediate plans that would require long-term financing. While management believes sources of financing are
available if needed, we cannot be certain that financing would be available to us on favorable terms, or at all. We currently do not expect any material changes to our capital
resource mix during the next year.
We acquired land for a new office building and research and development facility in Canada in June of 2018. In the first quarter of 2020, we completed the construction of this new
building in Acheson, Canada. Excluding the cost of the land, the total cost of the building was approximately $4,600,000 USD. We completed the sale of the old office building in
Canada in January 2021 and received overall cash proceeds from the sale of $1,154,714 CAD.
The table below presents information on cash and investments:
Cash and cash equivalents
Short-term investments
Long-term investments
Total
December 31, 2021
8,188,270
1,013,683
8,259,809
17,461,762
December 31, 2020
$ Change
% Change
9,148,312 $
2,388,601 $
6,064,294 $
17,601,207
(960,042)
(1,374,918)
2,195,515
(139,445)
(10) %
(58) %
36 %
(1) %
The Company invests its available cash in investment grade securities. All of the investments either mature within one year or historically can be sold quickly in response to
liquidity needs, if necessary.
The table below presents information regarding cash flows:
Net Cash Provided by Operating Activities
Net Cash Provided by (Used in) Investing Activities
Net Cash Used in Financing Activities
Effect of exchange rate on Cash
Net Increase (Decrease) in Cash
For the Year Ended
December 31, 2021
For the Year Ended
December 31, 2020
$ Change
% Change
$
$
$
$
$
648,927 $
(817,503) $
(836,139) $
44,673 $
(960,042) $
264,400 $
1,766,664 $
(210,435) $
(31,173) $
1,789,456 $
384,527
(2,584,167)
(625,704)
75,846
(2,749,498)
145 %
(146)%
297 %
243 %
(154)%
Our liquidity position is impacted by operating, investing and financing activities. During the year ended December 31, 2021, we generated $648,927 of positive cash flow from
operating activities. Most of this was generated through cash operating activities excluding non-cash expenses. The various movements in working capital items offset one another
to a small net increase in working capital during the year. The sizable increase in accounts receivable was offset by the decrease in inventory and the increase in accounts payable.
During the year ended December 31, 2021, we used $817,503 of cash in investing activities, primarily due to liquid investment purchases, partially offset by cash proceeds from the
sale of property and equipment. Investing activity trends consist of changes in the mix of our investment portfolio, purchases or sales of fixed assets, and acquisition activities.
During the year ended December 31, 2021, we used $836,139 of cash in financing activities,
25
primarily related to the purchase of treasury stock. Financing activity trends consist of transactions related to equity awards and purchases or sales of treasury stock.
The global COVID-19 pandemic continued to impact our business in 2021 and as a result, we have remained focused on reinvesting in and building back our corporate structure as
we continue to navigate the uncertainty caused by the pandemic and the resulting oil market supply and demand imbalance. The extent to which the global COVID-19 pandemic
will continue to affect our liquidity position will depend on future developments, which are highly uncertain and cannot be predicted with confidence. As of December 31, 2021,
we hold $17,461,762 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This section is not required.
26
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Profire Energy, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Profire Energy, Inc. (“the Company”) as of December 31, 2021 and 2020, the related consolidated statements of
operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021 and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee
and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We
determined that there were no critical audit matters.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2011.
Salt Lake City, UT
March 8, 2022
27
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Short-term investments (note 2)
Accounts receivable, net
Inventories, net (note 3)
Prepaid expenses and other current assets (note 4)
Income tax receivable
Total Current Assets
LONG-TERM ASSETS
Net deferred tax asset
Long-term investments (note 2)
Financing right-of-use asset
Property and equipment, net (note 5)
Intangible assets, net (note 6)
Goodwill (note 6)
Total Long-Term Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Accrued liabilities (note 7)
Current financing lease liability (note 8)
Total Current Liabilities
LONG-TERM LIABILITIES
Net deferred income tax liability
Long-term financing lease liability (note 8)
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY (note 9)
Preferred stock: $0.001 par value, 10,000,000 shares authorized: no shares issued or outstanding
Common stock: $0.001 par value, 100,000,000 shares authorized: 51,720,142 issued and 47,643,233 outstanding at December 31, 2021, and 51,384,961 issued
and 47,972,583 outstanding at December 31, 2020
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 consolidated financial statements.
28
As of
December 31, 2021
December 31, 2020
$
$
$
$
$
$
$
8,188,270
1,013,683
6,262,799
7,185,248
1,025,276
560,445
24,235,721
163,254
8,259,809
65,280
11,185,539
1,549,138
2,579,381
23,802,401
48,038,122
1,822,559
1,872,348
30,214
3,725,121
136,106
35,912
3,897,139
9,148,312
2,388,601
3,719,508
8,414,772
1,678,428
486,154
25,835,775
—
6,064,294
50,094
12,021,811
1,771,870
2,579,381
22,487,450
48,323,225
1,178,979
1,196,870
39,451
2,415,300
522,870
12,669
2,950,839
—
—
51,720
(6,107,593)
30,819,394
(2,100,467)
21,477,929
44,140,983
48,038,122
$
51,385
(5,353,019)
30,293,472
(2,148,924)
22,529,472
45,372,386
48,323,225
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
For the Year Ended
December 31, 2021
For the Year Ended December
31, 2020
REVENUES (note 11)
Sales of goods, net
Sales of services, net
Total Revenues
COST OF SALES
Cost of goods sold-product
Cost of goods sold-services
Total Cost of Goods Sold
GROSS PROFIT
OPERATING EXPENSES
General and administrative
Research and development
Depreciation and amortization
Total Operating Expenses
LOSS FROM OPERATIONS
OTHER INCOME (EXPENSE)
Gain on sale of fixed assets
Other income (expense)
Interest income
Total Other Income
LOSS BEFORE INCOME TAXES
INCOME TAX BENEFIT (note 12)
NET LOSS
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain
Unrealized gains (losses) on investments
Total Other Comprehensive Income
COMPREHENSIVE LOSS
BASIC LOSS PER SHARE (note 13)
FULLY DILUTED LOSS PER SHARE (note 13)
$
$
$
$
$
$
BASIC WEIGHTED AVG NUMBER OF SHARES OUTSTANDING
FULLY DILUTED WEIGHTED AVG NUMBER OF SHARES OUTSTANDING
The accompanying notes are an integral part of these consolidated financial statements.
29
$
23,690,994
2,665,182
26,356,176
12,825,906
2,129,255
14,955,161
11,401,015
11,533,496
1,120,080
762,439
13,416,015
(2,015,000)
192,183
8,715
133,201
334,099
(1,680,901)
629,358
19,395,639
2,062,970
21,458,609
10,378,367
1,554,041
11,932,408
9,526,201
10,641,122
1,299,103
666,187
12,606,412
(3,080,211)
306,871
(67,078)
181,254
421,047
(2,659,164)
483,567
(1,051,543)
$
(2,175,597)
$
$
$
$
54,006
(5,549)
48,457
(1,003,086)
(0.02)
(0.02)
48,070,581
48,070,581
240,013
26,523
266,536
(1,909,061)
(0.05)
(0.05)
47,778,063
47,778,063
Balance, December 31, 2019
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 For the Year Ended December 31, 2020
Balance, December 31, 2020
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 Loss For the Year Ended December 31, 2021
Balance, December 31, 2021
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Amount
Additional Paid-
In Capital
Accumulated Other
Comprehensive
Income (Loss)
47,411,977 $
—
2,000
558,606
—
—
—
—
47,972,583 $
—
7,000
328,181
—
(664,531)
—
—
—
47,643,233 $
50,824 $
—
2
559
—
—
—
—
51,385 $
—
7
328
—
—
—
—
—
51,720 $
29,584,172 $
443,127
2,018
418,814
(154,659)
—
—
—
30,293,472 $
567,077
6,046
(328)
(46,873)
—
—
—
—
30,819,394 $
(2,415,460)
—
—
—
—
240,013
26,523
—
(2,148,924)
—
—
—
—
—
54,006
(5,549)
—
(2,100,467)
Treasury Stock
Retained
Earnings
$
(5,353,019) $
24,705,069 $
—
—
—
—
—
—
—
$
(5,353,019) $
—
—
—
—
(754,574)
—
—
—
$
(6,107,593) $
—
—
—
—
—
—
(2,175,597)
22,529,472 $
—
—
—
—
—
—
—
(1,051,543)
21,477,929 $
Total
Stockholders'
Equity
46,571,586
443,127
2,020
419,373
(154,659)
240,013
26,523
(2,175,597)
45,372,386
567,077
6,053
—
(46,873)
(754,574)
54,006
(5,549)
(1,051,543)
44,140,983
The accompanying notes are an integral part of these consolidated financial statements.
30
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense
Gain on sale of fixed assets
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 Operating Activities
INVESTING ACTIVITIES
Proceeds from sale of property and equipment
Sale (purchase) of investments
Purchase of property and equipment
Net Cash Provided by (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 towards lease liability
Net Cash Used in Financing Activities
Effect of exchange rate changes on cash
NET INCREASE (DECREASE) 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
For the Year Ended
December 31, 2021
For the Year Ended
December 31, 2020
$
(1,051,543)
$
(2,175,597)
1,255,647
(192,183)
15,979
567,077
(2,595,483)
(101,990)
1,247,004
705,575
(524,791)
1,323,635
648,927
177,851
(826,827)
(168,527)
(817,503)
(46,873)
6,053
(754,574)
(40,745)
(836,139)
44,673
(960,042)
9,148,312
1,176,707
(306,871)
184,293
443,127
2,268,435
(404,345)
1,216,200
157,053
83,595
(2,378,197)
264,400
514,448
2,799,547
(1,547,331)
1,766,664
(154,659)
2,020
—
(57,796)
(210,435)
(31,173)
1,789,456
7,358,856
$
$
$
$
8,188,270
$
9,148,312
3,205
17,150
—
$
$
$
6,090
402,510
419,373
The accompanying notes are an integral part of these consolidated financial statements.
31
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
This Organization and Summary of Significant Accounting Policies of Profire Energy, Inc. and subsidiary (the "Company") is presented to assist in understanding the Company's
consolidated financial statements. The Company's accounting policies conform to accounting principles generally accepted in the United States of America ("US GAAP").
The Company specializes in the engineering and design of burner-management systems and solutions used on a variety of oilfield and industrial natural-draft fire and forced-air
combustion applications. We sell our products and services primarily throughout North America and Canada.
Recent Accounting Pronouncements
Accounting Standards Update No. 2021-10 —Government Assistance (Topic 832) —Disclosures by Business Entities about Government Assistance This update was issued
to increase the transparency of government assistance by requiring entities to disclose the type of government assistance received, how the assistance was accounted for, and the
effect of the assistance on the entity's financial statements. The amendments in this update are effective for annual periods beginning after December 15, 2021 and can be applied
either prospectively or retrospectively. We evaluated the impact of this new guidance and determined that we will adopt the provisions of ASU 2021-10 as of December 15, 2021
on a retrospective basis. See Note 17 for additional information.
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.
Use of Estimates
The preparation of financial statements in accordance with US GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reportable amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include our wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.
Foreign Currency and Comprehensive Income
The functional currencies of the Company and its subsidiaries in the United States and Canada are the U.S. Dollar ("USD") and the Canadian Dollar ("CAD"), respectively. The
financial statements of the subsidiary Profire Combustion, Inc. were translated to USD using year-end exchange rates for the balance sheet, and average exchange rates for the
statements of operations. Equity transactions were translated using historical rates. The period-end exchange rates of 0.7859 and 0.7843 were used to convert the Company's
December 31, 2021 and December 31, 2020 balance sheets, respectively, and the statements of operations used weighted average rates of 0.7845 and 0.7809 for the years ended
December 31, 2021 and December 31, 2020, respectively. All amounts in the financial statements and footnotes are presumed to be stated in USD, unless otherwise identified.
Foreign currency translation gains or losses as a result of fluctuations in the exchange rates are reflected in the Consolidated Statement of Income and Comprehensive Income
(Loss), and the Consolidated Statements of Stockholders' Equity.
In addition to foreign currency translation gains and losses, the Company recognizes unrealized holding gains and losses on available-for-sale securities as part of comprehensive
income, as discussed in the investments policy below.
Cash and Cash Equivalents
32
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. Certificates of deposit held for investment that are not debt
securities are included in "investments-other." Certificates of deposit with remaining maturities greater than one year are classified as "long term investments-other." Our cash and
cash equivalents held in FDIC insured institutions can exceed the federally insured limit periodically and at the end of reporting periods. Our balances exceeded federally insured
amounts by $6,077,964 and $7,169,564 as of December 31, 2021 and December 31, 2020, respectively.
Accounts Receivable
Receivables from the sale of goods and services are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The allowance
is calculated based on past collectability and customer relationships. The Company recorded an allowance for doubtful accounts of $153,909 and $136,585 as of December 31,
2021 and December 31, 2020, respectively. Uncollectible accounts are written off after all collection efforts have been exhausted and Credit Committee approval is granted. Bad
debt expense recognized was $15,979 and $184,293 for the years ended December 31, 2021 and December 31, 2020, respectively.
Inventories
The Company's inventories are valued at the lower of cost (the purchase price, including additional fees) or market. Inventory costs are determined based on the average cost basis.
A reserve for slow-moving and potentially obsolete inventories is recorded as of each balance sheet date and total inventories are presented net of that reserve.
Investments
Investments consist of available-for-sale debt securities and mutual funds invested in debt securities that the Company carries at fair value. Securities with original maturities of
greater than three months at the date of purchase are classified as investments. Of these, bonds with maturities of less than one year, and mutual funds expected to be liquidated
within one year from the balance sheet date, are classified as Short Term Investments. Bonds with maturities of greater than one year or mutual funds not expected to be liquidated
within one year as of the balance sheet date are classified as Long Term Investments.
The Company accumulates unrealized gains and losses, net of tax, on the Company's available-for-sale securities in Accumulated Other Comprehensive Income (Loss) in the
Shareholders' Equity section of its balance sheets. Such unrealized gains or losses do not increase or decrease net income for the applicable accounting period. The Company
includes realized gains and losses on its available-for-sale securities in other income (expense), in its Statements of Operations. Dividend and interest income earned on all
investments is included in earnings as other income.
Long-Lived Assets
The Company periodically reviews the carrying amount of long-lived assets for impairment. An asset is considered impaired when estimated future cash flows are less than the
asset's carrying amount. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value.
Goodwill
Goodwill represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition. Goodwill is
reviewed for impairment annually on December 31, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets
exceed their fair value. The Company does not amortize goodwill in accordance with Financial Accounting Standards Board (the "FASB") Accounting Standards Codification
("ASC") 350, "Intangibles—Goodwill and Other" ("ASC 350"). Goodwill is tested for impairment at the reporting unit level. The reporting unit for goodwill testing purposes is the
consolidated company as a whole.
Other Intangible Assets
The Company accounts for Other Intangible Assets under the guidance of ASC 350, "Intangibles—Goodwill and Other." Under such guidance, other intangible assets with definite
lives are amortized over their estimated useful lives and tested
33
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
annually for impairment or more frequently as circumstances warrant. Intangible assets with indefinite lives are tested annually for impairment.
Treasury Stock
Treasury stock repurchased and held by the Company is recorded as a separate line item on the Consolidated Balance Sheets. Treasury stock is held at cost until retired or reissued.
Legal, brokerage, and other costs to acquire shares are not included in the cost of treasury stock. When treasury stock is reissued or retired, any gains are included as part of
additional paid-in capital. Losses upon reissuance or retirement reduce additional paid-in capital to the extent that previous net gains from the same class of stock have been
recognized and any losses above that are recognized as part of retained earnings.
Revenue Recognition
The Company's revenue recognition practices follow ASC 606, "Revenue from Contracts with Customers". Refer to Note 11 for further details.
Cost of Sales
The Company includes product costs (i.e., material, direct labor and overhead costs), shipping and handling expense, production-related depreciation expense and product license
agreement expense in cost of sales.
Advertising Costs
The Company classifies expenses for advertising as general and administrative expenses and recognizes the expense when incurred. The Company incurred advertising costs of
$51,212 and $27,098 during the years ended December 31, 2021 and December 31, 2020, respectively.
Stock-Based Compensation
The Company follows the provisions of ASC 718, "Share-Based Payments," which requires all share-based payments to employees to be recognized in the income statement based
on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock options. The intrinsic value method is used to value restricted stock
and restricted stock units. The Company has elected to recognize forfeitures as they occur.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company performs
ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Sales to the Company's four largest customers represented approximately 15% and
15% of total sales during the years ended December 31, 2021 and December 31, 2020, respectively.
Income Taxes
The Company is subject to US income taxes on a stand-alone basis. The Company and its subsidiary, Profire Combustion, Inc. file separate stand-alone tax returns in each
jurisdiction in which they operate. Profire Combustion, Inc. is a corporation operating in Canada and is subject to Canadian income taxes on its stand-alone taxable income.
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences on the
basis of assets and liabilities as reported for financial statement and income tax purposes. Deferred income taxes reflect the tax effects of net operating loss and tax credit carryovers
and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of
certain deferred tax assets is dependent upon future earnings, if any. The Company makes estimates and judgments in determining the need for a provision for income taxes,
including the estimation of our taxable income for each full fiscal year.
Shipping and Handling Fees and Costs
34
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
The Company records all amounts billed to customers related to shipping and handling fees as revenue. The Company classifies expenses for shipping and handling costs as cost of
goods sold.
Defined Contribution Retirement Plan
The Company matches employee contributions to our 401(k) plan up to 4% of their annual salary. The expense is recognized as part of general and administrative expenses on the
income statement and was $174,281 and $192,485 for the years ended December 31, 2021 and December 31, 2020, respectively.
Property and Equipment
Property and equipment are stated at historical cost and depreciated over the useful life of the asset using the straight-line method. Useful lives are assigned to assets depending on
their category. For details regarding property and equipment, refer to Note 5.
Research and Development
The Company's policy is to expense all costs associated with research and development ("R&D") that have no future alternative uses when those costs are incurred. Costs incurred
to acquire assets currently used in R&D that do have future alternative uses are capitalized and the cost of depreciation is included in R&D expense.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these
instruments. Bond and mutual fund investments are presented at fair value as of the balance sheet date and accumulated gains or losses on those investments are reported in other
comprehensive income. Refer to Note 2 for further details regarding instruments recorded at fair value.
Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per
share is calculated by adjusting the weighted average number of shares of common stock outstanding for the dilutive effect, if any, of common stock equivalents. Common stock
equivalents whose effect would be antidilutive are not included in diluted earnings per share. The Company uses the treasury stock method to determine the dilutive effect, which
assumes that all common stock equivalents have been exercised at the beginning of the period and that the funds obtained from those exercises were used to repurchase shares of
common stock of the Company at the average closing market price during the period. Refer to Note 13 for further details on the earning per share calculation.
NOTE 2 - FINANCIAL INSTRUMENTS AND INVESTMENTS
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements do not include transaction costs.
A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement. The fair value hierarchy is divided into the following three categories:
Level 1:
Quoted market prices in active markets for identical assets or liabilities.
Level 2:
Level 3:
Observable market-based inputs or inputs that are corroborated by market data.
Unobservable inputs that are not corroborated by market data.
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these
estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly
affect
35
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
estimated fair value. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from financial instruments and any declines in the
value of investments are temporary in nature. Money market funds and certificates of deposits are shown at cost on the balance sheet and their adjusted cost approximates their fair
value.
The following tables show the adjusted cost, unrealized gains (losses) and fair value of the Company's cash and cash equivalents and investments held as of December 31, 2021 and
2020:
Level 1
Money Market Funds
Other Funds
Level 2
Corporate Bonds
Municipal Bonds
Adjusted
Cost
Pre-Tax Unrealized
Gains/(Losses)
Fair Value
Cash
and Cash
Equivalents
Short Term
Long Term
December 31, 2021
$
3,587,278 $
1,889,552
5,476,830
$
—
93,123
93,123
3,587,278 $
1,982,675
5,569,953
3,587,278 $
—
3,587,278
— $
—
—
—
1,982,675
1,982,675
1,396,435
5,933,534
7,329,969
(17,727)
(21,425)
(39,152)
1,378,708
5,912,109
7,290,817
—
—
—
101,004
912,679
1,013,683
1,277,704
4,999,430
6,277,134
Total
$
12,806,799 $
53,971
$
12,860,770 $
3,587,278 $
1,013,683 $
8,259,809
Level 1
Money Market Funds
Other Funds
Level 2
Corporate Bonds
Municipal Bonds
Adjusted Cost
Pre-Tax Unrealized
Gains/(Losses)
Fair Value
Cash
and Cash
Equivalents
Short Term
Long Term
December 31, 2020
$
4,315,394 $
1,889,552
6,204,946
$
—
12,205
12,205
4,315,394 $
1,901,757
6,217,151
4,315,394 $
—
4,315,394
— $
—
—
—
1,901,757
1,901,757
1,610,092
4,890,027
6,500,119
22,222
28,797
51,019
1,632,314
4,918,824
6,551,138
—
—
—
754,586
1,634,015
2,388,601
877,728
3,284,809
4,162,537
Total
$
12,705,065 $
63,224
$
12,768,289 $
4,315,394 $
2,388,601 $
6,064,294
Pre-tax unrealized gains (losses) on investments incurred during the periods are presented below:
Unrealized Holding Gains (Losses)
For the Year Ended
December 31, 2021
$
(9,253)
For the Year Ended
December 31, 2020
$
36,922
36
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
The maturities for bonds held by the Company as of December 31, 2021 are presented in the table below:
Maturity
Less Than One Year
1-2 years
2-5 years
5-10 years
Over 10 years
NOTE 3 – INVENTORIES
Inventories consisted of the following at each balance sheet date:
Raw materials
Finished goods
Work in process
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:
Assets classified as held for sale
Prepaid inventory
Prepaid insurance
Interest receivables
Vehicle trade-in credits
Other
Total
Fair Value
1,013,683
1,432,290
4,844,844
—
—
7,290,817
$
$
As of
December 31,
2021
December 31,
2020
$
$
301,320 $
7,556,048
—
7,857,368
(672,120)
7,185,248 $
328,772
9,229,298
—
9,558,070
(1,143,298)
8,414,772
As of
December 31, 2021
December 31, 2020
$
$
— $
530,725
228,849
63,841
—
201,861
1,025,276 $
623,805
542,313
217,465
65,984
55,733
173,128
1,678,428
In the table above, the assets classified as "held for sale" consisted of an office building located in Spruce Grove, Alberta, Canada. During 2021, we sold the remaining three bays
of the office building, which resulted in a gain of $42,378 CAD that was recorded during that year.
37
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives are presented in the table below:
Furniture and fixtures
Computers
Software
Machinery and equipment
Vehicles
Land and buildings
Total property and equipment
Accumulated depreciation
Net property and equipment
As of
December 31,
2021
December 31,
2020
$
$
652,859 $
465,758
246,963
488,652
2,242,221
11,692,779
15,789,232
(4,603,693)
11,185,539 $
649,022
394,945
246,958
477,468
2,453,042
11,742,322
15,963,757
(3,941,946)
12,021,811
Est. Useful Life
7 years
3 years
2 years
7 years
5 years
30 years
The table below shows total depreciation and amortization expense and how depreciation is allocated between cost of goods sold and operating expenses:
For the Year Ended December 31, 2021
For the Year Ended December 31, 2020
Cost of goods sold - product depreciation
Cost of goods sold - service depreciation
Operating expense depreciation
Amortization expense
Total depreciation & amortization expense
NOTE 6 – INTANGIBLE ASSETS
$
$
338,748 $
154,460
500,142
262,297
1,255,647 $
342,780
154,755
391,958
274,229
1,163,722
Definite-lived intangible assets consist of developed technology, customer relationships, trade names and distribution agreements. The costs of developed technology, customer
relationships and trade names are amortized over the respective useful life of each asset, ranging from 3-18 years. The costs of the distribution agreements are amortized over the
remaining life of the agreements. Indefinite-lived intangible assets consist of goodwill. In accordance with ASC 350, goodwill is not amortized but tested for impairment annually
or more frequently when events or circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. We test goodwill for impairment as
of each balance sheet date. Intangible assets consisted of the following:
Definite-lived intangible assets
Definite-lived intangible assets
Less: Accumulated amortization
Definite-lived intangible assets, net
As of
December 31,
2021
2,100,000 $
(550,862)
1,549,138 $
$
$
December 31,
2020
2,100,000
(328,130)
1,771,870
38
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
During 2020, definite-lived intangible assets decreased primarily driven by amortization expense for the year.
Estimated amortization expense for the next five years related to the definite-lived intangible assets is displayed in the following table:
For the Years Ending December 31,
2022
2023
2024
2025
2026
Greater than 5 years
Indefinite-lived intangible assets
Goodwill
Amount
217,871
204,190
148,565
80,899
80,899
816,714
$
$
$
$
$
$
As of
December 31,
2021
2,579,381 $
December 31,
2020
2,579,381
$
Goodwill is reviewed annually for impairment during the fourth quarter of the year, or whenever there are significant indicators of potential impairment. In 2021, the Company
determined that the fair value of the reporting unit related to the goodwill was not less than its carrying value. As such, the Company did not have any goodwill impairment for the
year ended December 31, 2021.
In 2020 and 2021, the COVID-19 pandemic spread across the globe and disrupted economies around the world, including the oil and gas industry in which we operate. These
factors caused us to review goodwill for impairment periodically throughout 2020. During each impairment review, we performed a quantitative assessment by comparing the fair
value of the reporting unit related to goodwill with its carrying value. In each impairment test we performed during 2020, the estimated fair value of our reporting unit exceeded its
carrying value. As such, the Company did not have any goodwill impairment for the year ended December 31, 2020.
NOTE 7 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following at each balance sheet date:
Employee-related payables
Inventory-related payables
Warranty liabilities
Other
Total
NOTE 8 – LEASES
As of
December 31,
2021
1,621,131 $
67,027
49,624
134,566
1,872,348 $
$
$
December 31,
2020
789,573
158,519
71,852
176,926
1,196,870
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 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. In 2021, we
entered into a new lease agreement to replace some aging office equipment. The weighted average discount rate applied to our financing leases is 4.50% and the weighted average
remaining lease term is 29.2 months.
39
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
The following table shows the components of financing lease cost:
Financing Lease Cost
Amortization of right-of-use assets
Interest on lease liabilities
Total financing lease cost
The following table reconciles future minimum lease payments to the discounted finance lease liability:
Years ending December 31
2022
2023
2024
2025
2026
Thereafter
Total future minimum lease payments
Less: Amount representing interest
Present value of future payments
Current portion
Long-term portion
For the Year Ended December
31, 2021
$
For the Year Ended December 31,
2020
$
39,565 $
1,676
41,241 $
56,318
3,618
59,936
32,394
19,591
17,960
—
—
—
69,945
3,819
66,126
30,214
35,912
$
$
$
$
$
Because our office space leases are substantially all considered to be short-term, we have elected not to recognize them on our balance sheet under the short-term recognition
exemption. During the years ended December 31, 2021 and December 31, 2020, we recognized $69,808 and $75,147, respectively, of short-term lease costs associated with office
space leases.
NOTE 9 – STOCKHOLDERS' EQUITY
As described in Note 1, treasury stock is recorded at cost until reissued or retired. As of December 31, 2021, and December 31, 2020, the Company held 4,076,909 and 3,412,378
shares in treasury at a total cost of $6,107,593 and $5,353,019, respectively. Pursuant to the board of directors approval of 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 September 30, 2022, the Company entered into a 10b5-1 Plan in September 2021.
After an initial 30-day cooling off period the Company began purchasing shares of common stock pursuant to the terms of the 10b5-1 Plan in October 2021. The Company is not
obligated to make any purchases and the program may be suspended or discontinued at any time. During 2021, we repurchased 664,531 shares of common stock. There were no
treasury stock repurchase plans open during 2020 and as a result we did not repurchase any shares of common stock during that period. All purchases of treasury stock during 2021
were made at market prices.
2021 EIP and LTIP
On May 28, 2021, the Compensation Committee (the "Compensation Committee") of the Board of Directors of the Company (the “Board”) approved the 2021 Executive Incentive
Plan (the “2021 EIP”) for Brenton W. Hatch, the Company’s Executive Chairman, Ryan W. Oviatt, the Company’s Co-CEO, Co-President, and CFO, Cameron M. Tidball, the
Company’s Co-CEO and Co-President, Jay G. Fugal, the Company’s then Vice President of Operations, and Patrick D. Fisher, the Company’s Vice President of Product
Development. The 2021 EIP provides for the potential award of incentive compensation to the participants based on the Company’s financial performance in fiscal 2021. 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 2014
Equity Incentive Plan, as amended (the “2014 Plan”).
40
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
Under the terms of the 2021 EIP, each participating executive officer has been assigned a target incentive compensation amount for fiscal 2021. The target incentive compensation
amount for Mr. Hatch is $ 200,000, the target incentive compensation amount for Mr. Oviatt is $150,000, the target incentive compensation amount for Mr. Tidball is $150,000, the
target incentive compensation for Mr. Fugal is $54,000, and the target incentive compensation for Mr. Fisher is $51,000 CAD.
Participants will be eligible to receive incentive compensation based upon reaching or exceeding performance goals established by the Compensation Committee for fiscal 2021.
The performance goals in the 2021 EIP are based on the Company’s total revenue, EBITDA, and a non-financial milestone relating to revenue source diversification. Each of these
performance goals will be weighted one third in calculating incentive compensation amounts.
The incentive compensation amounts earned under the 2021 EIP, if any, will be paid 50% in cash and 50% in shares of restricted stock under the 2014 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 2014 Plan. The actual incentive
compensation amounts, if any, will be determined by the Compensation Committee upon the completion of fiscal 2021 financial statement audit and paid by March 15, 2022,
subject to all applicable tax withholding.
In addition to the 2021 EIP, the Board also 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 restricted stock units (“Units”) to Mr. Oviatt, up to 204,543 Units to Mr. Tidball, up to
85,908 Units to Mr. Fugal, and up to 47,973 Units to Mr. Fisher, pursuant to two separate restricted stock unit award agreements (collectively, the “Restricted Stock Unit Award
Agreements”) between the Company and each participant. One agreement covers 33% of each award recipient’s Units that are subject to time-based vesting, and the other
agreement covers the remaining 67% of such award recipient’s Units that may vest based on performance metrics. Upon vesting, the award agreements entitle the award recipients
to receive one share of the Company’s common stock for each vested Unit. The vesting period of the 2021 LTIP began on January 1, 2021 and terminates on December 31, 2023
(the “Performance Vesting Date”).
The Units subject to time-based vesting, including 68,181 Units to Mr. Oviatt, 68,181 Units for Mr. Tidball, 28,636 Units to Mr. Fugal, and 15,991 Units to Mr. Fisher, will vest in
three equal annual installments beginning December 31, 2021 and ending on December 31, 2023 if the award recipients’ employment continues with the Company through such
dates.
The performance-vesting Units, including up to 136,362 Units for Mr. Oviatt, 136,362 Units for Mr. Tidball, 57,272 Units for Mr. Fugal, and 31,982 Units to Mr. Fisher, are eligible
to vest over a three-year performance period beginning January 1, 2021 (the “Performance Period”) based upon the following Company performance metrics:
Performance Metric
Total Shareholder Return
Relative Total Shareholder Return
EBITDA as a Percentage of Total Revenue
Weight
1/3
1/3
1/3
Target
135%
Third Quartile
10%
Above Target
194%
Second Quartile
15%
Outstanding
253%
First Quartile
20%
One-third of such performance-vesting Units, consisting of 45,454 Units for Mr. Oviatt, 45,454 Units for Mr. Tidball, 19,091 Units for Mr. Fugal, and 10,661 Units for Mr. Fisher,
are eligible to 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 Performance
Vesting Date shall be determined as follows:
•
•
•
•
if the “Target” level for such performance metric is not achieved, none of the Units relating to such performance metric will vest;
if the “Target” level (but no higher level) for such performance metric is achieved, 50% of the Units relating to such performance metric will vest;
if the “Above Target” level (but no higher level) for such performance metric is achieved, 75% of the Units relating to such performance metric will vest; and
if the “Outstanding” level for such performance metric is achieved, 100% of the Units relating to such performance metric will vest.
41
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
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
will not be eligible to receive incentive compensation under the 2021 EIP, and his unvested restricted stock units will be forfeited. Additionally, Mr. Fugal is not eligible for any
awards that were not vested prior to October 31, 2021 for the 2019 and 2021 long-term incentive plans.
The foregoing summary of the 2021 EIP, the 2021 LTIP and the Restricted Stock Unit Award Agreements is qualified in its entirety by the text of the 2021 EIP and each of the
Restricted Stock Unit Award Agreements, which the Company has filed as a exhibits to its quarterly report on Form 10-Q for the quarter ended June 30, 2021.
2020 EIP and LTIP
Due to economic uncertainties including those caused by the COVID-19 pandemic, the Board, with the support of the Company's executives, elected to not adopt an executive
incentive plan or long-term incentive plan for 2020. The Board and executives believed this was an appropriate short-term measure that helped to align the Company's cost
structure with the extraordinary conditions affecting the industry during 2020.
2021 RSUs
On February 18, 2021, the Board, upon the recommendation of the Compensation Committee, approved a restricted stock award of 18,852 shares of common stock to each of
Cameron M. Tidball and Ryan W. Oviatt. Messrs. Tidball and Oviatt entered into Restricted Stock Unit Award Agreements, the forms of which were approved pursuant to the Plan.
These restricted stock awards, which vested immediately, were settled by the issuance of a total of 27,334 shares of common stock, net of tax withholding and resulted in $45,999 of
compensation expense.
On June 16, 2021, pursuant to the annual renewal of director compensation, the Board approved a grant of 189,471 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 $216,000 to be recognized over the vesting period.
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 vested on the first anniversary of the grant date or at the Company's next Annual Meeting of Stockholders,
whichever was earlier. The awards resulted in total compensation expense of $209,999 which was recognized over the vesting period.
On July 30, 2020, Mr. Arlen B. Crouch notified the Chairman of the Board of 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 Mr. Crouch's resignation date all of his unvested RSUs were forfeited
and the related compensation expense recaptured. On July 30, 2020, the Board appointed Colleen Larkin Bell to serve as a director to fill the vacancy resulting from Mr. Crouch’s
resignation, effective August 3, 2020. Ms. Bell is serving as Chair of the Nominating Committee and serves on the Audit and Compensation Committees. As compensation for her
service on the Board and Committee Assignments, on August 21, 2020, the board approved a grant of 92,934 RSUs. Half of the RSUs vested immediately on the date of the grant
and the remaining 50% of the RSUs vested on the first anniversary of the grant date. The awards resulted in total compensation expense of $72,953 which was recognized over the
vesting period.
2021 Stock Options
No stock options were issued during the year ended December 31, 2021.
2020 Stock Options
42
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
On March 17, 2020 (the "March Grant Date"), the Board approved a grant of options to purchase 115,200 shares of the Company's common stock at a strike price of $0.81 to
various employees under the 2014 Plan (the "March 2020 Options"). The March 2020 Options terminate four years from the March Grant Date and become exercisable as to one-
third of the shares of common stock covered thereby on each anniversary of the March Grant Date for the subsequent three years following the March Grant Date. The March 2020
Options resulted in a total compensation expense of $40,280.
On July 2, 2020 (the "July Grant Date"), upon the recommendation of the Compensation Committee, the Board approved the grant of a non-qualified stock option to purchase
100,000 shares of the Company’s common stock to each of Mr. Oviatt and Mr. Tidball under the 2014 Plan and pursuant to the standard form of Notice of Stock Option Grant and
Stock Option Agreement under the plan (the “July Options”). The exercise price of the July Options is equal to the closing bid price of the Company's common stock on July 2,
2020 or $0.8439 per share. The July Options shall vest equally over a period of three years from the July Grant Date. Vesting occurs on the anniversary date of the July Grant Date,
with one-third of the total shares vesting on each of the first three anniversaries of the July Grant Date. Vesting is contingent upon the executive’s continued employment with the
Company on each applicable vesting date. The July Options expire on July 2, 2024. These July Options will result in total compensation expense of $79,431 to be recognized over
the vesting period.
On August 21, 2020 (the "August Grant Date"), the Board approved a grant of options to purchase 630,000 shares of the Company's common stock at a strike price of $0.79 to
various employees under the 2014 Plan (the "August 2020 Options"). The Options terminate four years from the August Grant Date and the August 2020 Options become
exercisable as to one-third of the shares of common stock covered thereby on each anniversary of the August Grant Date for the subsequent three years following the August Grant
Date. The August 2020 Options resulted in total compensation expense of $233,111 that will be recognized over the vesting period.
2019 LTIP
The 2019 LTIP consists of total awards of up to 66,213 restricted stock units (“Units”) to Mr. Oviatt, up to 51,646 Units to Mr. Tidball, up to 35,313 Units to Mr. Fugal, and up to
24,862 Units to Mr. Fisher pursuant to two separate Restricted Stock Unit Award Agreements to be entered between the Company and each participant. One agreement covers 33%
of each award recipient’s Units that are subject to time-based vesting, and the other agreement covers the remaining 67% of such award recipient’s Units that may vest based on
performance metrics. Upon vesting, the award agreements entitle the award recipients to receive one share of the Company’s common stock for each vested Unit. The vesting
period of the 2019 LTIP began on January 1, 2019 and terminated on December 31, 2021.
NOTE 10 - 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 a restocking fee. We provide a warranty on some of our products ranging from 90
days to 2 years, depending on the product. The amount accrued for expected returns and warranty claims was immaterial as of December 31, 2021.
Contract Balances
We have elected to use the practical expedient in ASC 340 (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.
43
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
Significant Judgments
For most revenue contracts, we invoice the customer when the performance obligation is satisfied and payment is due 30 days later. Occasionally, other terms such as progress
billings or longer terms are agreed to on a case-by-case basis. We do not have significant financing components, non-cash consideration, or variable consideration. We estimate the
transaction price between performance obligations based on stand-alone product prices. We elected the practical expedient by which disclosures are not required regarding the value
of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
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:
Year Ended December 31, 2021
Year Ended December 31, 2020
Electronics
Manufactured
Re-Sell
Service
Total Revenue
$
$
NOTE 11 – STOCK-BASED COMPENSATION
9,076,345 $
1,213,218
13,401,431
2,665,182
26,356,176 $
7,689,187
878,962
10,827,490
2,062,970
21,458,609
Periodically the Company issues stock-based awards to employees and independent directors. Vesting terms for outstanding grants vary by grant, ranging from immediate to ratably
over 5 years. Typically, grants expire one year after the final vesting. The Board has authorized 4,812,000 shares to be granted for such awards under the Plan. Historically, the
Company has only issued non-qualified stock options, restricted stock, and restricted stock units; however, the Plan does allow for other types of awards to be granted in the future.
Most awards have been exercisable or convertible based solely on meeting service conditions; however, some grants to executives have been made convertible based on meeting
both service and performance conditions. Upon exercise or conversion, the Company may issue new shares or reissue shares held in treasury, at the discretion of Management. The
Company has elected to recognize forfeitures as they occur.
The Company uses the Black-Scholes method for measuring compensation cost of stock options and the intrinsic value method for measuring compensation cost of restricted stock
and restricted stock units. Total compensation cost for share-based payments recognized in income was $567,077 and $443,127 during the years ended December 31, 2021 and
December 31, 2020, respectively. As of December 31, 2021, the Company had $ 527,574 in unamortized compensation expense with a weighted average of 1.54 years remaining.
The Company received $6,053 and $2,020 in cash from the exercise of share options during the years ended December 31, 2021 and December 31, 2020, respectively. For the tax
effect on total compensation expense and the exercise of options, see Note 12 for the income tax provision.
During the years ended December 31, 2021 and December 31, 2020, the intrinsic value of options exercised was $2,352 and $936, respectively. The total fair value of options,
restricted stock, and restricted stock units vested during the years ended December 31, 2021 and December 31, 2020 was $537,063 and $418,682, respectively. During the years
ended December 31, 2021 and December 31, 2020 the Company granted 770,142 and 1,309,100 awards, respectively, with weighted-average grant date fair values of $1.14 and
$0.52, respectively.
44
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
Information
regarding
outstanding
options,
restricted
stock
awards,
and
restricted
stock
units
is
summarized
in
the
tables
below:
Total Outstanding and Exercisable Awards December 31, 2021
Awards Outstanding
Awards Exercisable
Grant Price
Low
Grant Price
High
Quantity
Remaining Contractual Life
(Years)
Exercise
Price
Quantity
Remaining Contractual Life
(Years)
Exercise
Price
— $
0.40 $
0.81 $
0.39
0.80
0.84
738,873
579,000
304,700
1,622,573
2.41 $
2.64 $
2.40 $
2.49 $
—
0.79
0.83
0.44
—
203,000
101,566
304,566
2.64 $
2.40 $
2.56 $
0.79
0.83
0.80
Total Outstanding and Exercisable Awards December 31, 2020
Awards Outstanding
Awards Exercisable
Grant Price
Low
Grant Price
High
Quantity
Remaining Contractual Life
(Years)
Exercise
Price
Quantity
Remaining Contractual Life
(Years)
Exercise
Price
— $
0.40 $
0.81 $
0.39
0.80
0.84
508,123
630,000
304,700
1,442,823
1.65 $
3.64 $
3.36 $
2.88 $
—
0.79
0.83
0.52
—
—
—
—
0 $
0 $
0 $
—
—
—
$
$
$
$
$
$
Information regarding stock options for the year ended December 31, 2021 is summarized in the tables below:
Stock Options
Number of Awards
Weighted
Average Share
Price on Date
of Exercise
Weighted
Average Fair
Value
Weighted Average
Remaining Contractual
Life (Years)
Aggregate Intrinsic
Value
Outstanding, beginning of period
Granted
Exercised/Released
Canceled/Forfeited
Expired
Outstanding, end of period
Vested and unvested exercisable, end of the period
Vested and expected to vest, end of the period
Weighted
Average
Exercise Price
0.80
—
0.79 $
0.79
—
0.80
0.80
0.80
934,700 $
— $
(7,000) $
(44,000) $
— $
883,700 $
304,566 $
883,700 $
0.37
—
0.37
0.37
0
0.37
0.37
0.37
1.12
$
Weighted Average
Exercise Price
$
$
$
$
$
2.56 $
2.56 $
2.56 $
48,695
—
2,352
17,820
—
228,620
78,957
228,620
Weighted Average Remaining
Amortization Period (Years)
1.56
Weighted
Average Grant
Date Fair Value
0.37
—
0.37
0.37
0.37
Stock Options
Number of Awards
Unvested Outstanding, beginning of period
Granted
Canceled/Forfeited
Expired
Vested, outstanding shares
Unvested Outstanding, end of period
0.80 $
— $
0.79 $
0.80 $
0.80 $
934,700 $
— $
(44,000) $
—
(311,566) $
579,134 $
45
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
Information
regarding
restricted
stock
units
for
the
year
ended
December
2021
is
summarized
Restricted Stock Units
Number of
Awards
Outstanding, beginning of period
Granted
Exercised/Released
Cancelled/Forfeited
Outstanding, end of period
Vested and exercisable, end of the period
Vested and expected to vest, end of the period
31,
Weighted
Average Share
Price on Date
of Exercise
Weighted
Average Fair
Value
in
the
Weighted Average
Remaining
Contractual Life
(Years)
Weighted
Average
Exercise Price
—
—
—
—
255,422 $
408,164 $
(368,820) $
(36,560) $
258,206 $
—
258,206 $
$
$
$
1.14 $
$
$
$
1.34
1.14
1.14
1.29
1.33
1.33
—
—
tables
below:
Aggregate
Intrinsic Value
217,747
$
466,513
$
419,093
$
43,506
$
2.24 $
$
2.24 $
273,698
—
273,698
Restricted Stock Units
Unvested Outstanding, beginning of period
Granted
Cancelled/Forfeited
Vested, outstanding shares
Unvested Outstanding, end of period
Number of
Awards
Weighted Average
Exercise Price
Weighted
Average Grant Date Fair
Value
Weighted Average
Remaining Amortization
Period (Years)
255,422
408,164
(36,560)
(368,820)
258,206
$
$
$
$
$
—
—
—
—
—
$
$
$
$
$
1.34
1.14
1.29
1.14
1.33
1.15
Information regarding performance based restricted stock units for the year ended December 31, 2021 is summarized in the tables below:
Performance Based Restricted Stock Units
Number of
Awards
Outstanding, beginning of period
Granted
Exercised/Released
Cancelled/Forfeited
Outstanding, end of period
Vested and exercisable, end of the period
Vested and unvested exercisable, end of the period
Vested and expected to vest, end of the period
Weighted
Average Share
Price on Date
of Exercise
Weighted
Average Fair
Value
Weighted Average
Remaining
Contractual Life
(Years)
Weighted
Average
Exercise Price
—
—
—
—
252,701 $
361,978 $
— $
(134,012) $
480,667 $
—
—
180,989 $
$
—
$
$
$
$
$
$
1.99
1.13
—
2.37
1.24
1.13
—
—
Aggregate
Intrinsic Value
215,428
$
409,035
$
$
—
155,044
$
2.51 $
$
$
3.00 $
509,507
—
—
191,848
46
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
Performance Based Restricted Stock Units
Unvested Outstanding, beginning of period
Granted
Cancelled/Forfeited
Vested, outstanding shares
Unvested Outstanding, end of period
Number of
Awards
Weighted Average
Exercise Price
Average Grant Date Fair
Value
Remaining Amortization
Period (Years)
Weighted
Weighted Average
252,701
361,978
(134,012)
—
480,667
$
$
$
$
$
—
—
—
—
—
$
$
$
$
$
1.99
1.13
2.37
—
1.24
2.00
NOTE 12 – PROVISION FOR INCOME TAXES
During the years ended December 31, 2021 and December 31, 2020, the Company did not expect to incur any interest or penalties related to income taxes. Accordingly, the
Company had no accruals for interest and penalties at December 31, 2021, nor December 31, 2020. When our taxes for the years ended December 31, 2021 and December 31,
2020 were finalized there was an immaterial amount of penalties and interest that was ultimately paid. We do not expect any material penalties or interest will result from the filing
of our 2022 tax return. If the Company were to incur any such material charges, it would elect to recognize interest related to underpayment of income taxes in interest expense and
recognize any penalties in operating expenses.
The Company is current on its U.S. and Canadian income tax filings. Tax years that remain open for examination are 2019 through 2021 in the U.S. and 2016 through 2021 in
Canada.
At December 31, 2021, and December 31, 2020, the Company had operating loss carryforwards at its Canadian subsidiary of $4,351,044 CAD and $4,241,450 CAD, respectively.
A valuation allowance has been recorded for approximately 80% of the 2021 operating loss carryforwards and 100% of the operating loss carryforwards for 2020. We estimate there
is a greater than 50% likelihood that we will utilize, at least a portion, of our operating loss carryforwards to offset taxable income in Canada in future years and as a result, a small
deferred tax asset was recorded on our balance sheet during 2021.
At December 31, 2021 and December 31, 2020, the Company had operating loss carryforwards at its US subsidiary of $1,575,071 and $1,314,358, respectively. We estimate there
is a greater than 50% likelihood that we will utilize all of our US 2021 operating loss carryforwards to offset taxable income in our US subsidiary within the next few years and as a
result, no valuation allowance was considered to be necessary and we recorded a deferred tax asset on our balance sheet as of December 31, 2021. Also no valuation allowance was
considered necessary for 2020 operating loss carryforwards. In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, which among other
things, allows net operating losses from the year 2020 to be carried back five years to claim refunds for taxes that were previously paid. Since our US Subsidiary had taxable
income in prior years, during 2021, we filed an amendment to our 2015 and 2016 tax returns and utilized all of the net operating losses from the year ended December 31, 2020,
which generated a tax refund of approximately $450,000. Additionally, during 2021, we filed an amendment to our 2019 tax return to correct some filing information for Prochem
ULC, a Canadian subsidiary owned by our US entity. As a result of this amendment, we expect to receive a tax refund of approximately $ 100,000. Both of these refunds are
expected to be received during 2022 and as a result, we have record current tax receivables related to these two items.
The Company invests in available-for-sale securities that are reported on the balance sheet at fair value, with the gains/losses reported net of tax as part of Other Comprehensive
Income (OCI). The tax benefit allocated to OCI during the year ended December 31, 2021 was $2,158 and the tax expense allocated to OCI during the year ended December 31,
2020 was $9,319.
The Company has not provided a valuation allowance at December 31, 2021 nor December 31, 2020 for deferred tax assets and thus the valuation allowance did not change
between December 31, 2020 and December 31, 2021. Realization of the deferred tax asset is dependent on generating sufficient taxable income to offset the tax items that will be
deductible in the future. Although realization is not assured, Management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
47
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
The table below outlines the components of income tax expense (benefit):
For the Year Ended December 31, 2021
For the Year Ended December 31, 2020
Current
U.S. Federal
State and local
Foreign
Total Current
Deferred
U.S. Federal
State and local
Total Deferred
Total Benefit for Income Taxes
(492,757) $
25,374
(179,939)
(647,322)
15,831
2,133
17,964
(629,358) $
(388,728)
(97,426)
(73,417)
(559,571)
61,388
14,616
76,004
(483,567)
$
$
48
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
The table below reconciles our effective tax rate to the statutory tax rate:
For the Year Ended December
31, 2021
For the Year Ended December
31, 2020
U.S. Federal statutory tax rate
State and local statutory tax rate, net of federal effect
Depreciation expense
Tax-exempt income
Unrealized gains and losses on investments
Stock-based compensation
Goodwill and intangible asset amortization
Non-U.S. operations
Other
Effective tax rate
The table below shows the components of deferred taxes:
Bad debt
Inventory reserve
Amortization
U.S. net operating loss
Foreign net operating loss
Deferred tax asset
Unrealized gain on investments
Depreciation
Goodwill
Stock compensation
Deferred tax liability
Net Deferred Tax Asset (Liability)
49
21.0 %
4.0 %
(2.9) %
2.9 %
0.1 %
— %
5.2 %
9.2 %
(2.1) %
37.4 %
21.0 %
4.0 %
3.2 %
1.8 %
(0.3) %
(1.5) %
(3.1) %
(8.0) %
1.1 %
18.2 %
As of
December 31,
2021
December 31,
2020
$
$
$
$
$
21,903 $
130,776
124,626
401,023
163,254
841,582 $
12,651 $
265,374
174,365
362,044
814,434 $
32,158
294,505
30,887
—
—
357,550
16,158
302,459
145,533
416,270
880,420
27,148 $
(522,870)
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
NOTE 13 – BASIC AND DILUTED EARNINGS PER SHARE
The
following
table
is
a
reconciliation
of
the
numerator
and
denominators
used
in
the
earnings
per
share
calculation:
2021
2020
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
Effect of Dilutive Securities
Stock options & RSUs
Diluted EPS
Net income (loss) available to common
stockholders + assumed conversions
$
(1,051,543)
48,070,581 $
(0.02) $
(2,175,597)
47,778,063 $
(0.05)
—
—
—
—
$
(1,051,543)
48,070,581 $
(0.02) $
(2,175,597)
47,778,063 $
(0.05)
Stock options and RSU's to purchase 1,622,573 shares of common stock at a weighted average exercise price of $1.13 per share were outstanding during the year ended December
31, 2021, but were not included in the computation of diluted EPS because the effect would be anti-dilutive. These stock options and RSU's, which expire between December 2022
and December 2024, were still outstanding at December 31, 2021.
Stock options and RSU's to purchase 1,442,823 shares of common stock at a weighted average exercise price of $0.52 per share were outstanding during the year ended December
31, 2020, but were not included in the computation of diluted EPS because the effect would be anti-dilutive. These stock options and RSU's, which expire between March 2021 and
August 2024, were still outstanding at December 31, 2020.
NOTE 14 – SEGMENT INFORMATION
The Company operates in the United States and Canada. Segment information for these geographic areas is as follows:
Revenues
Canada
United States
Total Consolidated
Profit (Loss)
Canada
United States
Total Consolidated
For the Year Ended December 31,
2021
2020
5,362,466 $
20,993,710
26,356,176 $
For the Year Ended December 31,
2021
2020
(2,056,972) $
1,005,429
(1,051,543) $
3,506,537
17,952,072
21,458,609
(943,635)
(1,231,962)
(2,175,597)
$
$
$
$
50
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
Long-lived assets, which are comprised of net property and equipment and financing right-of-use assets, for each geographical region were as follows at each balance sheet date:
Long-lived assets
Canada
United States
Total Consolidated
NOTE 15 – QUARTERLY INFORMATION (UNAUDITED)
Quarterly data for the periods below consisted of the following:
Total revenues
Gross profit
Loss from operations
Income tax benefit
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Total revenues
Gross profit
Income (loss) from operations
Income tax benefit
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
December 31, 2021
December 31, 2020
As of
$
$
5,667,225 $
5,583,594
11,250,819 $
6,049,790
6,022,115
12,071,905
For the Quarters Ending
Mar 31, 2021
Jun 30, 2021
Sep 30, 2021
Dec 31, 2021
5,092,349 $
2,174,687
(804,225)
107,859
(601,500)
(0.01) $
(0.01) $
6,034,283 $
2,657,732
(594,437)
125,374
(397,166)
(0.01) $
(0.01) $
6,943,198 $
3,119,468
(318,289)
348,767
92,246
— $
— $
8,286,346
3,449,128
(298,049)
47,358
(145,123)
—
—
For the Quarters Ending
Mar 31, 2020
Jun 30, 2020
Sep 30, 2020
Dec 31, 2020
7,447,142 $
3,164,676
(665,060)
225,056
(365,264)
(0.01) $
(0.01) $
4,359,479 $
2,086,865
(1,077,453)
35,628
(808,503)
(0.02)
(0.02)
4,000,106 $
1,520,423
(1,329,498)
180,252
(1,057,748)
(0.02)
(0.02)
5,651,882
2,754,237
(8,200)
42,631
55,918
—
—
$
$
$
$
$
$
Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts may not equal the total computed
for the year.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
In March 2014 the Company entered into a consulting agreement with Terra Industrial with Alan Johnson as agent in order to replace a prior royalty agreement. The agreement is
for the term of 10 years with fees of $100,000 CAD paid quarterly. The agreement expires in March of 2024.
The Company has operating leases for office space in Texas and Pennsylvania. Expense recognized for operating leases was $69,808 and $60,590 for the years ended December 31,
2021 and December 31, 2020, respectively. The future minimum
51
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
lease payments for operating leases as of December 31, 2021, consisted of the following:
Years ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
NOTE 17 - GOVERNMENT ASSISTANCE
Operating
Leases
16,145
—
—
—
—
—
16,145
$
$
In Canada, our business qualified for wage subsidies under the Canada Emergency Wage Subsidy (CEWS) program. CEWS is a Canadian government funded program that ran
from March 2020 to June 2020, and was subsequently extended through September 2021. Under CEWS if a Canadian business experienced a drop in qualifying revenue greater
than a certain percentage, that business could be eligible for a wage subsidy of up to 75% of eligible employee remuneration. Through our Canadian subsidiary, we applied for
CEWS in each allowable period from March 2020 – March 2021 and received total wage subsidies of $163,598 CAD in 2021 and $754,887 CAD in 2020. Under CEWS rules, we
are not required to repay these funds and we do not have any contingencies or commitments related to this CEWS aid. We recorded these amounts within our income statement as
credits against employee wages since these amounts represent wage subsidies.
Also in Canada, we have been able to participate in several grant programs that promote technology development and the hiring of technology professionals. We have participated
in the Technation Career Ready Program, The Technology Alberta First Jobs Program, and the Venture for Canada Student Internship Program. During 2021 we qualified for
$24,659 CAD in wage subsidies from these programs, some of which was received in 2021 and the remaining amount was received in early 2022. We recorded these amounts
within our income statement as credits against employee wages within our research and development department.
In the United States (US), we have not received any government assistance. In 2020, when the COVID pandemic began to impact the economy, the US government implemented a
Paycheck Protection Program (PPP), wherein certain applicants could obtain government aid. Profire enrolled in the program as we met the initial qualifications, and we did
temporarily receive some government aid. However, shortly after the program began, further guidance was disseminated about the PPP program and after evaluating the new
guidance and the impact to the Company, we decided to payback the PPP loan in full within the allowable repayment period. In the end, we did not use any PPP loan money and
thus did not receive any assistance from the US government.
NOTE 18 – SUBSEQUENT EVENTS
In accordance with ASC 855 "Subsequent Events," Company management reviewed all material events through the date this report was issued and the following subsequent events
took place:
On February 14, 2022, we entered into a contract to sell our office and warehouse storage building located in Greeley, Colorado. We expect to receive cash proceeds from this sale
of $325,000, and anticipate the sale is planned to close on or around March 24, 2022.
On March 2, 2022, the Company's Board of Directors approved a one-time bonus for company executives that was settled by issuing 182,626 shares of common stock for meeting
targets pursuant to the previously announced "2021 Executive Incentive Plan", which was put in place under the Company's 2014 Equity Incentive Plan. These shares were fully
vested as of March 2, 2022.
On March 2, 2022, the Company's Board of Directors also reviewed the previously announced "2019 Executive Long-Term Incentive Plan", and determined that long-term
performance targets, which were evaluated for the three year period ending on December 31, 2021, had not been achieved and as a result no bonus was issued pursuant to this plan.
52
PROFIRE ENERGY, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2021 and December 31, 2020
During the period beginning January 1, 2022 and ended March 7, 2022, the Company repurchased 248,466 shares of its common stock for a total repurchase price of $284,446
pursuant to its previously authorized repurchase program. All repurchases were made at market rates.
53
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Co-Chief Executive Officers and our Chief Financial Officer, evaluated the design and effectiveness of our internal controls
over financial reporting and disclosure controls and procedures (pursuant to Rule 13a-15(b-c) under the Securities Exchange Act of 1934, as amended ("Exchange Act") as of
December 31, 2021. These controls are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to Management, including our Co-Chief
Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, Management concluded that our
controls were effective as of December 31, 2021.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive officer and principal
financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Because of these inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our Co-Chief Executive Officers and Chief Financial Officer, the Company's management conducted an assessment of
the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commissions (2013).
Based upon this assessment, the Company's management concluded that our internal control over financial reporting was effective as of December 31, 2021.
Our financial statements included in this annual report on Form 10-K have been audited by Sadler, Gibb & Associates, LLC, independent registered public accounting
firm, as indicated in the report included elsewhere herein.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal controls over financial reporting during the fiscal year ended December 31, 2021 that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Attestation
Pursuant to Item 308(b) of Regulation S-K, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Wall Street Reform Act), this report does
not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. The Wall Street Reform Act exempts
smaller reporting companies from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls.
Limitations on the Effectiveness of Internal Controls
54
An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by Management override of the internal control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
This item is not applicable.
55
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated herein by reference to our Definitive Proxy Statement for the Annual Meeting of Stockholders to be filed no later
than 120 days after December 31, 2021 (the "Proxy Statement").
Item 11. Executive Compensation
Incorporated herein by reference to the information to be set forth in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference to the information to be set forth in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence
Incorporated herein by reference to the information to be set forth in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is Sadler, Gibb & Associates, LLC, Salt Lake City, Utah, PCAOB ID No. 3627.
Incorporated herein by reference to the information to be set forth in the Proxy Statement.
56
PART IV
Item 15. Exhibits, Financial Statement Schedules
(2)
(3)
(1)
Exhibits. The following exhibits are included as part of this report:
Exhibit 3.1
Exhibit 3.2
Exhibit 3.3
Exhibit 4.1
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Articles of Incorporation
Articles of Amendment to the Articles of Incorporation
Amended and Restated Bylaws
Description of Registrant's Securities
Second Amended and Restated Employment Agreement of Brenton W. Hatch dated July 2, 2020
Second Amended and Restated Employment Agreement of Ryan Oviatt dated July 2, 2020
Form of Indemnification Agreement between the Registrant and its Directors
Profire Energy, Inc. 2014 Equity Incentive Plan
Profire Energy, Inc. 2014 Equity Incentive Plan Amendment
Form of Equity Grant Agreement, Nonqualified Stock Option
Form of Equity Grant Agreement, Restricted Stock
Form of Equity Grant Agreement, Restricted Stock Units
Retirement and Release Agreement with Harold Albert dated February 23, 2017
Consulting Agreement, dated March 24, 2014, between the Registrant on the one hand and Terra Industrial Corporation and Alan Johnson on the other
+(13)
+(14)
(20)
(12)
(11)
(8)
(7)
(6)
(5)
(4)
(10)
Exhibit 10.11
Exhibit 10.12
Exhibit 10.13
Exhibit 10.14
Exhibit 10.15
Exhibit 10.16
Exhibit 10.17
Exhibit 10.18
Exhibit 10.19
Exhibit 14.1
Exhibit 21
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 32.1
Exhibit 32.2
Exhibit 101.INS
Exhibit 101.SCH
Exhibit 101.CAL
Exhibit 101.DEF
Exhibit 101.LAB
Exhibit 101.PRE
Restricted Stock Unit Agreement between Profire Energy and Ryan Oviatt dated March 2, 2018
Restricted Stock Unit Agreement between Profire Energy and Cameron Tidball dated March 30, 2018
Amended and Restated Employment Agreement of Cameron Tidball dated July 2, 2020
Restricted Stock Unit Award Agreement between Profire Energy and Ryan Oviatt dated April 29, 2019
Restricted Stock Unit Award Agreement between Profire Energy and Ryan Oviatt dated April 29, 2019 *
Restricted Stock Unit Award Agreement between Profire Energy and Cameron Tidball dated April 30, 2019
Restricted Stock Unit Award Agreement between Profire Energy and Cameron Tidball dated April 30, 2019 *
Membership Interest Purchase Agreement among Profire Energy, Dustin Baker and Brant Baker dated August 5, 2019
Asset Purchase Agreement among Profire Combustion, Inc., Millstream Energy Products LTD., Lundstrom Holdings LTD. and Rob Lundstrom dated
+*(15)
+(22)
+(16)
+(19)
+(23)
(18)
+
+
June 12, 2019
(17)
(9)
(21)
Code of Ethics
Subsidiaries of Registrant
Consent of Sadler, Gibb & Associates, LLC, independent registered public accounting firm*
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 *
XBRL Instance Document**
XBRL Taxonomy Extension Schema Document**
XBRL Taxonomy Extension Calculation Linkbase Document**
XBRL Taxonomy Definition Linkbase Document**
XBRL Taxonomy Extension Label Linkbase Document**
XBRL Taxonomy Extension Presentation Linkbase Document**
* Filed herewith
+ Indicates Management contract, compensatory plan, or arrangement with the Company
** The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and
shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of
57
1933,
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
as
amended,
except
as
shall
be
expressly
set
forth
by
specific
reference
in
such
filing
or
document.
Incorporated by reference to Exhibit 3.01 to the Registration Statement of the Registrant on Form SB-2 filed with the Commission on September 24, 2004.
Incorporated by reference to Exhibit 3.1 to the Registrant's quarterly Report on Form 10-Q filed with the commission on February 13, 2009.
Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Commission on December 23, 2013.
Incorporated by reference to Exhibit 10.7 to the Registrant's Form S-1 filed on December 24, 2013
Incorporated by reference to Appendix B to the Registrant's Revised Definitive Proxy Statement on Schedule 14A filed on May 1, 2017
Incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K filed on June 13, 2016
Incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K filed on June 13, 2016
Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K filed with the Commission on June 13, 2016.
Incorporated by reference to Exhibit 14.1 to the Registrant's Current Report on Form 8-K filed with the Commission on February 12, 2014.
Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 25, 2014
Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed February 27, 2017
Incorporated by reference to Exhibit 10.9 to the Registrant's Transition Report on Form 10-K filed with the Commission on March 9, 2017.
Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 7, 2020
Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on July 7, 2020
Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on May 9, 2018
Incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on May 9, 2018
Incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed on August 7, 2019
Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2019
Incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on July 7, 2020
Incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K filed on March 11, 2020
Incorporated by reference to Exhibit 21 to the Registrant's Annual Report on Form 10-K filed on March 11, 2020
Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on August 7, 2019
Incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on August 7, 2019
Item 16. Form 10-K Summary
The Company has chosen not to include an optional summary of the information required by this Form 10-K. For a reference to information in the Form 10-K, investors should
refer to the Table of Contents to this Form 10-K.
58
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
PROFIRE ENERGY, INC.
Date: March 8, 2022 By: /s/Ryan W. Oviatt
Ryan W. Oviatt
Co-Chief Executive Officer and Chief Financial Officer
Date: March 8, 2022 By: /s/ Cameron M. Tidball
Cameron M. Tidball
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signatures
Title
Date
/s/ Cameron M. Tidball
Cameron M. Tidball
/s/ Ryan W. Oviatt
Ryan W. Oviatt
/s/ Brenton W. Hatch
Brenton W. Hatch
/s/Colleen Larkin Bell
Colleen Larkin Bell
/s/ Daren J. Shaw
Daren J. Shaw
/s/ Ronald R. Spoehel
Ronald R. Spoehel
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
Co-Chief Executive
(Co-Principal Executive Officer)
Co-Chief Executive Officer & Chief Financial Officer
Director
(Co-Principal Executive Officer and Principal Financial and
Accounting Officer)
Executive Chairman of the Board
Director
Director
Director
59
Entity Name
Profire Combustion, Inc.
Prochem, ULC
Profire Holdings, LLC
Midflow Services, LLC
Subsidiaries of the Registrant as of December 31, 2021
Jurisdiction of Incorporation
Alberta, Canada
Alberta, Canada
Utah
Ohio
Registered with the Public Company
Accounting Oversight Board
To the Board of Directors
Profire Energy, Inc.
Lindon, UT
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-190049 and 333-200565) and
the Post-Effective Amendment on Form S-3 No. 333-193086 of Profire Energy, Inc. of our report dated March 8, 2022 relating to the
consolidated financial statements, which appears in this Form 10-K.
/s/ Sadler, Gibb & Associates, LLC
March 8, 2022
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Ryan W. Oviatt, certify that:
1. I have reviewed this annual report on Form 10-K of Profire Energy, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5 . The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
March 8, 2022
By:
/s/ Ryan W. Oviatt
Ryan W. Oviatt
Co-Chief Executive Officer and Co-President
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Cameron M. Tidball, certify that:
1. I have reviewed this annual report on Form 10-K of Profire Energy, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5 . The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
March 8, 2022
By:
/s/ Cameron M. Tidball
Cameron M. Tidball
Co-Chief Executive Officer and Co-President
EXHIBIT 31.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
I, Ryan W. Oviatt, certify that:
1. I have reviewed this annual report on Form 10-K of Profire Energy, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a ) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5 . The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
March 8, 2022
By:
/s/ Ryan W. Oviatt
Ryan W. Oviatt
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL
EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Profire Energy, Inc. (the “Company”) for the year ended December 31, 2021, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ryan W. Oviatt and I, Cameron M. Tidball, Co-Chief Executive
Officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date:
March 8, 2022
Date:
March 8, 2022
By:
By:
/s/ Ryan W. Oviatt
Ryan W. Oviatt
Co-Chief Executive Officer and Co-President
/s/ Cameron M. Tidball
Cameron M. Tidball
Co-Chief Executive Officer and Co-President
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL
FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Profire Energy, Inc. (the “Company”) for the year ended December 31, 2021, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ryan W. Oviatt, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date:
March 8, 2022
By:
/s/ Ryan W. Oviatt
Ryan W. Oviatt
Chief Financial Officer