SEC Filing Summary: Probe Manufacturing, Inc. 2014 Form 10-K
Filing identity: The supplied filing is for Probe Manufacturing, Inc., not Clean Energy Technologies, Inc. It reports the fiscal year ended December 31, 2014, rather than a standalone 2014 fourth quarter. Financial results below are annual unless stated otherwise.
Business context and reporting period
Probe provides electronics manufacturing, engineering, supply-chain, and product-development services, primarily to startups and venture-backed customers, with an emphasis on cleantech alongside medical, aerospace, and instrumentation markets. The company acquired Trident Manufacturing in 2013. Management described a strategic emphasis on product-development incubation and cleantech opportunities, while the notes also describe contract electronics manufacturing as its single reportable segment.
Financial performance and condition
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $3.534 million | $3.519 million |
| Gross profit | $792,356 | $967,104 |
| Gross margin | About 22%; filing also reports 22% | Filing reports 26% or 27% in different sections |
| General and administrative expense | $1.597 million | $1.366 million |
| Share-based expense | $160,000 | $9,051 |
| Operating loss | $(964,231) | $(407,535) |
| Net loss | $(1.235) million | $(715,153), restated |
| Net loss per share | $(0.05) | $(0.03) |
| Operating cash flow | $(708,337) | $(103,574) |
| Investing cash flow | $(2,339) | $(43,979) |
| Financing cash flow | $731,168 | $135,042 |
| Cash at year-end | $27,241 | $6,749 |
| Working capital | $(599,915) | $101,392 |
| Total assets | $1.470 million | $1.737 million |
| Total liabilities | $1.529 million | $1.031 million |
| Stockholders’ equity (deficit) | $(59,331) | $706,567 |
Cost of goods sold rose to $2.741 million from $2.551 million. Management cited higher material costs, $113,252 of priority freight, and a $65,000 increase in the excess-inventory reserve. It also attributed higher losses to $169,418 of Trident facility losses, a general slowdown, and share-based expense. The filing reports a $70,000 doubtful-account reserve and a $270,000 obsolete-inventory reserve at year-end.
Current liabilities were $1.491 million, including $556,523 of current notes payable; long-term notes payable were $38,147. The filing separately reports a $393,399 balance under an asset-secured accounts-receivable financing agreement, with a 2.5% monthly interest rate and a personal guarantee by the CEO. Confirm how this balance is classified within reported debt. No off-balance-sheet arrangements were reported.
Changes versus the prior period
- Revenue increased only about $15,000, while gross profit declined about $175,000 and net loss widened about $520,000.
- Gross margin weakened and G&A expense increased; share-based expense rose substantially from 2013.
- Operating cash use increased to $708,337 from $103,574. Financing inflows of $731,168 supported a $20,492 increase in cash during 2014.
- Working capital shifted from a $101,392 surplus to a $599,915 deficit, and stockholders’ equity moved from positive $706,567 to a $59,331 deficit.
- Five customers generated about 80% of 2014 net sales, versus 69% in 2013. Backlog was reported at $2.579 million, versus $1.430 million a year earlier.
- The 2013 financial statements were restated. The filing attributes corrections to expenses moved into 2013, the accounting for the Trident acquisition, and elimination of an intercompany transaction; it reports a $64,501 restatement effect on 2013 net loss and accumulated deficit.
Outlook, risks, and unusual items
The auditor and management identified substantial doubt about the company’s ability to continue as a going concern. The company reported a $1.235 million annual loss, a $599,915 working-capital deficit, a $59,331 stockholders’ deficit, and $708,337 of operating cash use. Continuation depends on raising debt or equity and/or producing positive operating cash flow; no assurance is given. The filing provides no quantified revenue or earnings guidance.
Management’s stated priorities include pursuing profitable, scalable customers; developing cleantech product-development and manufacturing opportunities; and considering acquisitions. Potential technologies mentioned include water-concentration solutions, heat-to-power generation, and battery storage, but the filing does not establish that these opportunities will produce material revenue. Management reported no R&D spending in 2014 or 2013. The Trident facility was to be partly subleased from April 2015, with manufacturing consolidated primarily at Irvine; expected savings were not quantified.
- Financing and preferred stock: Series D preferred financing totaled $750,000 and carries high-cost dividend terms. The filing describes an original 17.5% annual rate, while stating that a related party agreed in August 2014 to reduce the rate to 13% and extend the term for one year. Preferred holders have conversion and redemption rights.
- Customer and supply-chain concentration: Customer purchase orders generally run 30–360 days, with no long-term customer agreements. Component shortages, supplier dependence, and customer cancellations or delays could affect sales and margins.
- Equity dilution and governance: Common shares outstanding increased from 24.252 million at year-end 2013 to 30.676 million at year-end 2014; 1.628 million additional shares were recorded as issuable. The filing reports insider and principal-holder concentration and related-party transactions, including purchases from a company owned by the CEO.
- Controls and reporting: Management concluded disclosure controls and internal control over financial reporting were not effective at December 31, 2014. The 2013 statements were restated, and the company changed auditors in April 2015. The new auditor’s report was unqualified but included a going-concern emphasis.
- Other risks and items: The company cited thin trading and penny-stock restrictions, possible environmental liabilities whose amount could not be determined, and executive severance obligations. No legal proceedings were reported. The S-Ray letter of intent and distribution/OEM arrangements were terminated by April 2015.
Most important facts for investors to verify
- Confirm that this filing is the intended issuer’s filing: it names Probe Manufacturing, Inc., not Clean Energy Technologies, Inc.
- Reconcile the inconsistent gross-margin disclosures (2013 is stated as both 26% and 27%) and interest-expense figures (the audited statement reports $313,254, while MD&A gives a different amount).
- Review the detailed debt schedule, including the $393,399 receivables-financing balance, maturity and default terms, personal guarantee, and Series D preferred dividend, conversion, and redemption obligations.
- Assess whether the company had adequate financing after year-end to address its going-concern warning, working-capital deficit, and continuing operating cash burn.
- Validate customer concentration, backlog conversion, inventory and receivable reserves, and whether the planned Utah facility sublease generated the expected savings.
- Review the 2013 restatement, ineffective-control findings, auditor transition, related-party transactions, and share issuance and dilution disclosures.