Filing identity and reporting period
The supplied filing is a Form 10-Q for the quarter ended June 30, 2015, filed by Probe Manufacturing, Inc.—not Clean Energy Technologies, Inc., as identified in the request metadata. Confirm the issuer before relying on this summary. The company describes itself as a provider of engineering, product development, supply-chain, and electronics manufacturing services, with emphasis on cleantech and customers in medical, aerospace, and instrumentation markets.
Results below are unaudited. Comparisons are with the three and six months ended June 30, 2014; the filing labels the 2014 results as restated.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Sales | $816,726 | $1,031,297 | $1,613,016 | $1,934,641 |
| Gross profit | $306,089 | $301,552 | $588,297 | $548,862 |
| Gross margin | 37.5% | 29.2% | 36.5% | 28.4% |
| Operating loss | $(5,874) | $(21,621) | $(19,293) | $(56,521) |
| Net loss | $(81,132) | $(31,876) | $(181,873) | $(106,998) |
| Interest expense | $75,258 | $10,255 | $162,580 | $50,477 |
Sales fell about 21% in Q2 and 17% for the first half year over year. Gross profit increased despite lower sales, lifting gross margin, while sharply higher interest expense contributed to larger net losses. The filing reports no income tax provision. Basic and diluted loss per share was reported as $(0.00) for Q2 and $(0.01) for the six-month period in 2015.
- Cash flow: Operating cash outflow was $223,563 in the first half of 2015, versus $210,520 in the comparable 2014 period. Financing provided $202,754; investing activity was nil. Cash declined $20,809 to $6,432.
- Liquidity: Current assets were $958,824 and current liabilities $1,700,464 at June 30, 2015, producing a $741,640 working-capital deficit. The filing reports stockholders’ deficit of $188,008.
- Debt: Current notes payable were $800,168, up from $556,523 at year-end 2014; the filing reports no long-term debt at June 30, 2015. The accounts-receivable financing balance with American Interbanc was $652,529, bearing interest at 2.5% monthly and secured by company assets. Accrued interest was $171,264.
- Other balance-sheet items: Net accounts receivable was $466,344, including a $70,000 allowance; inventory was $463,652, net of a $270,000 obsolescence reserve. Five customers accounted for about 98% of receivables.
Material changes and notable items
- Gross margin improved year over year, but revenue declined and net loss increased, largely alongside the increase in interest expense.
- Q2 sales concentration increased: the top five customers represented approximately 84% of sales, versus 62% in Q2 2014. Backlog coverage fell to 151 days from 247 days; receivables days improved to 43 from 47, while payables days rose to 93 from 82.
- Common shares outstanding increased to 33,061,445 from 30,676,445 at December 31, 2014. The company reported $46,000 in proceeds from common-stock sales in the first half.
- The filing identifies a $48,190 additional rent expense as a correction to previously filed 2014 financials and presents the 2014 comparative statements as restated.
- The company reported two creditor claims, with approximately $4,000 due on each as of June 30, 2015, and settlements involving weekly cash payments and court fees.
- After quarter-end, the company said it was transitioning to a new facility and negotiating lease terms.
Outlook, risks, and controls
Management’s stated plans include growing targeted accounts, pursuing cleantech manufacturing and equity opportunities, and expanding through acquisitions. The filing provides no quantified revenue, earnings, or cash-flow guidance. Management says future success depends on profitable growth and access to additional capital, and gives no assurance that financing or positive operating cash flow will be achieved.
The filing states there is substantial doubt about the company’s ability to continue as a going concern, citing its working-capital and stockholders’ deficits, accumulated deficit of $2,487,076, net losses, and operating cash outflow. Risks also include customer concentration and order cancellations or delays, dependence on customers’ commercial success, component availability, production yields, and the ability to meet debt and preferred-stock obligations. Series D preferred stock terms include a special dividend originally described at 17.5% annually; the filing says one related party agreed to reduce the rate to 13% and extend the term. Preferred holders also have conversion and redemption rights.
Management concluded disclosure controls and procedures were not effective as of June 30, 2015. It reported no material change in internal control over financial reporting during the quarter. No off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Confirm issuer identity: the supplied filing names Probe Manufacturing, Inc., not Clean Energy Technologies, Inc.
- Reconcile inconsistencies within the filing’s MD&A and statements: Q2 gross profit appears as $306,098 in one passage versus $306,089 in the statements; Q2 SG&A appears as $313,963 versus $311,963; and Q2 interest expense appears as $73,258 versus $75,258.
- Confirm the current balance, pricing, maturity, and repayment terms of receivables financing and other notes, and the status of accrued Series D dividends and redemption rights.
- Assess the going-concern funding plan, near-term cash needs, customer concentration, backlog, and the progress and cost of the facility relocation.
- Review the 2014 restatement and the control weaknesses. Also reconcile common-stock authorization disclosures: the balance sheet says 400 million authorized shares, while a later note says 200 million.