Business context and reporting period
The filing is a Form 10-Q for the quarter ended March 31, 2014. The source identifies the registrant as Probe Manufacturing, Inc., an electronics manufacturing services provider—not Clean Energy Technologies, Inc. This is a material mismatch with the request metadata and should be verified.
Financial performance and position
- Revenue: $903,344, up 26.8% from $712,657 in Q1 2013.
- Gross profit and margin: $247,310 and approximately 27.4%, compared with $176,040 and 24.7% a year earlier.
- Operating results: Operating loss improved to $28,819 from $115,515. Net loss was $69,041, versus $145,936; interest expense increased to $40,222 from $30,421. Basic and diluted loss per share was reported as $(0.00), versus $(0.01).
- Cash flow: Operating cash use was $97,770, compared with $4,067 provided in Q1 2013. Investing cash use was $7,500; financing provided $98,521. Ending cash was zero, versus $1,724 a year earlier; the balance sheet also reports a $2,726 bank overdraft.
- Liquidity: Current assets were $1.22 million and current liabilities $1.20 million, leaving working capital of $18,253, down from $123,717 at December 31, 2013. Current ratio was approximately 1.02.
- Debt and liabilities: Current notes payable were $295,460; no long-term debt was reported. Total liabilities were $1.20 million. Stockholders’ equity was $659,851, down from $728,892 at year-end.
- Other indicators: Backlog was 282 days of sales versus 126 days; receivables outstanding improved to 49 days from 84; inventory turns rose to 3.88 from 3.41.
Material changes and management commentary
Sales growth and higher gross margin reduced operating and net losses year over year, but cash from operations turned negative and working capital declined substantially from year-end. Management attributes results to factors including customer demand and order changes, product and customer mix, component availability, capacity utilization, new-program start-up costs, and integration of acquired operations. Management describes plans for organic growth, diversification, manufacturing partnerships, and possible acquisitions; the filing provides no quantified guidance or forecast.
Risks, contingencies, and unusual items
- Going concern: The company reported a quarterly loss and a $1.36 million accumulated deficit. It states continued operation depends on obtaining debt or equity financing and/or generating positive operating cash flow, and cautions that financing and cash-flow success is uncertain.
- Preferred financing: Series D preferred stock issued to related parties raised $750,000 in 2013 and carries a 17.5% annual special dividend, with conversion and redemption rights after a one-year holding period. The company warns that inability to pay dividends or other obligations could have a material adverse effect.
- Related-party factoring: A purchase-order factoring arrangement entered into March 13, 2014 had $92,800 outstanding at quarter-end.
- Concentration and estimates: The top five customers generated about 64% of quarterly sales; six customers represented about 76% of receivables. Receivables are unsecured, with a $40,000 doubtful-account reserve; inventory included a $205,000 obsolescence reserve.
- Other disclosures: The company reported no material litigation, no off-balance-sheet arrangements, and no material changes to internal control during the quarter. Disclosure controls were concluded effective. An April 30, 2014 sale of 1 million common shares at $0.10 per share was disclosed as a subsequent event.
Important facts for investors to verify
- Confirm the registrant and filing identity: the supplied metadata names Clean Energy Technologies, while the 10-Q names Probe Manufacturing, Inc.
- Review the company’s near-term funding needs and its ability to generate positive operating cash flow, given zero cash, negative quarterly operating cash flow, and only $18,253 of working capital.
- Confirm the Series D preferred shares outstanding, accrued or paid dividends, redemption exposure, and conversion terms. The filing’s balance-sheet presentation and narrative descriptions of the preferred stock should be reconciled.
- Assess the cost and terms of the related-party factoring arrangement and the company’s dependence on concentrated customers and suppliers.
- Reconcile the reported current notes payable and accrued interest to the underlying debt agreements and payment schedule.