Business Context and Reporting Period
Company: Probe Manufacturing, Inc. (Note: Request metadata listed "Clean Energy Technologies, Inc.", but the filing text identifies the registrant as Probe Manufacturing, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: August 8, 2013
Event Date: August 7, 2013
Context: The company reported the initial closing of a private financing offering for Series D Preferred Stock and the dissemination of an executive summary to institutional investors.
Key Financial Metrics
Financing Raised: $750,000 (Initial closing of Series D Preferred Stock).
Total Offering Capacity: Up to $1,000,000 with an over-allotment option of $500,000.
Dividend Rate: 17.5% per annum (special monthly dividend).
Penalty Rate: 3.5% if dividends are not paid within five business days of the month-end.
Conversion Price: Greater of $0.08 or a 20% discount to the average of the three lowest closing market prices during the 10 trading days prior to conversion.
Debt/Liquidity: The filing text does not provide specific values for total debt, cash flow, or liquidity ratios. The capital raised is intended to replace existing accounts receivable financing and a credit line with Far West Capital.
Material Changes
- Capital Structure: Issuance of unregistered Series D Preferred Stock to two related parties.
- Financing Strategy: Shift from accounts receivable financing and credit lines to equity-based preferred stock financing.
- Investor Relations: Distribution of an executive summary to institutional investors regarding business strategy and market opportunity.
Guidance, Outlook, and Risks
Use of Proceeds: Working capital and replacement of existing debt facilities (Far West Capital).
Redemption Terms: Shares are redeemable after a one-year holding period at the option of holders (Purchase Price + accrued dividends). The company may also redeem shares after closing, subject to investor conversion rights.
Risks and Contingencies:
- Liquidity Risk: If the company cannot fund redemption obligations, it must notify investors 30 days prior to the redemption period to negotiate an extension.
- Cost of Capital: High dividend rate (17.5%) and potential penalty (3.5%) increase the cost of capital if cash flow is insufficient for timely payments.
- Dilution: Conversion terms include a discount to market price, which may dilute existing common shareholders.
Investor Verification Checklist
- Verify the identity of the two related parties who purchased the initial $750,000 of Series D Preferred Stock.
- Confirm the current status of the credit line and accounts receivable financing with Far West Capital to ensure the replacement is complete.
- Review the "Executive Summary" (Exhibit 99.1) for specific details on the business strategy and market opportunity mentioned in Item 7.01.
- Assess the company's cash flow projections to determine its ability to service the 17.5% annual dividend and potential redemption obligations.
- Check for any subsequent closings of the Series D offering to see if the full $1,000,000 (plus over-allotment) was raised.