Business context and reporting period
Filing identity differs from request metadata: the supplied filing is for Probe Manufacturing, Inc., not Clean Energy Technologies, Inc. It reports the quarter and nine months ended September 30, 2014; the cover page also contains an inconsistent June 30, 2014 reference. Probe provides electronics design and manufacturing services to OEMs across medical, aerospace, industrial, instrumentation, and other markets. The statements are unaudited.
Financial performance and condition
- Revenue: Third-quarter sales were $1.032 million, down 1.7% from $1.050 million. Nine-month sales were $2.967 million, up 6.5% from $2.786 million.
- Gross profit and margin: Third-quarter gross profit was $269,589 (26.1% of sales), versus $349,441 (33.3%) a year earlier. Nine-month gross profit was $818,263 (27.6%), versus $898,605 (32.3%). The MD&A separately states nine-month gross profit of $821,566, which does not match the financial statements.
- Operating and net results: Third-quarter operating loss was $47,508 and net loss was $92,968, compared with losses of $34,448 and $87,276, respectively. Nine-month operating loss was $56,020 and net loss was $153,559, versus $218,570 and $318,288, respectively, in 2013. Lower G&A and interest expense helped narrow the nine-month net loss. Reported per-share figures appear inconsistent with the losses and should be verified.
- Cash flow: Nine-month operating cash use was $475,760, investing cash use was $27,616, and financing cash provided was $512,472. Cash increased $9,096 to $15,845. The company paid $40,468 of interest.
- Liquidity and debt: Current assets were $1.324 million and current liabilities were $1.280 million, leaving working capital of $44,152. Cash was $15,845; accounts receivable were $599,628 and inventory was $708,842. Current notes payable were $612,137; the balance sheet reports no long-term debt. Total liabilities were $1.280 million. Stockholders’ equity was $704,708.
- Other operating indicators: Inventory turns declined to 4.04 from 5.03; backlog coverage rose to 206 days from 171; receivable days were 45 versus 44; payable days were 63 versus 52. The filing says its top five customers generated approximately 89% of sales, although the cited comparison refers to the six months ended June 30.
Changes, outlook, and risks
Nine-month sales grew, but gross profit and gross margin fell; G&A declined to $866,783 from $1.115 million and interest expense declined to $97,539 from $155,495 (the MD&A gives a different 2014 interest figure of $95,937). Management describes plans to pursue organic growth, diversify customers and industries, expand manufacturing capabilities, and consider acquisitions. It provides no quantified financial guidance.
Management states that continued operations depend on obtaining additional debt or equity financing and/or generating positive operating cash flow. The company reported a nine-month loss and accumulated deficit of $1.440 million. Series D preferred stock carries a 17.5% annual special dividend, with conversion and holder redemption rights; these terms may add financing and liquidity pressure. The company also uses receivables financing with full recourse and a stated 2% monthly fee on amounts outstanding. Customer concentration, order cancellations or delays, component availability, customer creditworthiness, and acquisition integration are identified risks.
Two creditor claims were settled, with weekly cash payments of $2,000 and $3,000, respectively, plus court fees; the filing says settlement implementation was in process. No other material litigation or subsequent events were reported. Management said disclosure controls were effective, but the evaluation date stated in the filing is March 31, 2014, and its internal-control discussion refers to a different quarter/year, so those disclosures warrant review.
Important facts to verify
- Confirm the issuer and reporting period: the source is Probe Manufacturing, Inc., with statements through September 30, 2014, despite the request’s different company name and the cover’s June 30 reference.
- Reconcile reported gross profit, interest expense, earnings-per-share figures, and weighted-average share counts across the statements and MD&A.
- Confirm the exact outstanding balance, availability, and cost of receivables financing and notes payable, as well as the cash requirements of Series D dividends and redemption rights.
- Assess whether available liquidity and operating cash generation can support obligations, creditor settlement payments, and continued operations.
- Review customer concentration and the status of the two creditor settlements.