Business context and reporting period
The supplied filing is Probe Manufacturing, Inc.’s Form 10-K for the fiscal year ended December 31, 2012—not a filing identified as Clean Energy Technologies, Inc. The filing describes an electronics manufacturing services business serving industrial, aerospace/defense, medical and other OEM markets. Accordingly, the issuer identity should be verified before relying on this summary. The filing reports annual results; it does not provide standalone fourth-quarter financial statements.
Financial results and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $4,961,612 | $4,549,798 |
| Gross profit / margin | $1,379,973 / 28% | $1,403,320 / 31% |
| Operating profit | $71,510 | $228,720 |
| Net income (loss) | $(116,373) | $90,940 |
| Cash from operations | $(314,334) | $(378,117) |
| Cash at year-end | $19,260 | $18,349 |
| Working capital | $131,010 | $170,245 |
| Total assets | $1,711,761 | $1,598,998 |
| Stockholders’ equity | $284,973 | $338,046 |
Revenue increased about 9.1%, but gross profit declined and gross margin contracted three percentage points. Interest expense rose to $187,883 from $136,897. Year-end current liabilities were $1,426,788, including $858,543 outstanding on a line of credit; the balance sheet reports no long-term debt. Financing cash flow of $362,964 largely offset operating and investing cash outflows. Investing used $47,719, principally for property and equipment.
Material changes versus the prior year
- Net results shifted from $90,940 profit to a $116,373 loss, despite higher annual sales. Management attributed the deterioration in part to higher interest expense, a $44,000 increase in the doubtful-account allowance, a $30,000 increase in inventory reserve, lower orders and revenue in the third and fourth quarters, and higher administrative spending.
- Backlog fell to $913,427 from $2,293,596; days of sales in backlog declined to 67 from 184. Days sales outstanding increased to 68 from 45, which management linked to slower customer payments.
- The five largest customers represented about 69% of 2012 sales, up from 58% in 2011. Five customers also represented approximately 75% of year-end receivables.
Outlook, risks and unusual items
The independent auditor stated that substantial doubt exists about the company’s ability to continue as a going concern, citing the accumulated deficit and other conditions. Management said continued operations depend on obtaining capital and/or generating positive operating cash flow; no assurance was given. The filing provides no quantified earnings or revenue guidance.
The company described plans for organic growth, expanded supply-chain services, investment in innovators in exchange for manufacturing rights and equity, and growth through acquisitions. After year-end, it completed the acquisition of Trident Manufacturing on March 20, 2013, issuing 1.6 million restricted shares. Trident’s unaudited 2012 figures were sales of $2,956,222 and a net loss of $53,805. The company also entered a $120,000 convertible note in February 2013, bearing 10% interest and convertible at $0.10 per share. These are subsequent events, not included in Probe’s 2012 results.
Key risks include dependence on a small number of customers and suppliers, cancellable purchase orders, regional concentration, component shortages, debt and financing needs, acquisition integration, and thinly traded OTCQB shares. The receivables-purchase facility is with recourse and may be terminated by the provider; eligible receivables are subject to fees and a reserve holdback. The company reported no legal proceedings and no off-balance-sheet arrangements. It also completed a one-for-ten reverse stock split effective January 22, 2013.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-K is for Probe Manufacturing, Inc., not Clean Energy Technologies, Inc.
- Review the auditor’s going-concern warning, near-term liquidity, line-of-credit terms and the company’s ability to fund operations.
- Reconcile the filing’s receivables-reserve disclosures, which report different amounts in different sections, and verify other reported figures against the audited statements.
- Assess customer concentration, reduced backlog, slower collections and the quality and collectability of receivables.
- Review the Trident acquisition consideration, integration risks and post-acquisition financial impact, as well as the convertible note’s dilution potential.