Business context and reporting period
Important issuer mismatch: The request identifies Clean Energy Technologies, Inc., but the supplied Form 10-Q is for Probe Manufacturing, Inc. The summary below reflects the filing text and should not be attributed to Clean Energy Technologies without verification.
The filing covers the three months ended March 31, 2012, with comparisons to the three months ended March 31, 2011. Probe provides electronics manufacturing services, including design, procurement, assembly, and related support, primarily to medical, aerospace, automotive, industrial, and instrumentation customers. The interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Financial performance and condition
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Sales | $1,285,868 | $906,313; up about 42% |
| Gross profit / margin | $449,956 / 35.0% | $258,761 / 28.5% |
| Operating income | $57,053 | $41,105 |
| Interest expense | $44,336 | $20,221 |
| Net income | $12,717 | $24,729 |
| Cash from operations | $(278,639) | $(359,742) |
Revenue growth was attributed to higher orders from existing customers and six customers added in 2011. Gross margin improved, while general and administrative expense rose to $389,603 from $217,656. The company remained profitable, but net income declined as interest expense increased substantially. The filing reports earnings per share of $0.00, rounded.
At March 31, 2012, total assets were $1.98 million, current assets $1.83 million, current liabilities $1.63 million, and working capital $202,341. The current ratio was approximately 1.12. Cash was zero, compared with $18,349 at year-end 2011. Accounts receivable were $998,777 and inventory was $829,776. Total liabilities were $1.63 million, including a $773,816 line-of-credit balance, a $33,905 bank overdraft, and $8,664 of current notes payable; the balance sheet reported no long-term debt. Stockholders’ equity was $354,063, with an accumulated deficit of $225,766.
Operating cash use was driven in part by increases in receivables and inventory. Financing provided $262,142, mainly through additional line-of-credit borrowings. The company reported $1,852 of investing cash outflow and ended the quarter with no cash.
Changes, outlook, risks, and unusual items
- Management reported improved gross margin and operating income, but lower net income because interest costs more than doubled year over year. It attributed the interest increase to accounts-receivable financing.
- Management described plans to pursue organic and global growth, expand services, and consider mergers and acquisitions. It provided no quantified revenue or earnings guidance.
- The independent accountant’s review report and management disclosures state that conditions raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on maintaining profitability and positive operating cash flow and/or obtaining additional debt or equity financing; there is no assurance of success.
- The receivables-purchasing facility permits up to $750,000 of eligible receivables, is full recourse, carries a fee based on prime plus 4.75% with a 7% floor, and retains a 20% reserve. The filing also describes discretionary inventory advances subject to limits. The facility may be terminated under specified conditions.
- Customer concentration is significant: the five largest customers represented about 73% of Q1 sales and 73% of receivables. Management warns that customer orders may be canceled, reduced, or delayed. Receivables are unsecured; the company reported a $20,000 doubtful-account reserve. Inventory had a $165,000 excess/obsolete reserve.
- The company had a five-year facility lease, amended to add space, and disclosed no material litigation, no off-balance-sheet arrangements, and no subsequent events. It had repurchased 115,000 shares under a program authorizing repurchases of up to 5 million shares.
Most important facts to verify
- Confirm the issuer identity: the supplied filing names Probe Manufacturing, Inc., not Clean Energy Technologies, Inc.
- Reconcile share-count and dilution disclosures. The filing reports 198,319,056 shares outstanding at March 31 and 198,311,803 at May 9; it also gives conflicting diluted weighted-average share figures in different sections.
- Check comparative-period labeling and figures in the filing’s cash-flow and percentage-of-sales tables; some headings appear inconsistent with the stated Q1 2012 versus Q1 2011 comparisons.
- Assess the company’s ability to fund operations and meet obligations given zero quarter-end cash, negative operating cash flow, reliance on receivables financing, and the stated going-concern uncertainty.
- Review customer concentration, receivable collectability, inventory reserves, and the terms, availability, and continuation of the financing facility.