Clean Energy Technologies, Inc. — Filing Summary
Registrant and period: The supplied Form 10-Q is filed by Probe Manufacturing, Inc., not Clean Energy Technologies, Inc. It reports the quarter and nine months ended September 30, 2012; interim financial statements are unaudited and were reviewed, not audited. Confirm that this is the intended filing.
Business context and financial results
Probe describes itself as an electronics manufacturing services provider serving medical, aerospace, automotive, industrial and instrumentation customers.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $1.080 million | $1.228 million | $3.969 million | $3.299 million |
| Gross profit | $331,506 | $400,934 | $1.240 million | $1.051 million |
| Gross margin | 30.7% | 32.6% | 31.2% | 31.9% |
| Operating income (loss) | $(36,578) | $92,820 | $144,962 | $193,611 |
| Net income (loss) | $(71,848) | $39,638 | $12,322 | $96,577 |
| Interest expense | $35,270 | $38,544 | $132,870 | $91,313 |
Liquidity, cash flow and debt
- At September 30, cash was $24,294; current assets were $1.710 million and current liabilities were $1.524 million, for reported working capital of $185,767. Total assets were $1.888 million and stockholders’ equity was $363,669.
- Current liabilities included $823,488 of line-of-credit borrowings, $592,396 of trade payables and $99,572 of accrued expenses. The balance sheet reports no long-term debt and $8,664 of current notes payable.
- Nine-month operating cash flow was negative $230,212; investing cash use was $41,752. Financing provided $277,909, primarily from increased line-of-credit advances, leaving cash up $5,945 from year-end.
- The receivables financing facility permits up to $750,000 of receivables purchases and, subject to conditions, up to $250,000 of inventory advances. Its stated funding cost is prime plus 4.75%, with a 7% floor; receivables are subject to full recourse and other repurchase conditions.
Changes, outlook and risks
- Q3 revenue fell about 12% year over year and the company moved from quarterly profit to loss. Nine-month revenue rose about 20%, which management attributed to increased orders from existing accounts and five new customers, but nine-month net income declined from $96,577 to $12,322.
- For the nine months, gross margin slipped to 31% from 32%; management cited higher direct labor and overtime as a share of sales. General and administrative expense rose to $1.081 million from $825,310. Interest expense increased, which management attributed to receivables financing.
- Management reported 89 days of sales in backlog versus 171 a year earlier, inventory turns of 3.52 versus 5.03, receivable days of 52 versus 44, and payable days of 54 versus 52.
- The independent accountant noted substantial doubt about the company’s ability to continue as a going concern. Management said viability depends on obtaining debt or equity capital and generating positive operating cash flow while maintaining profitability. Plans include organic sales growth, expanded services, global opportunities and possible acquisitions; no quantified financial guidance is provided.
- Risks include customer concentration (top five customers were about 68% of nine-month sales and 72% of receivables), unsecured receivables, customer order changes or cancellations, and reliance on financing. Inventory included a $160,000 obsolescence reserve; the receivables allowance was $31,000. The company reported no material litigation, no off-balance-sheet arrangements and no subsequent events.
Key facts for investors to verify
- Whether this Probe Manufacturing filing is actually the intended filing for Clean Energy Technologies, Inc.
- Availability, terms and continued access to the receivables/inventory financing facility, and the company’s ability to meet obligations and fund operations.
- Whether operating cash flow can turn positive and profitability can be sustained despite the Q3 loss and higher interest and overhead costs.
- Customer concentration, receivable collection, inventory quality and the adequacy of related reserves.
- Share dilution: 198,319,056 common shares were outstanding at September 30; the filing also reports warrants, options and 2,000,000 shares accrued for issuance. The filing contains differing diluted-share figures in different sections.
- Financial statement presentation discrepancies: the cash flow statement reports net income of $12,323 while the operations statement reports $12,322; confirm the correct amount and other inconsistent share-based compensation disclosures.