| The Company | 3 Months Ended |
| Mar. 31, 2015 |
| Notes | |
| The Company | |
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| The Company |
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| Probe Manufacturing, Inc. (the “Company,” “Probe,” or “PMI”) headquartered in Irvine, California is a product development accelerator providing engineering and manufacturing services to startups and venture capital backed companies with emphasis in cleantech. Our cross-market segment experience from medical, instrumentation, to aerospace helps us bring effective solutions to tough technical product development and manufacturing problems. Our revenue is generated from sales of our core expertise in manufacturing, project management and product development incubation services. |
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| We offer our customers’ integrated design and manufacturing services, from initial product design to production and both pre and post sales services. Our engineering services include product design, printed circuit board layout, prototyping, and test development. Our supply chain management solutions include purchasing, management of materials, and order fulfillment. Our manufacturing services include printed circuit board assembly, cable assembly, mechanical assembly, and fully integrated box build systems for high complexity electronics. |
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| Some examples of our customer’s finished goods products include storage devices for wind and solar, energy savings lighting solutions, instrumentation devices, ultrasound therapeutic medical devices, PCB’s for landing gear systems and flap controllers and fluid control units for airliners. |
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| As innovation, cost, and time to market become hyper-competitive, both startups and VC backed companies are now compelled to use engineering and manufacturing partners with easy onshore access, providing local project management and manufacturing expertise during product conceptualization, development, and integration. Our project management and manufacturing expertise combined with our product development capabilities support clients through product development and design resulting in improved return on investment, utilization of global supply chain reducing material acquisition time and cost and accelerate time to market by rapidly executing newly defined production processes. |
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| Our growth strategy is to leverage our currency and core competencies in product development incubation, project management and manufacturing for increased sales and equity opportunities. |
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| We believe that with our focus on Cleantech and new growing opportunities in our medical, aerospace and instrumentation segments we are able to leverage our core competencies for long term manufacturing agreements and equity opportunities resulting in increased sales, profitability and shareholder value. |
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| On March 15, 2013, we entered into an Agreement and Plan of Acquisition with Trident Manufacturing, Inc., a Utah corporation, (“Trident”), and the shareholders of Trident, to acquire 100% of the issued and outstanding common stock shares of Trident. Trident is a full-service electronics manufacturing service company with a 16,000 sq. ft. manufacturing facility based in Salt Lake City, Utah and has been servicing the industrial, aerospace, military, instrumentation, and medical markets since 2005. |
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| On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident and all its operational assets in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident has become a wholly-owned subsidiary of Probe Manufacturing, Inc. As a result we recognized $420,673 in goodwill. |
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| Going Concern |
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| The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder’s deficit of $106,874 and a working capital deficit of $642,448 and a net loss of $100,741 for the three months ended March 31, 2015 and an accumulated deficit of $2,405,944 as of March 31,2015 and used $198,907 in net cash from operating activities for the three months ended March 31, 2015. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will achieve its goals and reach a profitable operating stand and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations. |
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| Our operating results are affected by a number of factors, including the following: |
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| · changes in the macro-economic environment and related changes in consumer demand; |
| · the mix of the manufacturing services we are providing, the number and size of new manufacturing programs, the degree to which we utilize our manufacturing capacity, seasonal demand, shortages of components and other factors; |
| · the effects on our business when our customers are not successful in marketing their products, or when their products do not gain widespread commercial acceptance; |
| · our components offerings which have required that we make substantial investments in the resources necessary to design and develop these products; |
| · our ability to achieve commercially viable production yields and to manufacture components in commercial quantities to the performance specifications demanded by our OEM customers; |
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| Plan of Operations |
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| Management is taking the following steps to sustain profitability and growth: (i) organic growth through our targeted profitable and scalable accounts (ii) leveraging core competencies with emphasis in cleantech for manufacturing rights and equity; and (iii) expansion of capabilities and competencies through mergers & acquisitions providing scale, cost synergies and revenue opportunities. |
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| Our future success is likely dependent on our ability to sustain profitable growth and attain additional capital to support growth. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. |
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| Our Products and Services |
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| Engineering. Our global engineering team supports technology customers and innovative start-ups with a broad range of electrical, mechanical and software engineering services. PMI has assembled a team of experts from around the globe to assist customers at any point in the design cycle. These services include design processes from electrical, software, mechanical, Industrial and PCB design. Utilization of PMI’s design services will enable rapid market entry for our customers. It provides flexibility by becoming the extension of their engineering and allowing customers to focus on their business strategy. |
| Supply Chain Management. PMI’s supply chain solution provides maximum flexibility and responsiveness through a collaborative and strategic approach with our customers. PMI can assume supply chain responsibility from component sourcing through delivery of finished product. PMI’s supply chain focus is on building internal and external systems and relationships, which allow us to capitalize on our expertise to align with our customer’s objectives and integrate with their processes. |
| Manufacturing. Flexibility, responsiveness, communication, global supply chain management and speed are key values in what we offer our customers. We establish clear communication about our customer needs and requirements enabling a seamless integration with their objectives and processes. PMI’s manufacturing capability supports high and low-mix assemblies to low to medium-volume quantities. Our manufacturing operations include printed circuit board assembly and testing; cable and harness assembly; mechanical assembly; and complex system integration. |
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| Sales and Marketing |
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| Our marketing approach is to position PMI as a US based product development accelerator providing engineering and manufacturing services to startups and VC backed companies with emphasis in cleantech. |
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| We utilize both direct sales force and sales representatives with expertise in engineering and manufacturing services. We also target startups and innovators through technology venture capital companies or investment communities. PMI maintains an online presence through our web portal and social media. Once the relationships are established, programs are managed through our customer centric program management teams. We support our clients through collaboration and early supplier involvement, which results in improved return on investment. Program Managers are responsible for managing the global supply chain, reducing material acquisition time and cost. They’re also responsible for the profitability of the programs and ultimately the customer satisfaction index, including on-time delivery, quality, communication and technology. |
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| Growth Strategy |
| Our growth strategy is to leverage our currency and core competencies in product development incubation, project management and manufacturing for increased sales and equity opportunities. We are also planning the expansion of our capabilities and competencies through mergers & acquisitions. |
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| NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
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| The summary of significant accounting policies of Probe Manufacturing, Inc. is presented to assist in the understanding of the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity. |
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| The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instruction to Form 10-Q of Regulation S-K. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2014 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31,2015. |
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| Estimates |
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| The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves. |
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| Cash and Cash Equivalents |
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| We maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per commercial bank. For purposes of the statement of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents. |
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| Accounts Receivable |
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| We grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of March 31, 2015, we had a reserve for potentially un-collectable accounts of $70,000. Five (5) customers accounted for approximately 85% of accounts receivable at March 31, 2015 and one customer accounted for 38% and no other customer accounted for more than 24% of the accounts receivable balance. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant. |
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| Inventory |
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| Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions are made. Any inventory write offs are charged to the reserve account. As of March 31, 2015, we had a reserve for potentially obsolete inventory of $270,000. |
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| Property and Equipment |
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| Property and equipment are stated at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets: |
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| Furniture and fixtures 3 to 7 years |
| Equipment 7 to 10 years |
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| Long –Lived Assets |
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| Our management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which could result in impairment of long-lived assets in the future. |
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| Revenue Recognition |
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| Revenue from product and services are recognized at the time goods are shipped or services are provided to the customer, with an appropriate provision for returns and allowances. Terms are generally FOB origination with the right of inspection and acceptance. We have not experienced a material amount of rejected or damaged product. |
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| The Company provides services for its customers that range from contract design to original product design to repair services. The Company recognizes service revenue when the services have been performed, and the related costs are expensed as incurred. |
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| Fair Value of Financial Instruments |
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| The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments. |
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| Other Comprehensive Income |
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| We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods. |
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| Net Profit / (Loss) per Common Share |
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| Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At March 31, 2015, we had outstanding common shares of 33,061,445 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at March31, 2015 and 2014 were 31,577,445 and 24,251,945, respectively. As of March 31, 2015, we had outstanding warrants to purchase 1,050,000 additional common shares and options to purchase 107,789 additional common shares. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive. |
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| Research and Development |
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| Research and Development Costs incurred in association with the alternative fuels technology development (which include salaries and equipment) were expensed as incurred. We had no amounts of R&D during the three months ended March 31, 2015 and 2014. |
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| Segment Disclosure |
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| FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable segment, with contract electronics manufacturing. As such, our operations have been aggregated into one reportable segment for all periods presented. |
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| Share Based Compensation |
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| The company has adopted the use of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS No. 123R) (now contained in FASB Codification Topic 718, Compensation-Stock Compensation), which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance and eliminates the alternative to use Opinion 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date, (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black- Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the “risk-free interest rate”, we use the Constant Maturity Treasury rate on 90 day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20 trading day average. At the time of grant, the share based-compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates. |
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| We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For the three months ended March 31, 2015 and 2014 we had $ 7,200 and $0, respectively, in share based expense, due to the issuance of common stock shares. As of March 31, 2015 we had $0 in non-vested expense to be recognized. |
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| Income Taxes |
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| The Company accounts for income taxes under SFAS No. 109 (now contained in FASB Codification Topic 740-10-25, Accounting for Uncertainty in Income Taxes), which requires the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of March31, 2015, we had a net operating loss carry forward of approximately $(2,192,000) and a deferred tax asset of approximately $745,000 using the statutory rate of 34%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(745,000). |
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| 31-Mar-15 | 31-Dec-14 |
| Deferred Tax Asset | $ 745,000 | $ 710,900 |
| Valuation Allowance | (745,000) | (710,900) |
| Deferred Tax Asset (Net) | $ - | $- |
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| We are subject to taxation in the U.S. and the states of California and Utah. Further, the Company currently has no open tax years subject to audit prior to December 31, 2011. The Company is current on its federal and state tax returns. |
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| Reclassification |
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| Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders’ equity as previously reported. |
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| Business Combination and Goodwill |
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| On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident and all its operational assets in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident has become a wholly-owned subsidiary of Probe Manufacturing, Inc. As a result we recognized $420,673 in goodwill. |
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| Recently issued accounting standards |
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| FASB ASU 2015-03Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. This will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company does not anticipate significant impact upon its financial statements at this time and will continue to evaluation the potential for such impact. |
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| FASB ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic205-40): |
| Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not intend to early adopt this standard. Adoption of the new guidance is not expected to have a material impact on the financial condition of Company. |
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