The accompanying footnotes are an integral part of these financial statements
The accompanying footnotes are an integral part of these financial statements
Notes to Consolidated Financial Statements
Notes 1- GENERAL
The Company
Clean Energy Technologies, Inc. (f/k/a Probe Manufacturing, Inc.) (the
“
Company,
”
“
Clean Energy,
”
or
“
CETY
”
) headquartered in Costa Mesa, California
,
designs, builds and markets clean energy products focused on energy efficiency and environmentally sustainable technologies. The Company
’
s principal product is the Clean Cycle
TM
generator, offered by its wholly owned subsidiary Heat Recovery Solutions. The Heat Recovery Solutions system captures waste heat from a variety of sources and turns it into electricity that users can use or sell back to the grid. CETY
’
s proven cutting-edge technology allows any commercial or industrial heat generators to boost their overall energy efficiency with no fuel, no pollutants and virtually no maintenance. Company
’
s engineering and manufacturing resources support its heat recovery solutions business, as well as continuing to support other Clean Energy emerging growth companies with their technologies. CETY is positioned to become a worldwide leader in an ever expanding energy efficiency market.
Our growth strategy is to scale our business by focusing on new market segments & regions in the fuel, incentive and process markets, sell equipment direct and through the global distribution channels, build and lease systems sites in island nations to offset the cost of their diesel fuel & emissions, license patented technology and proprietary process, develop cogeneration and OEM opportunities and develop higher output generators while lowering cost.
Our initial acquisition in clean energy is the proprietary turbine technology for Organic Rankine Cycle (
“
ORC
”
)-based heat recovery power systems, which matches our manufacturing and engineering strengths. Our engineering and manufacturing services also provide a source of revenue and assist in providing opportunities for potential business and intellectual property acquisitions.
On September 11, 2015, Clean Energy HRS LLC (
“
CE HRS
”
), a wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement with General Electric International, Inc., a Delaware corporation (
“
GEII
”
), pursuant to which CE HRS acquired GEII
’
s Heat Recovery Solutions, or HRS, assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The HRS assets will be used by the Company to manufacture and commercialize Organic Rankine Cycle (
“
ORC
”
)-based heat recovery power systems. The ORC system comprised GEII
’
s proprietary Clean Cycle
™
turbine generator system and integrated power module, together with related components, controls, power electronics, software and equipment. The Company co-located and integrate the HRS assets with the Company
’
s existing engineering and manufacturing business at the former GEII facility in Costa Mesa, California. The consideration for the purchase of the HRS assets was set forth in the Asset Purchase Agreement, which was filed as Exhibit 10.1 to the Company
’
s Current Report on Form 8K dated September 11, 2015. CE HRS issued a three-year promissory note to GEII with respect to payment of the cash portion of the purchase price and CE HRS assumed certain liabilities of GEII related to the acquired assets. In connection with the Asset Purchase Agreement, the Company also entered into various ancillary agreements customary for asset acquisition transactions of this type.
In connection with the HRS asset transaction, on September 15, 2015, the Company entered into a Transaction Completion and Financing Agreement (the
“
TCF Agreement
”
) with ETI Partners IV LLC, a Delaware limited liability company (
“
ETI
”
), pursuant to which the Company and ETI implemented a structure to provide for the Company to raise up to $5,000,000 in financing. In connection with the TCF Agreement, the Company agreed to issue to ETI 104,910,321 shares of restricted common stock, representing 70% of the fully diluted common stock of the Company upon receipt of an initial $500,000 in financing, which occurred during the quarter ending December 31, 2015. In conjunction with the TCF Agreement, the Company and ETI also entered into a Loan, Guarantee, and Collateral Agreement (the
“
Loan Agreement
”
) and a Registration Rights Agreement. Financing to the Company is intended to be provided pursuant to the Loan Agreement and any shares issued or issuable in connection with the financing are granted certain demand registration rights pursuant to the Registration Rights Agreement. Pursuant to the TCF Agreement, the Company expanded its Board of Directors to 11 directors, and ETI nominated and elected five persons to the Board of Directors. In connection with the TCF Agreement, the Company also entered into various ancillary agreements customary for investment loan transactions of this type. On October 2, 2015, the Company issued an aggregate of 100,910,321 shares of common stock to one investor pursuant to the Transaction Completion and Financing Agreement and 4,000,000 to one investor. All such shares were issued to the accredited investors for cash of $500,000.
36
ETI Capital Partners IV (ETI) acquired a 70 % interest in Clean Energy Technologies, Inc. (CETI) formerly Probe Manufacturing, Inc. for $300,000 in cash. on October 1,
2015. This transaction resulted in a change of control. According to FASB No. 2014-17 Business Combinations (Topic 805) and as a result, this transaction does qualify as a business combination, ETI is not an investment company. CETI elected to apply pushdown accounting, using the valuation date of September 30, 2015. As a result, we recognized $747,976 in goodwill
|
|
ETI Recognized
|
|
Assets Acquired
|
2,949,592
|
Liabilities Acquired
|
3,589,558
|
Cash paid
|
300,000
|
Non-controlling interest
|
191,990
|
Goodwill recognized
|
747,976
|
|
|
|
|
CETI - Push down accounting election
|
|
Cash Received
|
300,000
|
Goodwill recognized
|
747,976
|
Equity
|
1,047,976
|
As part of completing the acquisition of the HRS assets pursuant to the Asset Purchase Agreement and the TCF Agreement and integration thereof into our business, we changed our name to
“
Clean Energy Technologies, Inc.
”
on November 13, 2015to better reflect the focus of our new business and business strategies.
Previously, in March 2013, pursuant to an Agreement and Plan of Acquisition with Trident Manufacturing, Inc., a Utah corporation (
“
Trident
”
) and the shareholders of Trident, we acquired 100% of the issued and outstanding common stock shares of Trident in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident became a wholly-owned subsidiary of the Company. Trident is a full-service electronics manufacturing services company with a 16,000 sq. ft. manufacturing facility in Salt Lake City, Utah, servicing the industrial, aerospace, military, instrumentation, and medical markets since 2005.As of the Trident acquisition, we recognized $420,673 in goodwill. For the year ended December 31, 2015, we impaired the goodwill in the amount of $420,673.
Going Concern
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 $1,249,843 and a working capital deficit of $2,012,417 and a net loss of $2,569,936 for the year ended December 31, 2015. The company also had an accumulated deficit of $4,875,138 as of December 31, 2015 and used $617,553 in net cash from operating activities for the year ended December 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.
Plan of Operation
Management is taking the following steps to sustain profitability and growth: (i) increase sales through existing global distribution channels and utilization of direct sales (ii) sell electricity by kWH to Island nations where the cost of energy is higher and it can offset the cost of their fuel and reduce emissions.(iii) leveraging core competencies to acquire technologies and entertain equity opportunities and (iv) license patented technology and proprietary process and develop cogeneration and OEM opportunities.
37
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.
Our Products and Services
Our main product, the Clean Cycle
™
HRS system, converts heat from variety of heat sources into clean, affordable electricity. Our heat recovery solution system generates electricity from heat with zero fuel required, zero emissions produced, and low maintenance. The Clean Cycle
™
HRS system is also re-deployable with continuous 24x7 operation.
Sales and Marketing
Our marketing approach is to position the Company, our products and our services under our new
“
Clean Energy Technologies, Inc.
”
and
“
CETY
”
identity and brand. We intend to market our Heat Recovery Solutions products specifically using the market-recognized Clean Cycle
™
brand name. We also intend to utilize our relationships to identify new market segments and regions in which we can expand the commercialization of our products. We intend to offer our products for sale and also to commercialize them under leases, energy-based contracts and other financing structures to accelerate customer adoption and increase market penetration. We also intend to explore licensing opportunities for our patented and other proprietary technologies. We utilize both direct sales force and global distributors with expertise in clean energy.
NOTE 2
–
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly 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.
Estimates
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.
Cash and Cash Equivalents
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.
Accounts Receivable
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 December 31, 2015, we had a reserve for potentially un-collectable accounts of $7,000. Five (5) customers accounted for approximately 94% of accounts receivable at December 31, 2015 and one customer accounted for 55% and no other customer accounted for more than 14% 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.
Inventory
38
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 December 31, 2015, we had a reserve for potentially obsolete inventory of $250,000.
Property and Equipment
Property and equipment are recorded 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:
Furniture and fixtures 3 to 7 years
Equipment 7 to 10 years
Depreciation expense totaled $38, 145 and $42,108 for the year ended December 31, 2015 and 2014, respectively.
Long
–
Lived Assets
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.
Revenue Recognition
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.
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.
Fair Value of Financial Instruments
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.
Other Comprehensive Income
We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.
Net Profit (Loss) per Common Share
Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At December 31, 2015, we had outstanding common shares of 139,446,765 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at December 31, 2015 and 2014 were 59,583,060 and 25,980,566, respectively. As of December 31, 2015, we had outstanding warrants to purchase 1,050,000 additional common shares and options to purchase 75,122 additional common shares. Fully diluted weighted average common shares and equivalents were withheld from the calculation as they were considered anti-dilutive.
Research and Development
39
We had curtailed all research and development and were focusing our business on its core business of electronics contract manufacturing.
However, on September 11, 2015 (the
“
Effective Date
”
), Clean Energy HRS LLC (
“
CE HRS
”
), a wholly owned subsidiary of Probe Manufacturing, Inc. (together with its consolidated subsidiaries, the
“
Company
”
), entered into an Asset Purchase Agreement (the
“
Asset Purchase Agreement
”
) with General Electric International, Inc., a Delaware corporation (
“
GEII
”
), pursuant to which the Company acquired GEII
’
s Heat Recovery Solutions (
“
HRS
”
) assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The HRS assets will be used by the Company to manufacture and commercialize Organic Rankine Cycle (
“
ORC
”
)-based heat recovery power systems. The ORC system comprises GEII
’
s proprietary Clean Cycle turbine generator system and integrated power module, together with related components, controls, power electronics, software and equipment. The Company co-locate and integrated the HRS assets with the Company
’
s existing business at the current HRS facility in Costa Mesa, California. We are in the process of analyzing this segment and research and development requirements.
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 expenses in Research and Development Costs during the years ended December 31, 2015 and 2014.
Segment Information
FASB Codification Topic 280,
Segment Reporting
, establishes standards for reporting financial and descriptive information about an enterprise
’
s reportable segments. As identified above in the research and development section, this is a new segment and we are in the process analyzing the appropriate segment information moving forward.
Share-Based Compensation
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.
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 years ended December 31, 2015 and 2014 we had $85,450 and $160,000 respectively, in share based expense, due to the issuance of common stock. As of December 31, 2015 we had no further non-vested expense to be recognized.
40
Income Taxes
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 December 31, 2015, we had a net operating loss carry-forward of approximately $5,000,000 and a deferred tax asset of approximately $1,731,293 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 $(1,731,293). FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2015, the Company had not taken any tax positions that would require disclosure under FASB ASC 740.
|
|
|
|
December 31, 2015
|
December 31, 2014
|
Deferred Tax Asset
|
$ 1,731,293
|
$ 710,900
|
Valuation Allowance
|
(1,731,293)
|
(710,900)
|
Deferred Tax Asset (Net)
|
$ -
|
$ -
|
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, 2012. The Company is current on its federal and state tax returns.
Reclassification
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.
Business Combination and Goodwill
On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident 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 the Company. As a result, we recognized $420,673 in goodwill. On January 2. 2016 we closed the Trident facility in Utah and as for the year ended December 31, 2015 we booked an impairment of the Goodwill in the amount of $420,673.
Recently Issued Accounting Standards
The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.
·
Update 2015-16
—
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
·
Update 2015-15
—
Interest
—
Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
—
Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)
·
Update 2015-14
—
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
·
Update 2015-11
—
Inventory (Topic 330): Simplifying the Measurement of Inventory
·
Update 2015-08
—
Business Combinations (Topic 805): Pushdown Accounting
—
Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update)
·
Update No. 2015-03
—
Interest
—
Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
·
Update No. 2015-02
—
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
41
NOTE 3
–
ACCOUNTS AND NOTES RECEIVABLE
|
|
|
|
December 31, 2015
|
December 31, 2014
|
Accounts Receivable Trade
|
$ 481,699
|
$ 376,540
|
Less Reserve for uncollectable accounts
|
(7,000)
|
(70,000)
|
Accounts Receivable (Net)
|
$ 474,699
|
$ 306,540
|
NOTE 4
–
ASSET ACQUISITION
On September 11, 2015, we issued a promissory note in the initial principal amount of $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with the Company
’
s acquisition from General Electric International, Inc., a Delaware corporation (
“
GEII
”
) of certain GEII
’
s heat recovery solutions, or HRS, assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures.
|
|
Acquired Assets
|
|
Inventory
|
$ 848,029
|
Leased asset
|
217,584
|
Property and Equipment
|
130,887
|
Intellectual Property
|
545,112
|
Assumed warranty Liability
|
(241,612)
|
Net Assets Acquired
|
$ 1,500,000
|
NOTE 5
–
INVENTORY
Inventories by major classification were comprised of the following at:
|
|
|
|
December 31, 2015
|
December 31, 2014
|
Raw Material
|
$ 1,311,069
|
$ 647,824
|
Work in Process
|
143,119
|
166,529
|
Finished Goods
|
3,221
|
13,029
|
Total
|
1,457,409
|
827,382
|
Less reserve for excess or obsolete inventory
|
(250,000)
|
(270,000)
|
Total Inventory
|
$ 1,207,409
|
$ 557,382
|
NOTE 6
–
PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at:
|
|
|
|
December 31, 2015
|
December 31, 2014
|
Capital Equipment
|
$ 1,842,333
|
$ 1,938,696
|
Leasehold improvements
|
-
|
36,686
|
Total
|
1,842,333
|
1,975,382
|
Accumulated Depreciation
|
(1,626,574)
|
(1,852,381)
|
Net Fixed Assets
|
$ 215,759
|
$ 123,001
|
NOTE 7
–
ACCRUED EXPENSES
|
|
|
|
December 31, 2015
|
December 31, 2014
|
|
|
|
Accrued Wages
|
$ 339,329
|
$ 125,900
|
Accrued Interest
|
27,592
|
51,259
|
Customer deposits
|
204,763
|
8,000
|
Accrued Payable to GE - Estimate
|
792,868
|
-
|
Accrued Rent
|
48,190
|
48,190
|
Total Accrued Expenses
|
$ 1,412,742
|
$ 233,349
|
NOTE 8
–
NOTES PAYABLE
Notes payable
The Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the amount of $50,000 and fixed fee amount of $3,500. As of December 31, 2015 the outstanding balance was $38,500
.
On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of December 31, 2015, the outstanding balance was $786,227, compared to $393,399 at December 31, 2014.
On November 3, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At December 31, 2015, the outstanding balance was $4,332.
On December 24, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At December 31, 2015, the outstanding balance was $4,332.
On August 28, 2014, we issued an unsecured note for $100,000 with a fixed fee of $20,000, amortized over 7 months. On December 22, 2014, the outstanding balance of this note including remaining fees was $58,441, when the outstanding balance was rolled into a new note in the initial principal amount of $150,000, with fees in the amount of $28,500. The new note amortizes over 18 months. The outstanding balance at December 31, 2015 was $59,331.
On September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions, or HRS, assets of General Electric International, Inc., a Delaware corporation (
“
GEII
”
), including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note is payable on the following schedule: (a) $200,000 in principal on December 31, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with interest thereon, payable in equal quarterly installments of principal and interest of $157,609.02, commencing on December 31, 2016 and continuing until June 30, 2018, at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full.
Note Payable
Requirements for long-term Obligations
|
|
|
|
|
2016
|
2017
|
2018
|
Note payable General Electric
|
315,218
|
630,436
|
254,346
|
NOTE 9
–
COMMITMENTS AND CONTINGENCIES
Operating Rental Leases
43
On February 21, 2012 Trident Manufacturing, Inc. entered into a 5-year lease with First Industrial Realty Trust, Inc. with a commencement date of February 21, 2012. The facility is approximately 15,040 square feet and located at 440 West Lawndale Drive, Salt Lake City UT 84115.
|
|
|
|
Year
|
Annual Rent
|
2016
|
81,216
|
2017
|
13,536
|
In April 2015, Trident entered into a sublease agreement with Lucky Spoon, LLC. The term of the sublease commenced on April 1, 2015 and expires on the last day of Trident
’
s lease.
On August 27,2015, we entered into a sublease agreement with Rosenson Properties, LLC, a California limited liability company, as landlord, and General Electric International, Inc., a Delaware corporation, as tenant and assignor, for the premises located at 150 Baker Street East, Costa Mesa, California. GEII had entered into a lease dated as of December 17, 2010, as amended by a First Amendment to Lease dated March 11, 2014, wherein Rosenson Properties leased the premises to GEII. The premises consist of approximately 35,704 square feet of space and the lease provides for monthly triple-net lease payments of $22, 973. The lease term ends on March 31, 2016.
|
|
|
|
Year
|
Annual Rent
|
2016
|
54,098
|
On May 1, 2016 we will be moving our corporate headquarters to 2990 Redhill Unit A, Costa Mesa, CA. On March 10, 2016, the Company signed a lease agreement for a 18,200 square foot CTU Industrial Building. Lease term is seven years and two months beginning July 1, 2016. Rental is $179,090 for the first twelve months.
|
|
|
Year
|
|
Lease Payment
|
2016
|
|
$179,090
|
2017
|
|
$221,352
|
2018
|
|
$228,000
|
2019
|
|
$234,840
|
2020
|
|
$241,884
|
2021
|
|
$249,132
|
2022
|
|
$256,608
|
2023
|
|
$44,052
|
Severance Benefits
Effective at December 31, 2015, Mr. Mahdi was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive period of (1) year, at an annual salary of $275,000.
Effective at December 31, 2015, Mr. Bennett was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder of his employment period or two (2) years, whichever is greater, at an annual salary of $140,000.
44
NOTE 10
–
CAPITAL STOCK TRANSACTIONS
On April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.
On May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.
Stock Repurchase Program
On November 1, 2011, the Company adopted a plan to repurchase up to 500,000 shares of its issued and outstanding common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended.
The plan allows the Company to purchase its issued and outstanding common shares in the open market or in negotiated transactions, from time to time, depending on market conditions and other factors as well as being in compliance with applicable securities laws. The plan does not obligate the Company to make any purchases, at any specific time or in any particular situation. The plan may be suspended or discontinued at any time at the sole discretion of the Company. Share repurchases will be funded with the Company
’
s available cash, after determining the working capital requirements of the Company. Accordingly, there is no guarantee as to the exact number of shares that will be repurchased under the plan.
The Company
’
s Board of Directors authorized the repurchase plan because it believed market conditions at the time of the plan
’
s adoption or thereafter may cause the Company
’
s common stock to be undervalued and repurchases of Company common stock to be in the best interests of the Company and its stockholders. The timing and number of any shares repurchased will depend on the terms and conditions of the plan and no assurance can be given that any specific amount of common stock will be repurchased.
As of December 31, 2015 and 2014, we had repurchased an aggregate total of 11,500 shares of our common stock under the plan.
Common Stock Transactions
Beginning with the year 2014, we issued the following securities without registration under the Securities Act of 1933, as amended. These securities were issued on the reliance of an exemption provided by Section 4(a)(2) of the Securities Act.
On May 12, 2014, we issued 500,000 shares of common stock for services at $.05 per share.
On September 4, 2014, we issued 729,167 shares of common stock to Luxus Micro Cap S.A. for conversion of accrued interest under the series D preferred stock and $.08 per share.
On November 15, 2014, we issued 850,000 shares and accrued for 450,000 of common stock for services to related parties at $.05 per share.
On December 1, 2014, we issued 1,400,000 shares of common stock for services at $.06 per share.
On December 2, 2014, we issued 2,945,333 for cash.
On February 2, 2015, we issued 40,000 shares of common stock for services at $.08
On February 24, 2015, we issued 1,845,000 shares of common stock for cash in the amount of $116,698, of which $70,699 was received in 2014 and the balance included in
“
to be issued.
”
On March 6, 2015, we issued 450,000 shares of common stock for services to related parties at $.05 per share, which was accrued for in 2014.
On March 6, 2015, we issued 50,000 shares of common stock for services at $.05 per share.
On April 1, 2015 we issued 25,000 shares of common stock for consulting services at $.05 per share.
45
On September 11, 2015, we issued 1,300,000 shares of common stock for compensation at $.05 per share.
On October 1, 2015, the Company issued 150,000 shares of its common stock for consulting services.
On October 2, 2015, the Company issued an aggregate of 100,910,321 shares of common stock to one investor pursuant to the Transaction Completion and Financing Agreement and 4,000,000 to one investor. All such shares were issued to the accredited investors for cash of $500,000.
Common Stock
Our Articles of Incorporation authorize us to issue 200,000,000 shares of common stock, par value $0.001 per share. As of December 31, 2015 there were 139,446,765 and shares of common stock outstanding. All outstanding shares of common stock are, and the common stock to be issued will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every respect. The holders of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are entitled to one vote for each share of common stock held. There are no cumulative voting rights.
The holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may declare from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights and preferences of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and our obligations to holders of our outstanding preferred stock.
Preferred Stock
Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock. We authorized 440 shares of Series A Convertible Preferred Stock and 20,000 shares of Series B Convertible Preferred Stock. On May 25, 2006 the Articles of Incorporation were amended to authorize 15,000 shares Series C Convertible Preferred Stock.
As of August 20, 2006, all series A, B, and C preferred had been converted into common stock.
Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.
Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.
Effective August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares. We have received an aggregate of $750,000 in financing in subscription for Series D Preferred Stock. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings over the course of 6 months.
The following are primary terms of the Series D Preferred Stock offering. The Series D Preferred holders will be paid a special monthly divided at the rate of 17.5% per annum or at the option of the investor such special may accrue such special dividends. If the Company does not pay the special dividend within five (5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the investor a penalty of 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate shall equal to the greater of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred Stock shall be redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial purchase price plus all accrued but
46
unpaid dividends. If Company is not in financial position to pay it back it need to notify the investors thirty (30) days prior the redemption period commencing and both parties will negotiate in good faith for an extension of the redemption period. The Company may elect to redeem the Series D Preferred Stock any time after the offering closing at a price equal to initial purchase price plus all accrued but unpaid dividends subject to the investors
’
right to convert by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.
On June 25, 2013, we received $500,000 from a related party in subscription for 5,000 shares of Preferred Series D Preferred Stock. These shares have not been issued as of the date of this filing. On August 21, 2014, the related party agreed to lower the dividend rate to 13% and extend the term on the redemption period for these shares for an additional one year. On September 8, 2015 the investors signed an estoppel agreement, whereby the investors agreed to reduce, (effective as of June 30, 2015), the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the penalty provided for in the IAs in respect of unpaid dividends accruing on or after such date.
On connection with the subscription for such shares, we issued series F warrants to purchase 250,000 shares of our common stock at $.10 and series G warrants to purchase 250,000 shares of our common stock at $.20. Each warrant gives the holder the right to purchase one share of common stock.
On September 19, 2013, we received $250,000 from a related party in subscription for 2,500 shares of Series D Preferred Stock. These shares have not been issued as of the date of this filing. On September 8, 2015 the investors signed an estoppel agreement, whereby the investors agreed to reduce, (effective as of June 30, 2015), the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the penalty provided for in the IAs in respect of unpaid dividends accruing on or after such date.
In connection with the subscription for such shares, we issued series F warrants to purchase 125,000 shares of our common stock at $.10 and series G warrants to purchase 125,000 shares of our common stock at $.20. Each warrant gives the holder the right to purchase 1 share of common stock.
Warrants
Series E
–
Common Stock warrants
On April 8, 2011, we issued 300,000 series E Warrants. Each warrant gives the holder the right to purchase one share of common stock (300,000 total shares) at $0.50 per share. The Series E Warrants expire on April 8, 2016, as a result we recognized $6,600 in share-based expense.
Series F
–
Common Stock warrants
On June 25, 2013, we issued 250,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.
On September 19, 2013, we issued 125,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.
Series G
–
Common Stock warrants
On June 25, 2013, we issued 250,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.
On September 19, 2013, we issued 125,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.
A summary of warrant activity for the periods is as follows:
|
|
|
|
|
|
|
|
|
Warrants - Common Share Equivalents
|
Weighted Average Exercise price
|
|
Warrants exercisable - Common Share Equivalents
|
Weighted Average Exercise price
|
Outstanding December 31, 2013
|
1,050,000
|
0.25
|
|
1,050,000
|
0.25
|
|
Granted
|
-
|
-
|
|
-
|
-
|
|
Expired
|
-
|
-
|
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
Outstanding December 31, 2014
|
1,050,000
|
0.25
|
|
1,050,000
|
0.25
|
|
Granted
|
-
|
-
|
|
-
|
-
|
|
Expired
|
-
|
-
|
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
-
|
-
|
Outstanding December 31, 2015
|
1,050,000
|
0.25
|
|
1,050,000
|
0.25
|
|
|
|
|
|
|
|
|
Warrants Outstanding
|
|
Warrants Exercisable
|
Range of Warrant Exercise Price
|
Warrants - Common Share Equivalents
|
Weighted Average Exercise price
|
Weighted Average Remaining Contractual life in years
|
|
Warrants - Common Share Equivalents
|
Weighted Average Exercise price
|
$
0.50
|
300,000
|
$
0.50
|
.27
|
|
300,000
|
$
0.50
|
$
0.10
|
250,000
|
$
0.10
|
2.25
|
|
250,000
|
$
0.10
|
$
0.20
|
250,000
|
$
0.20
|
2.25
|
|
250,000
|
$
0.20
|
$
0.10
|
125,000
|
$
0.10
|
2.50
|
|
125,000
|
$
0.10
|
$
0.20
|
125,000
|
$
0.20
|
2.50
|
|
125,000
|
$
0.20
|
Total
|
1,050,000
|
$
0.25
|
|
|
1,050,000
|
$
0.25
|
Stock Options
On February 8, 2007 pursuant to our 2006 Qualified Incentive Option Plan, we granted to Company employees incentive stock options to purchase 406,638 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company
’
s common stock at the time of the grant. These options expire on February 8, 2017. At December 31, 2015, there were 15,122 outstanding options under this plan.
On February 8, 2008, we granted stock options to our key employees to purchase up to 750,000 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company
’
s common stock at the time of the grant. These options expire on February 8, 2017. At December 31, 2015, the balance of the outstanding options under this plan is 30,000.
On February 28, 2008, we granted stock options to a key employee to purchase up to 30,000 shares of our common stock. These options were granted at $.033 cents, the fair market value of the Company
’
s common stock at the time of the grant. These options expire on February 8, 2017. At December 31, 2015, the balance of the outstanding options under this plan was 30,000.
NOTE 11
–
RELATED PARTY TRANSACTIONS
48
Kevin Scott, one of the Board of Directors members, owns SK Polymers. SK Polymers is a supplier to the Company. Our board of directors has approved the supply transactions between SK Polymers and the Company.
Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time we purchase parts from Billet Electronics. In addition, from time to time we provide assembly and value-added services to Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of our company. Our board of directors has approved the transactions between Billet Electronics and the Company.
On September 4, 2014, we issued 729,167 shares of common stock to Luxus Micro Cap S.A. (controlled by director Juhani Taskinen) for conversion of accrued interest under the Series D Preferred Stock at $.08 per share
On November 15, 2014, we issued 400,000 shares of common stock to John Bennett, our Chief Financial Officer, as additional compensation and accrued for 100,000 shares for board of director compensation at $.05 per share.
On November 15, 2014, we issued 100,000 shares of common stock and accrued for 100,000 shares of common stock for board of director compensation to Kam Mahdi our Chief Executive officer at $.05 per share.
On November 15, 2014, we issued 100,000 shares of common stock and accrued for 100,000 shares of common stock for board of director compensation to Robert Young at $.05 per share.
On November 15, 2014, we issued 100,000 shares of common stock and accrued for 100,000 shares of common stock for board of director compensation to Shervin Talieh at $.05 per share.
On September 11, 2015, we issued 400,000 shares of common stock to John Bennett, our Chief Financial Officer, as additional compensation at $.05 per share.
On September 11, 2015, we issued 150,000 shares of common stock for board of director compensation to Kam Mahdi our Chief Executive officer at $.05 per share.
On September 11, 2015, we issued 150,000 shares of common stock for board of director compensation to Robert Young at $.05 per share.
On September 11, 2015, we issued 150,000 shares of common stock for board of director compensation to Shervin Talieh at $.05 per share.
On September 11, 2015, we issued 150,000 shares of common stock and accrued for 150,000 shares of common stock for board of director compensation to Kevin Scott at $.05 per share.
On September 11, 2015, we issued 150,000 shares of common stock shares of common stock for board of director compensation to Juhani Taskinen at $.05 per share.
On September 11, 2015, we issued 150,000 shares of common stock shares of common stock for board of director compensation to John Bennett our Chief Financial Officer at $.05 per share.
NOTE 12
–
SUBSEQUENT EVENTS
On March 11, 2016, we entered into a 3-year convertible note payable for $75,000, which accrues interest at the rate of 1.46% per annum.
On March 10, 2016, the Company signed a lease agreement for a 18,200 square foot CTU Industrial Building. Lease term is seven years and two months beginning July 1, 2016. Rental is $179,090 for the first twelve months.
49
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Director Qualifications
We believe that our Board of Directors should encompass a diverse range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to our operations and interests. Each director also is expected to: exhibit high standards of integrity, commitment and independence of thought and judgment; use his or her skills and experiences to provide independent oversight to our business; participate in a constructive and collegial manner; be willing to devote sufficient time to carrying out their duties and responsibilities effectively; devote the time and effort necessary to learn our business; and represent the long-term interests of our Shareholders. Furthermore, we believe our Board of Directors should be comprised of persons with skills in areas such as: finance, electronic manufacturing, leadership of business organizations and legal matters.
Kambiz Mahdi
,
age 50, Kambiz Mahdi is co-founder, and served as President and Chief Executive Officer of Probe Manufacturing from 1996 until December of 2005 and again from July 2009 until present. Prior to CETY, Mr. Mahdi was technical director at Future Electronics for six years supporting Motorola, Analog Devices and Micro Chip technologies and product lines. While at Future Electronics, Mr. Mahdi developed superior technical management leadership and skills servicing some of the top 100 fortune technology customers and their applications. Mr. Mahdi also started Billet Electronics a global supply chain provider of products, services and solutions in the technology sector in 2007. He has established the company as a leading independent distributor of electronic components and provider of value-added services to its market. Mr. Mahdi has a BS degree in Electrical Engineering from California State University of Northridge. Mr. Mahdi has not served on any other boards of public companies in the past five years.
Our Board of Directors selected Mr. Mahdi to serve as a director because he is our Chief Executive Officer and has served in various executive roles with our company for 14 years, with a focus on electrical design & manufacturing, sales and operations. Mr. Mahdi has profound insight into the development, marketing, finance, and operations aspects of our company. He has expansive knowledge of engineering and manufacturing industry and relationships with chief executives and other senior management at technology companies. Our Board of Directors believes that Mr. Mahdi brings a unique and valuable perspective to our Board of Directors.
John Bennett
, age 55, John Bennett has been with Probe Manufacturing since February 2005, as the Chief Financial Officer. He has been in the Electronic Manufacturing Industry for 22 years. He has held positions as the Controller, Vice President of Finance and Chief Financial Officer, with experience in Contract Manufacturing of Printed Circuit Board Assembly, Cable and Harness Assembly, Box Builds and Battery & Charger assembly. He holds a Bachelor of Science in Accounting from Mesa University and a Master of Science in Finance from the University of Colorado. Mr. Bennett has not served on any other boards of public companies in the past five years.
Our Board of Directors selected Mr. Bennett to serve as a director because he is our Chief Financial Officer and has been with our company for more than 10 years, where his primary focus has been on the financial systems and operations and SEC reporting of the company. He has significant knowledge of, and relationships within, the electronic manufacturing industry, due in part to the 25 years he has spent working in the industry. Our Board of Directors believes that his executive experience in the electronic manufacturing coupled with his deep knowledge of our company
’
s strategies and operations will bring strong financial and operational expertise to our Board of Directors.
Robert Young
,
age 62, prior to joining our board of directors in June of 2012, Mr. Young was Director of Mobile Services for Boeing Satellite Systems, Inc. (
“
BSS
”
), the world
’
s largest manufacturer of commercial satellites, where he was responsible for developing communication and navigation services for governmental and commercial clients. Prior to joining BSS, Mr. Young was the CFO and Chief of Business Operations for a joint venture between Hughes Electronics, General Motors and Delco Electronics. Previously, Mr. Young was assigned to the Hughes Electronics Corporate Office where he was responsible for mergers and acquisitions, identifying and developing foreign offset programs and served as the Hughes Chief Economist. Mr. Young currently sits on the board of Kinecta Federal Credit Union, which is the 19
t
h
largest credit union in the United States
51
(having previously served as Kinecta
’
s Chairman of the board of directors from 2007-2009). Mr. Young received his B.S. degree from the San Diego State University and an M.BA. from Loyola Marymount University.
Our Board of Directors selected Mr. Young to serve as a director due to his knowledge of the electronics manufacturing industry and his previous relationships with companies such as BSS, Hughes Electronics, General Motors and Delco Electronics. Mr. Young
’
s extensive knowledge of our company
’
s business sector combined with his executive experience at numerous other companies focused on the manufacturing industry is a significant asset to our company. Our Board of Directors believes that Mr. Young
’
s experience will assist us in developing our long- term strategy in the electronics manufacturing services industry.
Kevin Scott
age 52 - is President of SK Polymers, Inc., which provides distribution and consulting services in the North American Petro-Chemical market. Mr. Scott brings 25 years of expertise in marketing and procurement stemming from his previous positions at privately held groups such as Rimpac International and Major North American Petro Chemical companies such as Eastman Chemical Company, Ineos and Lyondell Basell. Mr. Scott currently serves as board chair of the Children
’
s Dental Center of Greater Los Angeles, an organization that provides education, dental screening and clinical services to the underserved children of Los Angeles. Mr. Scott received his B.S. degree from Franklin University in Business Administration.
Our Board of Directors selected Mr. Scott to serve as a director due to his strong relationships and understanding of the operations of technology companies. Mr. Scott
’
s vast experience in business operations enhances his ability to contribute insight on achieving business success in a diverse range of economic conditions and competitive environments. Our Board of Directors believes that this experience will bring valuable knowledge and insight to our company.
Meddy Sahebi
age 47
–
Meddy Sahebi, has over 35 years of experience in business development, where he has focused specifically on finding opportunities in emerging markets, and product development. Mr. Sahebi, was a founder of Mann Healthcare Partners, in 2011, and has been a director since that time. From 2008 to 2011, Mr. Sahebi was a business development consultant to Crescent Financial Partners, a Los Angeles
–
based private equity and merchant banking firm. While at Crescent, Mr. Sahebi focused on business development for fast growing, early-stage and middle market companies across multiple industries ranging from high-tech to real estate to energy companies. Prior to 2008, Mr. Sahebi founded a consulting company that worked with master developers to develop eco-friendly, socially responsible, sustainable communities comprising of entertainment, commercial and residential real estate projects in the United States and Canada. The Board of Directors appointed Mr. Sahebi as Chairman of the Board of the Company due to his strong experience in management of small to mid-size companies and his work in the emerging markets.
William Maloney
age 56
–
William Maloney has been the President of Bioenergy Associates, LLC, since 2008, where he is currently managing consultants and providing advisory services to biofuels and bioenergy producers, traders and project developers. Mr. Maloney has been involved in the renewable energy sector for over 30 years. Previously to working at Bioenergy Associates, Mr. Maloney served as President and CEO of Pacific West Energy, LLC, a renewable energy company involved in developing renewable energy projects in Hawaii, and affiliated with Province Line Capital LLC, a company that traded in soft commodities and biofuels, as well as, providing consulting and advisory services. From 1996
–
2008 Mr. Maloney served as Director of Business development for ED & F Man Alcohols. In this position Mr. Maloney was responsible for fuel ethanol sales in the USA as well as project evaluation and development in the US and Central America. In addition to ED & F Man, Mr. Maloney has or continues to provide consulting services to such firms the Louis Dreyfus, Vitol SA, Morgan Stanley, Pacific Ventures, Pacific International Energy Solutions, Windstrip and Aloha Petroleum. Prior to joining ED & F Man Mr. Maloney was the principal owner and director of Caribbean Pacific Alcohol Company (1992-1998), owner and operator of a twelve million gallon per annum ethanol plant in Kingston, Jamaica. The Board of Directors believes that Mr. Maloney
’
s experience in the renewable energy sectors and his financial knowledge would be a valuable asset to the Company, and as such, has elected Mr. Maloney as a Director to the Company.
Juha Rouvinen
age 49
–
Juha Rouvinen, has been the Chairman and CEO of Windstrip LLC, since 2005. At Windstrip, Mr. Rouvinen manages teams that have invented and are commercializing an integrated hybrid power system that provides continuous power to remote locations that otherwise would not have access to electricity. Mr. Rouvinen has more than 20 years of experience in founding, managing, financing and investing in start-up companies. Mr. Rouvinen specializes in advising clean technology investors, incubators and green technology funds in Finland, the Middle East and North America. Previously to Windstrip, Mr. Rouvinen founded and managed a hospitality and health services company in Finland. In light of Mr. Rouvinen
’
s past experience in green technology, start-up companies and his business knowledge, he was appointed as a Director of the Company.
52
Daniel Elliott
age 44
–
Daniel Elliott is a recognized leader in business development and strategy in the sustainable energy sector. Mr. Elliott was the President/CEO/Board Member of Microvast, Inc. in Stafford, TX from 2009 to 2010, a Lithium Ion Battery MFG with locations in Texas and China with approximately 600 employees, manufacturing LTO lithium batteries for high power applications, i.e., buses, trucks, cranes, power grid, heavy equipment. He was the board member of VRDT Corporation, a holding company of energy assets, including lithium battery plant in Germany, investments in Netherlands for energy assets. Mr. Elliott is the Chief Strategy Officer of Symblu, LLC since 2011 to present. Symblu is a renewable energy development company, developing large solar projects, battery energy storage projects and invests into battery plants. Mr. Elliott has worked around the globe identifying and commercializing leading edge technologies. With more than two decades of experience in operations, business development and distressed company turn-around strategies, Mr. Elliott is able to efficiently assess complex business issues and bring effective action plans to realization. Mr. Elliott has previously worked on major initiatives with dozens of leading companies such as Ford Motor Company, DaimlerChrysler, Honda, MagnaSteyr, Roush, Bosch, Toshiba, Coslight, Yintong Energy, Microvast and others. In 2008, Mr. Elliott was the recipient of the Department of Energy
’
s,
“
Energy Innovators Award.
”
Mr. Elliott was appointed as a Director of the Company on account of his previous work developing businesses and his work in the sustainable energy sector.
Erin Falconer
age 40
–
Erin Falconer, is the co-owner and Editor-in-Chief of PickTheBrain.com, which is currently one of the most successful self-development websites on the internet, with Forbes Magazine distinguishing her blog as
“
One of the Top 100 Most Influential Sites for Women
”
, in 2013. In 2012, Erin along with her partner, raised one million dollars to fund her tech start-up LEAF.tv (an ecommerce video brand for the Millennial generation). She was president until 2015, when LEAF was sold to publicly traded, Demand Media. She is now the General Manager of the brand. Simultaneously, since 2008, Erin has been the Editor in Chief and co-owner of PickTheBrain - one of the most successful and respected self-improvement blogs online, today.
Prior to this, Erin was the Vice-President of Marketing for ThisNext - a popular social shopping platform from 2010-2012 and the Content Manager for PeopleJam until it was purchased by Chicken Soup for the Soul, from 2008-2010). Ms. Falconer is a seasoned tech expert with over 8 years of online experience. She has been heralded as one of the most innovative thought leaders in her space by many media outlets, including LA Confidential. Ms. Falconer is also the co-founder of the lifestyle online website Leaf.tv
–
a how-to video portal for the millennial generation, which she recently sold. We appointed Ms. Falconer as a Director of the Company due to her extensive online experience creating successful websites, her ability to find innovative solutions to market demands, and her talent of growing small companies into successful brands.
Corporate Governance
Director Attendance at Meetings of the Board of Directors
Our Board of Directors held nine meetings during the fiscal year ended December 31, 2015. Each of our incumbent directors attended at least 75.0% of the aggregate total number of meetings of our Board of Directors held during the period for which he served as a director.
Director Attendance at Annual Meetings of the Shareholders
Although we have no policy with regard to attendance by the members of our Board of Directors at our annual meetings, we invite and encourage the members of our Board of Directors to attend our annual meetings to foster communication between Shareholders and our Board of Directors.
Stockholder Communication with the Board of Directors
Any stockholder who desires to contact members of our Board of Directors, or a specified committee of our Board of Directors, may do so by writing to: Probe Manufacturing, Inc., Board of Directors, 150 E. Baker Street, Costa Mesa, California 92626, Attention: Secretary. Communications received will be distributed by our Secretary to such member or members of our Board of Directors as deemed appropriate by our Secretary, depending on the facts and circumstances outlined in the communication received.
Director Independence
We have a Nine-member Board of Directors. Due to the size of our company and the difficulty in finding directors that have experience in our industry, six of our directors can be deemed an
“
independent directors.
”
53
While our stock is not listed on the New York Stock Exchange, our independent directors would qualify as independent under the rules of the New York Stock Exchange.
Board Leadership Structure; Independent Lead Director
Meddy Sahebi
–
Meddy Sahebi, has over 35 years of experience in business development, where he has focused specifically on finding opportunities in emerging markets, and product development. Mr. Sahebi, was a founder of Mann Healthcare Partners, in 2011, and has been a director since that time. From 2008 to 2011, Mr. Sahebi was a business development consultant to Crescent Financial Partners, a Los Angeles
–
based private equity and merchant banking firm. While at Crescent, Mr. Sahebi focused on business development for fast growing, early-stage and middle market companies across multiple industries ranging from high-tech to real estate to energy companies. Prior to 2008, Mr. Sahebi founded a consulting company that worked with master developers to develop eco-friendly, socially responsible, sustainable communities comprising of entertainment, commercial and residential real estate projects in the United States and Canada. The Board of Directors appointed Mr. Sahebi as Chairman of the Board of the Company due to his strong experience in management of small to mid-size companies and his work in the emerging markets.
Committees of our Board of Directors -
We have no standing committees of our Board of Directors at the current time, which is again due to the size of our operations. From time to time, our Board of Directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full Board of Directors meeting. As our company grows, we plan to establish an audit committee, compensation committee and nominating and corporate governance committee. The functions that these committees will perform are currently being performed by our three-member Board.
Director Nomination Procedures and Diversity
As outlined above, in selecting a qualified nominee, our Board of Directors considers such factors as it deems appropriate, which may include: the current composition of our Board of Directors; the range of talents of a nominee that would best complement those already represented on our Board of Directors; the extent to which a nominee would diversify our Board of Directors; a nominee
’
s standards of integrity, commitment and independence of thought and judgment; a nominee
’
s ability to
represent the long-term interests of our shareholders as a whole;
a nominee
’
s
relevant expertise and experience upon which to be able to offer advice and guidance to management; a nominee who is accomplished in his or her respective field, with superior credentials and recognition;
and the need for specialized expertise.
While we do not have a formal diversity policy, we believe that the backgrounds and qualifications of our directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow our Board of Directors to fulfill its responsibilities.
Applying these criteria, our Board of Directors considers candidates for membership on our Board of Directors suggested by its members, as well as by our Shareholders. Members of o
ur Board of Directors annually review our Board of Directors
’
composition by evaluating whether our Board of Directors has the right mix of skills, experience and backgrounds.
Our Board of Directors may also consider an assessment of its diversity, in its broadest sense, reflecting, but not limited to, age, geography, gender and ethnicity.
Our Board of Directors identifies nominees by first evaluating the current members of our Board of Directors willing to continue in service. Current members of our Board of Directors with skills and experience relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of our Board of Directors does not wish to continue in service or if our Board of Directors decides not to nominate a member for re-election, our Board of Directors will review the desired skills and experience of a new nominee in light of the criteria set forth above.
Our Board of Directors also considers nominees for our Board of Directors recommended by Shareholders. Notice of proposed stockholder nominations for our Board of Directors must be delivered in accordance with the requirements set forth in our bylaws and SEC Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Nominations must include the full name of the proposed nominee, a brief description of the proposed nominee
’
s business experience for at least the previous five years and a representation that the nominating stockholder is a beneficial or record owner of our common stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. Nominations should be delivered to: Probe Manufacturing, Inc., Board of Directors, 150 E. Baker Street, Costa Mesa, California 92626, Attention: Chief Executive Officer.
54
Our Board of Directors will recommend the slate of directors to be nominated for election at the annual meeting of shareholders. We have not and do not currently employ or pay a fee to any third party to identify or evaluate, or assist in identifying or evaluating, potential director nominees.
Board of Directors Role in Risk Oversight
Our Board of Directors oversees our shareholders
’
interest in the long-term success of our business strategy and our overall financial strength.
Our Board of Directors is actively involved in overseeing risks associated with our business strategies and decisions. It does so, in part, through its approval of all acquisitions and business-related investments and all assumptions of debt, as well as its oversight of our executive officers pursuant to annual reviews. Our Board of Directors is also responsible for overseeing risks related to corporate governance and the selection of nominees to our Board of Directors.
In addition, the Board reviews the potential risks related to our financial reporting. The Board meets with our Chief Financial Officer and with representatives of our independent registered public accounting firm on a quarterly basis to discuss and assess the risks related to our internal controls. Additionally, material violations of our Code of Ethics and related corporate policies are reported to our Board of Directors.
Code of Business Conduct and Ethics
We have adopted our Code of Ethics, which contains general guidelines for conducting our business and is designed to help our directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. Our Code of Ethics applies to our Principal Executive Officer, Principal Financial Officer, and persons performing similar functions and all members of our Board of Directors. Our Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Shareholders may request a copy of our Code of Ethics, which will be provided without charge, by writing to: Probe Manufacturing, Inc., 150 E. Baker Street, Costa Mesa, California 92626; Attention: Chief Executive Officer. Our Code of Ethics is also available on our website, http://CETY.io/. If, in the future, we amend, modify or waive a provision in our Code of Ethics, we may, rather than filing a Current Report on Form 8-K, satisfy the disclosure requirement by posting such information on our website, as necessary.
Compensation of Directors
The key objective of our non-employee directors' compensation program is to attract and retain highly qualified directors with the necessary skills, experience and character to oversee our management. We currently use equity-based compensation to compensate our directors due to our restricted cash flow position; however, we may in the future provide cash compensation to our directors. The use of equity-based compensation is designed to recognize the time commitment, expertise and potential liability relating to active Board service, while aligning the interests of our Board of Directors with the long-term interests of our shareholders.
In addition to the compensation provided to our non-employee director, which is detailed below, each non-employee director is reimbursed for any reasonable out-of-pocket expenses incurred in connection with attending in-person meetings of the Board of Directors and Board committees, as well for any fees incurred in attending continuing education courses for directors.
Fiscal Years
201
5
and
201
4
Annual Cash Compensation
We currently do not provide cash compensation to our directors and as such did not provide any cash compensation during the years ended December 31, 2015 and 2014.
Fiscal Years
201
5
and
201
4
Equity Compensation
Yearly Restricted Share Awards
Under the terms of the discretionary restricted share unit grant provisions of our 2006 Incentive Stock Plan and our
2011 Omnibus Incentive Plan
, which we refer to as the 2006 Plan and 2011 Plan, respectively, each non-employee director is eligible to receive
55
grants of restricted common stock share awards at the discretion of our Board of Directors. These yearly restricted share unit awards vest in full on the grant date. For 2014 and 2015 we issued the 450,000 shares of common stock to our two independent directors.
Discretionary Grants
Under the terms of the discretionary option grant provisions of the 2006 Plan and the 2011 Plan, non-employee directors are eligible to receive stock options or other stock awards granted at the discretion of the Board of Directors. No director received stock options or other stock awards pursuant to the discretionary grant program during fiscal year 2015 or 2014.
Director Summary Compensation in Fiscal Years
201
5
and
201
4
The following table sets forth the fiscal years 2015, and 2014 compensation for our non-employee directors.
|
|
|
|
Name
|
Fees Earned or Paid in Cash ($) (1)
|
Stock Awards ($) (2)
|
Total ($)
|
Shervin Talieh 2015
|
$
-
|
$
7,500
|
$
7,500
|
Shervin Talieh 2014
|
$
-
|
$
5,000
|
$
5,000
|
|
|
|
|
|
|
|
|
Robert Young 2015
|
$
-
|
$
7,500
|
$
7,500
|
Robert Young 2014
|
$
-
|
$
5,000
|
$
5,000
|
|
|
|
|
|
|
|
|
Kevin Scott 2015
|
$
-
|
$
7,500
|
$
7,500
|
|
|
|
|
|
|
|
|
Meddy Sahebi 2015
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
William Maloney 2015
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
Juha Rouvinen 2015
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
Daniel Elliott 2015
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
Erin Falconer 2015
|
$
-
|
$
-
|
$
-
|
56
(1)
This column represents the amount of cash compensation earned in fiscal years 2014, and 2015 for Board and committee service.
(2)
This column represents the grant date fair value of restricted share awards granted in fiscal years, 2014, and 2015 in accordance with FASB ASC Topic 718. The grant date fair value of restricted share unit awards is the closing price of our common stock shares on the date of grant.
Change of Control and Termination Provisions
We currently do not have any stock options issued and outstanding to our non-employee directors. In the event of a dissolution or liquidation of the company or if we are acquired by merger or asset sale or in the event of other change of control events
, no acceleration of the termination of any of the restrictions applicable to Restricted Shares, Restricted Stock Unit Awards, Options or Stock Appreciation Rights as defined in the 2011 Plan shall occur in the event of a change in control, unless otherwise provided by our Board of Directors or committee thereof, in such grant.
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of our executive officers and Directors as of December 31, 2015 are as follows:
|
|
|
Name
|
Age
|
Position
|
Kambiz Mahdi
|
51
|
Chief Executive Officer and Member of Board of Directors
|
John Bennett
|
55
|
Chief Financial Officer and Member of Board of Directors
|
Robert Young
|
62
|
Director
|
Kevin Scott
|
52
|
Director
|
Meddy Sahebi
|
47
|
Chairman
|
William Maloney
|
56
|
Director
|
Juha Rouvinen
|
49
|
Director
|
Daniel Elliott
|
44
|
Director
|
Erin Falconer
|
40
|
Director
|
We added 4 additional board members in 2015
The biographies of our directors can be found on page 52 in this Annual Report under the heading entitled
“
Our Directors
”
57
Compensation Discussion and Analysis
Compensation Philosophy and Objectives
We believe that the quality, skills and dedication of our executive officers are critical factors affecting the company's performance and shareholder value. Accordingly, the key objective of our compensation programs is to attract, retain and motivate superior executive talent while maintaining an appropriate cost structure. In addition, our compensation programs are designed to link a substantial component of our executives' compensation to the achievement of performance goals that directly correlate to the enhancement of shareholder value. Finally, our compensation programs are designed to have the right balance of short and long-term compensation elements to ensure an appropriate focus on operational objectives and the creation of long-term value.
To accomplish these objectives, the Board of Directors has structured our compensation programs to include the following key features and compensation elements:
·
base salaries, which generally are set below the median of our peer group companies and take into consideration the Company
’
s cash flow and revenues;
·
equity-based compensation, which aligns our executives' interests with those of our shareholders and promotes executive retention; and
·
in most cases, both our performance-based and service-based restricted share units will provide for vesting over four years, thereby promoting the enhancement of long-term shareholder value and executive retention.
The Board also generally seeks to compensate its executives through determinable base cash salaries that are sensitive to the company
’
s cash resources but that also provide for motivational incentive and maintain continuity of management.
The Board seeks to maintain a balance among fixed and variable compensation, cash and equity, and annual and longer-term incentive compensation to mitigate the risk arising from any element of compensation.
Compensation Committee
We currently do not have a standing compensation committee of our Board of Directors at the current time, which is again due to the size of our operations. As our company grows, we plan to establish a compensation committee to address this specific area. The functions of a compensation committee are currently being performed by our three-member Board.
Independent Consultants and Advisors
The Board has the authority to retain and terminate any independent, third-party compensation consultants and to obtain advice and assistance from internal and external legal, accounting and other advisors. During our 2011 fiscal year, the Board engaged the EMCI/Hanover Group (
“
EMCI
”
), an independent third-party, as its independent adviser for certain executive compensation matters. EMCI was retained by the Board to provide an independent review of the company's executive compensation programs, including an analysis of both the competitive market and the design of the programs. More specifically, EMCI furnished the Board with letter reporting on the fairness of the employment contracts entered into with our chief executive officer and chief financial, which he reported as both fair and necessary to provide for continuity of management, motivational incentive and economic reward, given the progress of the company for the last two fiscal years. The company paid EMCI $1,000.00 for its consulting services related to the above mentioned advisory services.
Role of Executive Officers in Compensation Decisions
Since our Board is composed of our chief executive officer and our chief financial officer, our executives are directly involved in all facets of our compensation structure and in the implementation of the long-term executive agreements entered into with our chief executive officer and our chief financial officer. However, in determining the fairness, which took into account the company
’
s revenue growth and the benefit to our shareholders in providing continuity of management at this critical stage in the company
’
s growth makes, the considerations and recommendations of the third independent Board member and the EMCI were heavily weighted.
58
Fiscal Year 2015 and 2014 Executive Compensation
Summary of Fiscal Year 2015 and 2014 Compensation Decisions
In 2012, the Company achieved significant growth in revenue, as well as in adjusted and GAAP operating income, net income and earnings per share. We realized strong revenue growth across all of our market segments, maintaining a diversified and balanced business portfolio. As a result of the company's excellent performance in fiscal year 2011, we decided in 2011 to enter into long-term employment agreement with our CEO and CFO to ensure continuity of management. The agreements are discussed in this proxy statement under the heading entitled. On October 1, 2015 we entered into a new 2-year employment contract with Kambiz Mahdi our CEO.
Elements of Compensation
We may allocate compensation among the following components for our named executive officers:
·
base salary;
·
annual incentive bonus awards;
·
performance-based and service-based stock incentive awards;
·
performance based deferred compensation; and
·
other benefits.
As discussed above, a key element of our compensation philosophy is that a significant portion of executive compensation is comprised of long-term elements that encourage our executives to stay with the company, which we believe provides for a stable working environment that ultimately benefits our shareholders
Other Benefits
Executive officers are eligible to participate in all of the company's employee benefit plans, such as medical, dental, vision, group life, disability, and accidental death and dismemberment insurance, in each case on the same basis as other employees, subject to applicable law.
Termination and Change of Control Arrangements
Our CEO and CFO are entitled to certain termination and change of control benefits under their employment agreements. These benefits are described and quantified under the section entitled "
Executive Compensation
—
Potential Payments Upon Termination or Change of Control.
"
Compensation Risk Assessment
With the assistance of EMCI, the Board reviewed our compensation policies and practices and determined that our compensation programs do not encourage excessive or inappropriate risk-taking. While, a majority of the Board is comprised of our executive officers, the Board believes that the design and mix of our compensation programs appropriately encourage our executive and senior officers to focus on the creation of long-term shareholder value. In its review, the Board noted the following features:
·
base salaries, which generally are set below the median of our peer group companies and take into consideration the Company
’
s cash flow and revenues;
·
equity-based compensation, which aligns our executives' interests with those of our shareholders and promotes executive retention; and
·
in most cases, both our performance-based and service-based restricted share units will provide for vesting over four years, thereby promoting the enhancement of long-term shareholder value and executive retention.
59
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
(1)
A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5)
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7)
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Exchange Act
We do not yet have a class of equity securities registered under the Securities Exchange Act of 1934, as amended. Hence, compliance with Section 16(a) thereof by our officers and directors is not required.
60
|
|
Item 11.
|
Executive Compensation.
|
The following table sets forth the fiscal year 2013, 2014 and 2015 compensation for:
·
Kambiz Mahdi, our Chief Executive Officer; and
·
John Bennett, our Chief Financial Officer
The executive officers included in the Summary Compensation Table are referred to in this form 10K as our named executive officers. A detailed description of the plans and programs under which our named executive officers received the following compensation can be found in the section entitled "
Compensation Discussion and Analysis
.
”
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
Bonus
|
Stock Awards
|
Option Awards
|
Non-equity Incentive Plan Compensation
|
Change in Pension Value and Nonqualified Deferred Compensation Earnings
|
All Other Compensation ($)
|
Total
|
Name and Principal Position
|
Year
|
($)
|
($)(3)
|
($)(4)
|
($)
|
($)
|
($)
|
|
($)
|
Kambiz Mahdi (1)
|
2013
|
$
130,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
130,000
|
Chief Executive Officer
|
2014
|
$
128,707
|
$
-
|
$
10,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
138,707
|
|
2015
|
$
178,836
|
$
-
|
$
7,500
|
$
-
|
$
-
|
$
-
|
$
-
|
$
186,336
|
|
|
|
|
|
|
|
|
|
|
John Bennett (2)
|
2013
|
$
114,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
$
114,000
|
Chief Financial Officer
|
2014
|
$
101,891
|
$
-
|
$
30,000
|
$
-
|
$
-
|
$
-
|
$
-
|
$
131,891
|
|
2015
|
$
126,758
|
$
-
|
$
27,500
|
$
-
|
$
-
|
$
-
|
$
-
|
$
154,258
|
1)
For 2014, Mr. Mahdi
’
s salary was $150,000, pursuant to his employment agreement. For the year 2014 Mr. Mahdi took a voluntary pay cut of 14% from $150,000 to $128,807. On October 1, 2015 we entered into a new employment agreement with Mr. Mahdi for 2 years with an annual salary of $275,000 In 2015 Mr. Mahdi was paid total salary of $178,836. In 2015 and 2014 Mr. Mahdi received $7,500 and $10,000 respectively in the form of Common stock for his service on the Board of directors.
2)
Mr
.
Bennett w
as to
receive 100,000 shares of common stock per quarter, pursuant to his employment agreement
but has elected to postpone
and
the share grants until the company regains profitability
.
In 2014 Mr. Bennett took a
27%
pay
cut from $140,000 to $101,891.
In 2015
Mr. Bennett took a
10
% pay cut from $140,000
to $126,000
.
In
addition,
in
2015 and
2014, Mr. Bennett received
$7,500 and
$10,000 in the form of Common stock for his service on the Board of directors.
In
addition,
in
2015 and
201
3
, Mr. Bennett received
$20,000 and
$
2
0,000 in the form of Common stock
per his employment agreement
.
3)
There were no bonuses paid or accrued for any executives for
fiscal years
201
3
,
201
4
and 201
5
.
4)
Mr. Bennett was issued an option to purchase 30,000 shares of our common stock on February 8, 2007 at $1
.
73 under our 2006 Plan and an option to purchase 30,000 shares of our common stock
at $.33 per share
on February 28, 2008. Both option grants expire on February 08, 2017. As of
December 31, 2015
, Mr. Bennett has not exercised his option grants.
61
Outstanding Equity Awards at 2015 Fiscal Year-End
The following table presents information about outstanding options and stock awards held by our named executive officers as of December 31, 2015.