UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-K  (Mark One) RANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010or£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from____________________ to ____________________  Commission File Number:333-125678  PROBE MANUFACTURING, INC. (Exact name of registrant as specified in its charter)  Nevada20-2675800(State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)17475 Gillette Avenue, Irvine, California92614(Address of principal executive offices)(Zip Code)  Registrants telephone number, including area code: (949) 206-6868  Securities registered pursuant to Section 12(b) of the Act:  Title of each className of each exchange on which registeredCommon StockOTCQB  Securities registered pursuant to Section 12(g) of the Act:  None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. oYesþNo  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. oYesþNo  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.þ Yes o No  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yes o No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                 þ  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated fileroAccelerated fileroNon-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyþ  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYesþNo  State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of June 30, 2010: $107,353 based on the average of the bid and asked price of $0.004 per share.  State the number of shares outstanding of each of the issuers classes of common equity, as March 30, 2011: 184,638,320 shares of common stock, $.001 par value. DOCUMENTS INCORPORATED BY REFERENCE    1 of 60  Portions of the registrants proxy statement for the 2011 annual stockholders meeting which is expected to be filed no later than April 30, 2011 are incorporated by reference in Part III, Items 10, 11, 12, 13 and 14.     2 of 60     PROBE MANUFACTURING, INC. 10-K   TABLE OF CONTENTS  Part I PageItem 1.Business4Item 1A.Risk Factors9Item 1B.Unresolved Staff Comments15Item 2.Properties15Item 3.Legal Proceedings15Item 4.[Removed and Reserved]15   Part II Item 5.Market for Registrants Common Equity, related Shareholder Matters and Issuer Purchases of Equity Securities16Item 6.Selected Financial Data18Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operation19Item 7A.Quantitative and Qualitative Disclosure about Market Risk28Item 8.Financial Statements and Supplementary Data29Item 9.Changes and Disagreements  with Accountants on Accounting and Financial Disclosure58Item 9AControls and Procedures58Item 9BOther Information59   Part III Item 10Directors, Executive Officers and Corporate Governance59Item 11Executive Compensation59Item 12Security Ownership of Certain Beneficial Owners, management and Related Stockholder Matters59Item 13Certain Relationships and Related Transactions and Director Independence59Item 14Principal Accounting Fees and Services59Item 15Exhibits59Signatures61   3 of 60   PART I   Item 1.  Business.  Our Company  Probe Manufacturing Industries, Inc. was incorporated on July 7, 1995. On April 21, 2005, the Company was re-domiciled from California to Nevada, and changed its name to Probe Manufacturing, Inc. We provide a range of engineering, manufacturing and business services to companies who design and market electronic products, Original Equipment Manufacturers (OEM). Our revenue is generated from sales of our services primarily to customers in the medical device, aerospace, automotive, industrial and instrumentation product manufacturers. We provide our domestic customers with low cost, low risk, agile, flexible and high quality manufacturing services. We utilize global partnerships and manufacturing scale to secure the best cost and material availability providing both easy on shore access with local program management during product conceptualization and offshore volume manufacturing. The services that we provide are commonly referred to as Electronics Manufacturing Services (EMS). Our EMS offerings include new product introduction, collaborative design, procurement and materials management, product manufacturing, product warranty repair, and end-of-life support. We offer our customers comprehensive and integrated design and manufacturing services, from initial product design to production and direct order fulfillment. Our engineering services include product design, printed circuit board layout, prototyping, and test development. Our supply chain management solutions include purchasing, management of materials, and order fulfillment. Our manufacturing services include surface mount and through-hole assembly, cable assembly, mechanical assembly, and fully integrated box build systems for high complexity electronics.  For example, we build an Engine Control Unit (ECU) for a customer, which is used in alternative fuel engines. We have supported this customer from the inception of its product. Our services started with full design review for manufacturability and testability of the product. Once the design review and recommendations were completed we source the materials and procure the components. Then we take responsibility for assembling the components on to the printed circuit boards, assembling the mechanical parts, installing the product inside the enclosure, and finally we perform a full functional test. Then the finished product is shipped to the customer, who integrates it into their final fuel delivery system and its then delivered to the end customer.  The majority of our revenue is driven from manufacturing a mix of complex printed circuit board assemblies (PCBA), and box build assemblies.  Some examples of our customers finished goods products includes medical devices such as ventilators, electronic control units that help vehicles run on natural gas or hydrogen, electronic control units for welding equipment, control units for electric-hybrid drives, portable ultrasound and electro-stimulation therapy equipment, fluid control units for airliners, and devices for defense industry.  Our vision is to be the eminent manufacturing foundry for start-ups and innovators, while growing our technology business services leveraging global opportunities.  As innovation, cost, and time to market become hyper competitive, domestic OEMs are forced to use EMS partners with easy on shore access, providing local program management during product conceptualization, development, and integration.  Many of the mid-tier OEMs in industries such as military/aerospace, medical, industrial/instrumentation, and green tech products tend to be too small for $1 billion-plus revenue EMS companies. Most of these OEMs value close proximity and the ability to provide complex manufacturing and personal customer service, which often favors regional providers that truly value and foster their relationships.  The low to medium EMS market compared to high volume has proved to be a higher margin with high Gross Profit and sustained growth momentum. Our target accounts are mid-tier, U.S. based OEMs with annual sales from $15 million to $150 million.   4 of 60   With the recent cost increases in labor, currency movements and freight concerns, the ability to also provide near-shore manufacturing is expected to generate increased interest.  We believe that, with our domestic presence, experience, scalable engineering, global relationships and robust customer centric program management team, we are well positioned to take advantage of this opportunity.   Plan of Operation Management is taking the following steps to sustain profitability and growth: (i) utilization of global sourcing to secure best cost and availability; (ii) customer centric program management teams through our local factory supporting multi-million dollar relationships; (iii) strategic partnerships with technology innovators and start-ups, in return for manufacturing rights and equity;  (iv) new sales and expansion of service offerings into cable, plastics and sheet metal; and (v) mergers and acquisitions. 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.  Subsequently, On February 18, 2011 we entered into an Accounts Receivable Purchasing Agreement (the ARPA) with DSCH Capital Partners, LLC d/b/a Far West Capital (FWC), an unaffiliated third party.  Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of our company on a revolving basis up to a maximum of $750,000.  Under the terms of the ARPA, FWC may purchase eligible receivables from us with full recourse for the face amount of such eligible receivables less a discount of 1.0%.  In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC at a rate equal to the Wall Street Journal Prime Lending Rate plus 4.75%, with a floor of 7.00%.  FWC will retain 20% of the purchase price of the receivables as a reserve amount.  The ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by us with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date.  The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 90days prior written notice or without notice upon and during the continuance of an event of default.  Additionally, provided there does not exist an event of default under the ARPA or the rider thereto (the Rider), FWC may make advances to or for the benefit of the company  in an aggregate amount up to and not to exceed  $250,000.00 from time to time during the term of the Rider and upon our request therefore, which advances shall be subject to all of the terms and conditions of the ARPA and shall be revolving consisting of advances against our  eligible inventory as defined in the Rider as follows: (i) the advances against eligible inventory, at FWCs discretion, will be in amounts up to the sum 50% of all eligible inventory; provided, however, the advances against eligible inventory shall at no time exceed 33% of the net outstanding purchased accounts under the ARPA plus the outstanding amount due, or net funds employed, from advances made on eligible inventory within conditions contained within the Rider. The balance cap percentage shall be 25% after 120 days from date of the Rider.  Eligible inventory will be valued at the lower of cost or market value.    5 of 60   There can be no assurances that this financing will be sufficient 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 additional financing, or that we 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  Engineering.  Our approach is to coordinate and integrate our design, prototype and other engineering capabilities. Through this approach, we provide a broad range of engineering services and, in some cases, dedicated production lines for prototypes. These services strengthen our relationships with customers and attract new customers requiring specialized engineering services. To assist customers with initial design, we offer computer assisted engineering, computer assisted design, engineering for manufacturability, circuit board layout and test development. We also coordinate industrial design and tooling for product manufacturing. After product design, we offer quick-turn prototyping, which means a rapid process of prototyping. During this process, we assist with the transition to production. By participating in product design and prototype development, we can reduce manufacturing costs and accelerate the cycle from product introduction to production.  Supply Chain Management.  Supply chain management consists of the planning, purchasing, expediting and warehousing of components and materials. Our inventory management and volume procurement capabilities contribute to cost reductions and reduce total cycle time.  Assembly and Manufacturing.  Our manufacturing operations include printed circuit board assembly, subsystem assembly, box build and system integration, the process of integrating sub-systems and downloading software before producing a fully configured product. We purchase the printed circuit boards used in our assembly operations from third parties. We employ various inventory management techniques, such as just-in-time, ship-to-stock and auto-replenish, which are programs designed to ensure timely, convenient and efficient delivery of assembled products to our customers. As OEMs seek to provide greater functionality in smaller products, they increasingly require more sophisticated manufacturing technologies and processes. Our investment in advanced manufacturing equipment and our experience in innovative packaging and interconnect technologies enable us to offer a variety of advanced manufacturing solutions.  Testing.  We offer computer-aided, in-circuit testing of assembled printed circuit boards, which contributes significantly to our ability to deliver high-quality products on a consistent basis. We work with our customers to develop product-specific test strategies. Our test capabilities include manufacturing defect analysis, in-circuit tests to test the circuitry of the board, and functional tests to confirm that the board or assembly operates in accordance with its final design and manufacturing specifications. We either custom design test equipment and software ourselves or use test equipment and software provided by our customers. In addition, we provide environmental stress tests of assemblies of boards and systems.  Final System Assembly and Test.  We provide final system assembly and test assemblies and modules in which they are combined to form complete, finished products. We integrate printed circuit board assemblies manufactured by us with enclosures, electronic and mechanical sub-assemblies, cables and memory modules. We assemble systems to a specific customer order and we also build to standard configurations. The complex, finished products that we produce typically require extensive test protocols. Our test services include in-circuit testing, functional and environmental tests. We also test products for conformity to applicable industry, product integrity and regulatory standards. Our test engineering expertise enables us to design functional test processes that assess critical performance elements, including hardware, software and reliability. By incorporating rigorous test processes into the manufacturing process, we can help to assure customers that their products will function as designed. We provide direct order fulfillment services shipping completed systems directly to the end consumer.  Distribution.  We offer our customers flexible, just-in-time delivery programs allowing product shipments to be closely coordinated with customers' inventory and consumption requirements. We have the ability to ship products directly into customers' distribution channels or directly to the end-user. We believe that this service can provide our customers with a more comprehensive solution and enable them to be more responsive to market demands.   6 of 60   Sales and Marketing  Sales and marketing efforts are divided into segments as follows:  · Medical Device Manufacturing; · Aerospace-Defense; · Alternative fuel-Automotive; and · Industrial.  Our divisional and executive management teams are an integral part of our sales and marketing teams. We may enter into manufacturing services agreements with our customers. These agreements, similar to purchase orders, generally govern the conduct of business between our customer and the company relating to, among other things, the manufacture of products which in many cases were previously produced by the customer itself. Such arrangements generally identify the specific products to be manufactured, quality and production requirements, product pricing and materials management. There can be no assurance that at any time these agreements will remain in effect or be renewed.  Our customer accounts are managed by dedicated program managers directly responsible for account management. The program managers coordinate activities across divisions to effectively satisfy customer requirements and have direct access to our executive management to quickly address customer concerns. In addition, our executive management is involved in customer relations and devotes significant attention to broadening existing, and developing new customer relationships.  Partnership Approach  Our partnership strategy is to engage potential customers as a total solution to their product life cycle and inventory management.  To do this, we review our customer designs for manufacturability and test, and make recommendations for technology, quality, delivery and cost improvements.  This helps to maintain inventory at its lowest value point.  We also review our customers processes to identify value added processes, and reduce redundancy.  This process has been an effective way of integrating our process to customers needs and has resulted in improving our customers performance.  Competition  The EMS industry is large, competitive and diverse, and is serviced by many companies, including several that have achieved significant market share We compete with numerous domestic and foreign EMS firms, including Benchmark Electronics, Inc.; Celestica Inc; Flextronics International Ltd.; Jabil Circuit, Inc.; Plexus Corp.; Sanmina-SCI Corporation; CTS Electronics.; Express Manufacturing, Inc., and others.  Because of our markets size and diversity, we do not typically compete for contracts with a discreet group of competitors.  We compete with different companies depending on the type of service and/or geographic area.  Certain of our competitors may have greater manufacturing, financial, research and development and marketing resources.  We also face competition from current and prospective customers that evaluate our capabilities against the merits of manufacturing products internally.  Competitive Positioning  Probes competitive advantage is in its ability to provide domestic clients with global electronic design, manufacturing and business services vs. its domestic rivals offering only local manufacturing services. Probe offers customers the best of both worlds with low risk, low cost, flexible, agile and high quality manufacturing services through its factory in California as well as factories worldwide. Probes new product introduction services and lower cost structure is making it the eminent manufacturing foundry for start ups and innovators.    7 of 60   Strategy  Our strategy is to deliver sustainable growth by becoming the eminent manufacturing foundry for start-ups and innovators while growing our core manufacturing business leveraging global opportunities.  We will focus on electronics design and manufacturing business services in California and strategic locations worldwide. There are also plans for expansion of our customer centric management teams through our factory in California catering to multi million dollar relationships. In addition we will establish strategic partnerships with technology innovators and start-ups, in return for exclusive manufacturing rights and equity. In addition as the value of our currency increases well focus on mergers and acquisitions in strategic locations.  Personnel  We presently have approximately 32 employees, including production, program management, materials management, engineering, sales, quality, and administrative and management personnel.  We have never experienced work stoppages, and are not a party to any collective bargaining agreement.  Regulatory Restrictions on Our Business  Our operations, and the operations of businesses that we may acquire, are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. We believe we operate in substantial compliance with all applicable requirements. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements. Material cost may rise due to additional manufacturing cost of raw or made parts with the application of new regulations. Our liabilities may also increase due to additional regulations imposed by foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. In addition, our past, current and future operations and those of businesses we acquire, may give rise to claims of exposure by employees or the public or to other claims or liabilities relating to environmental, waste management or health and safety concerns.    8 of 60  Item 1a.  Risk Factors.  RISKS ABOUT OUR BUSINESS  OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING COSTS SUFFICIENTLY, WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.  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 net profit of $243,368, generated $70,396 in net cash from operations, total stockholders equity of $183,175 and a working capital surplus of $64,442 for the year ended December 31, 2010; however, we still had an accumulated deficit of ($329,422) as of December 31, 2010. Therefore, the ability of the Company to operate as a going concern 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.  Subsequently, On February 18, 2011 we entered into an Accounts Receivable Purchasing Agreement (the ARPA) with DSCH Capital Partners, LLC d/b/a Far West Capital (FWC), an unaffiliated third party.  Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of our company on a revolving basis up to a maximum of $750,000.  Under the terms of the ARPA, FWC may purchase eligible receivables from us with full recourse for the face amount of such eligible receivables less a discount of 1.0%.  In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC at a rate equal to the Wall Street Journal Prime Lending Rate plus 4.75%, with a floor of 7.00%.  FWC will retain 20% of the purchase price of the receivables as a reserve amount.  The ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by us with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date.  The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 90days prior written notice or without notice upon and during the continuance of an event of default.  Additionally, provided there does not exist an event of default under the ARPA or the rider thereto (the Rider), FWC may make advances to or for the benefit of the company  in an aggregate amount up to and not to exceed  $250,000.00 from time to time during the term of the Rider and upon our request therefore, which advances shall be subject to all of the terms and conditions of the ARPA and shall be revolving consisting of advances against our  eligible inventory as defined in the Rider as follows: (i) the advances against eligible inventory, at FWCs discretion, will be in amounts up to the sum 50% of all eligible inventory; provided, however, the advances against eligible inventory shall at no time exceed 33% of the net outstanding purchased accounts under the ARPA plus the outstanding amount due, or net funds employed, from advances made on eligible inventory within conditions contained within the rider. The balance cap percentage shall be 25% after 120 days from date of the Rider.  Eligible inventory will be valued at the lower of cost or market value.  There can be no assurances that this financing will be sufficient 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 additional financing, or that we 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.   9 of 60   WE HAVE AN ACCUMULATED DEFICIT AND MAY INCUR ADDITIONAL LOSSES; THEREFORE, WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING NEEDED FOR WORKING CAPITAL, CAPITAL EXPENDITURES AND TO MEET OUR DEBT SERVICE OBLIGATIONS.  As of December 31, 2010, we had current liabilities of $805,857. Our debt could limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or other purposes in the future, as needed; to plan for, or react to, changes in technology and in our business and competition; and to react in the event of an economic downturn.  We may not be able to meet our debt service obligations. If we are unable to generate sufficient cash flow or obtain funds for required payments, or if we fail to comply with covenants in our revolving lines of credit, we will be in default.  WE FACE INTENSE COMPETITION, WHICH MAY REDUCE OUR SALES, OPERATING PROFITS, OR BOTH.  The market segments in which we compete are rapidly evolving and intensely competitive.The electronic manufacturing service or EMS industry is extremely competitive and includes hundreds of companies, several of which have achieved substantial market share. We compete with numerous domestic and foreign EMS firms, including Benchmark Electronics, Inc.; Celestica Inc; Flextronics International Ltd.; Jabil Circuit, Inc.; Plexus Corp.; Sanmina-SCI Corporation; CTS Electronics; Express Manufacturing, Inc.; and others.  Current and prospective customers also evaluate our capabilities against the merits of internal production. Some of our competitors may have greater design, manufacturing, financial or other resources than us. Additionally, we face competition from Taiwanese ODM suppliers, who have a substantial share of the global market for information technology hardware production, primarily related to notebook and desktop computers and personal computer motherboards, as well as provide consumer products and other technology manufacturing services.  In recent years, many participants in the industry, including us, have substantially expanded their manufacturing capacity. The overall demand for electronics manufacturing services has decreased, resulting in increased capacity and substantial pricing pressures, which has harmed our operating results. Certain sectors of the EMS industry are currently experiencing increased price competition, and if this increased level of competition should continue, our revenues and gross margin may continue to be adversely affected.  WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS.   IN ADDITION, WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS TO PROCURE OUR PARTS FOR PRODUCTION WHICH IF AVAILABILITY OF PRODUCTS BECOMES COMPROMISED IT COULD ADD TO OUR COST OF GOODS SOLD AND AFFECT OUR REVENUE GROWTH.  At various times, there have been shortages of some of the electronic components that we use, as a result of strong demand for those components or problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production, which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause us to experience a reduction in our sales and an increase in our costs and could adversely affect our relationship with existing customers as well as prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. As a result, component shortages could adversely affect our operating results for a particular period due to the resulting revenue shortfall and increased manufacturing or component costs. In addition, we depend upon a number of major suppliers for our products.  We do not have long-term agreements with our major suppliers, except for our purchase orders. There is an inherent risk that certain products will be unavailable for prompt delivery or, in some cases, discontinued. We will have only limited control over any third-party manufacturer as to quality controls, timeliness of production and deliveries and various other factors. Lack of long-term agreement with our major suppliers could also impact material availability and could delay shipments.  Should the availability of products be compromised, it could also force us to develop alternative products, which could add to the cost of goods sold and compromise delivery commitments.   10 of 60   OUR PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS , IN THE AGGREGATE, BENEFICIALLY OWN MORE THAN 50% OF OUR OUTSTANDING COMMON STOCK AND THESE SHAREHOLDERS, IF ACTING TOGETHER, WILL BE ABLE TO EXERT SUBSTANTIAL INFLUENCE OVER ALL MATTERS REQUIRING APPROVAL OF OUR SHAREHOLDERS .  Our principal shareholders, directors and executive officers in the aggregate, beneficially own more than 50%our outstanding common stock on a fully diluted basis. These shareholders, if acting together, will be able to exert substantial influence over all matters requiring approval of our shareholders, including amendments to our Articles of Incorporation, fundamental corporate transactions such as mergers, acquisitions, the sale of the company, and other matters involving the direction of our business and affairs and specifically the ability to determine the members of our board of directors. (See Principal Shareholders)  WE CURRENTLY  SERVICE AND ATTEMPT TO OBTAIN THE MAJORITY OF OUR CUSTOMERS IN THE LIMITED GEOGRAPHIC OF SOUTHERN CALIFORNIA WHICH IS A SMALL ADDRESSABLE MARKET AND COULD BE SUBJECT TO ECONOMIC HARDSHIP OR SLOWDOWN, AS A RESULT OUR GROWTH COULD BE LIMITED AND ADVERSELY AFFECT OUR PROJECTED SALES AND OPERATING INCOME.  We currently service, attempt to solicit new, and direct majority of our marketing efforts to customers in the Southern California region. This is a very small addressable market which ultimately limits the amount of growth we could experience. In addition, this region could experience an economic recession or other market contraction which would cause our current customers and any potential customers to also contract their businesses as well and cease outsourcing any current products that we currently service and would attempt to obtain. Both the size of the market and any potential economic hardship affecting this small regional market could adversely affect our project sales and operating incomer. If we are forced to expand our marketing efforts outside this region we could also incur significant costs in an attempt to penetrate other regional or national markets.  WE DEPEND ON LOW TO MEDIUM VOLUME HIGH MIX TECHNOLOGY PRODUCTS THAT ARE BUILT DOMESTICALLY.  THESE APPLICATIONS INCLUDE INDUSTRIAL INSTRUMENTATION, MEDICAL DEVICES, AEROSPACE-DEFENSE, ALTERNATIVE FUEL TECHNOLOGIES, SCIENTIFIC COMMUNICATION, SEMICONDUCTOR AND AUTOMOTIVE PRODUCTS, WHICH CONTINUALLY PRODUCE TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS COULD HARM OUR BUSINESS.  During the twelve months ended December 31, 2010, we derived approximately 4% of our revenue from customers in the medical device manufacturing, 40% industrial products, 17% from customers in the semiconductor industry, 4% from customers in alternative fuel and green technologies, and 35% from customers in aerospace/defense industries.  Factors affecting these industries in general could seriously harm our customers and, as a result, us. These factors include:  · Rapid changes in technology, which result in short product life cycles, often reduce the volume and market share for our customers and ultimately us. It will lead to the loss of previous design wins and frequent new product introductions and substantial development costs. This could result in loss of revenue and it could adversely affect our operating income.  · Seasonality of demand for our customers products would force our customers to manage their inventories for seasonal variations and inventory management and excess build ups. Customers could dramatically increase their request for production quantities, which could cause lead time problems with getting the components or we may not be able to build enough products which could have loss of revenue for our customers. As a result we could lose these customers and it would adversely affect our projected sales. If the projected sales will not materialize, we will have loss of revenue and reduced margins. Any cancellation or delay in production would also have the same adverse effect on our sales projections and profitability.   11 of 60   · The inability of our customers to successfully market their products, and the failure of these products to gain widespread commercial acceptance; could effect their long term business plans and sales. Our success depends upon the ability of our customers to successfully market their products and if they fail, it could result in cancellations or rescheduling orders lower sales volume and operating income.  · Recessionary periods in our customers markets will affect both our customers and our overall business output. It would require dramatic changes to the overall business model, layoffs and major adjustments to the business overhead.  If we fail to adjust to new recessionary environment, our business would be adversely affected and we may not be able to compete successfully against other companies in our industry and achieve profitability.  THE MAJORITY OF OUR SALES COME FROM A SMALL NUMBER OF CUSTOMERS WITH WHOM WE DO NOT HAVE LONG TERM CONTRACTS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY.  Sales to our five largest customers have represented a significant percentage of our net sales in recent periods. Our five largest customers accounted for approximately 58% of net sales during the twelve months ended December 31, 2010.  Our principal customers have varied from year to year, and our principal customers may not continue to purchase services from us at current levels, if at all. Significant reductions in sales to any of these customers, or the loss of major customers, would seriously harm our business. If we are not able to timely replace expired, canceled or reduced contracts with new business, our revenues could be harmed. The part number, quantity,  price, workmanship standards, and scheduled delivery dates of the products to be manufactured are determined by written purchase orders given by our customers and accepted or confirmed by us in writing or via email.  We agree to deliver the products manufactured pursuant to each purchase order in accordance with the terms and conditions set forth in the purchase order. Probe manufactures hundreds of different types of assemblies on an ongoing basis and each product has a purchase order associated with it. We do not have any long term agreements with our customers, and our principal customers may not continue to purchase services from us. The duration of a purchase order is usually from 30 to 360 days. These purchase orders could be cancelled or rescheduled at any time. Significant reductions in sales to any of these customers would reduce our projected sales, adversely affect our profits, and seriously harm our business. IF WE LOSE KEY SENIOR MANAGEMENT PERSONNEL OUR BUSINESS COULD BE NEGATIVELY AFFECTED. FURTHER, WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL SKILLED MANAGEMENT PERSONNEL AND IF WE ARE NOT ABLE TO DO SO, OUR BUSINESS AND OUR ABILITY TO CONTINUE TO GROW COULD BE HARMED.  Our success depends to a large extent upon the continued services of our executive officers. Generally our employees are not bound by employment or non-competition agreements, and we cannot assure that we will retain our executive officers and other key employees. We could be seriously harmed by the loss of any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. Although a number of companies in our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees.   12 of 60   WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS AND UNEXPECTED COSTS THAT WE MAY INCUR WITH RESPECT TO ENVIRONMENTAL MATTERS MAY RESULT IN ADDITIONAL LOSS CONTINGENCIES, THE QUANTIFICATION OF WHICH CANNOT BE DETERMINED AT THIS TIME.  We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time.  RISKS ABOUT OUR STOCK  SHARES OF OUR COMMON STOCK ARE SUBJECT TO THE PENNY STOCK RESTRICTIONS WHICH CREATES A LACK OF LIQUIDITY AND MAKE TRADING DIFFICULT OR IMPOSSIBLE.  Until our shares of common stock are traded be in the over-the-counter markets which are commonly referred to as the OTCQB pink sheets. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of our securities.  The United States Securities and Exchange Commission, or the SEC, has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks (generally) are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. Prior to a transaction in a penny stock, a broker-dealer is required to:  · Deliver a standardized risk disclosure document prepared by the SEC; · Provide the customer with current bid and offer quotations for the penny stock; · Explain the compensation of the broker-dealer and its salesperson in the transaction; · Provide monthly account statements showing the market value of each penny stock held in the customer's account; · Make a special written determination that the penny stock is a suitable investment for the purchaser; and · Provide a written agreement to the transaction.  These requirements may have the effect of reducing the level of trading activity in the secondary market for our stock. Because our shares are subject to the penny stock rules, you may find it more difficult to sell your shares. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.   13 of 60   OUR SECURITIES ARE THINLY TRADED WHICH DOES NOT PROVIDE LIQUIDITY FOR OUR INVESTORS.  Our securities are quoted on the Over-the-Counter Bulletin Board pink sheets which does not provide liquidity for our investors. The OTCQB pink sheets is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASDAQ Stock Market or national or regional exchanges. Securities traded on the OTCQB pink sheets are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts. The Securities and Exchange Commission's order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTCQB pink sheets. Quotes for stocks included on the OTCQB pink sheets are not listed in newspapers. Therefore, prices for securities traded solely on the OTCQB may be difficult to obtain and holders of our securities may be unable to resell their securities at or near their original acquisition price, or at any price.  Investors must contact a broker-dealer to trade over-the-counter bulletin board securities. As a result, you may not be able to buy or sell our securities at the times that you may wish. Furthermore, when investors place market orders to buy or sell a specific number of shares at the current market price it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and its execution.  WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE; THEREFORE, YOU MAY NEVER SEE A RETURN ON YOUR INVESTMENT.  We do not anticipate the payment of cash dividends on our common stock in the foreseeable future. We anticipate that any profits from our operations will be devoted to our future operations. Any decision to pay dividends will depend upon our profitability at the time, cash available and other factors.   Item 1B.  Unresolved Staff Comments.  None.    14 of 60    Item 2.  Properties.  Facilities  On October 14, 2009 we entered into a 5 year lease with Bernard family trust, with a commencement date of December 31, 2009.  The facility is approximately 19,701 square feet and located at 17475 Gillette, Irvine CA, 92614.  YearMonthly Rent17,88029,850310,835411,820512,805   Subsequently, on March 28, 2011 we signed an amendment to our facility lease with an increase of 1,600 square feet. The increase in the lease commences on April 1, 2011 and continues through year five.  The amended lease has the following payments:  Original LeaseAmended leaseYearMonthly RentMonthly Rent17,8807,88029,85010,650310,83511,715411,82012,780512,80513,845    Item 3.  Legal Proceedings.  None.      Item 4.  [Removed And Reserved.]    15 of 60  PART II   Item  5.  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.  Bid and ask quotations for our common shares are routinely submitted by registered broker dealers who are members of the National Association of Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These quotations reflect inner-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The high and low bid information for our shares for each quarter for the last two years, so far as information is reported, through the quarter ended December 31, 2010, as reported by the Bloomberg Financial Network, are as follows:  2010 FISCAL YEARHighLowFirst Quarter$0.01$0.005Second Quarter$0.015$0.0034Third Quarter$0.034$0.0025Fourth Quarter$0.023$0.0025   2009 FISCAL YEARHighLowFirst Quarter$0.04$0.03Second Quarter$0.03$0.03Third Quarter$0.05$0.01Fourth Quarter$0.02$0.01  Dividend Policy  We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of  our  board  of  directors  and  will  depend  upon  our financial condition, operating results,  capital  requirements,  restrictions  contained  in  our agreements  and  other  factors  which  our  Board  of Directors deems relevant.    Securities Authorized For Issuance Under Equity Compensation Plans  The following table summarizes securities authorized for issuance under equity compensation plans:  Equity Compensation Plan InformationPlan CategoryNumber of shares of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-average exercise price of outstanding options, warrants and rightsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)(a)(b)(c )Qualified Equity compensation plans approved by security holders203,861$0.173,488,905Non-Qualified Equity compensation plans approved by security holders900,000$0.13-Total1,112,735$0.143,488,905    16 of 60   Recent Sales of Unregistered Securities  For the years ended December 31, 2010 and 2009, 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(2) of the Securities Act.  On July 11, 2009, we issued 152,000,000 shares to KB Development Group, LLC, of which Kambiz Mahdi is the managing partner and also is our chief executive officer and a member of our board of directors.  On July 12, 2009, we agreed to convert a note receivable from Solar Masters in the amount of $89,156 into 8,000,000 shares of common stock in Solar Masters.  For the year ended December 31, 2010 we accrued 4,250,000 shares of common stock to be issued.  As of December 31, 2010 these shares remained unissued and will be issued in the first quarter of 2011   Item 6.  Selected Financial Data.  The following selected historical financial information of Probe Manufacturing, Inc. has been derived from the historical results are not necessarily indicative of the results to be expected in the future. The following table is qualified by reference to and should be read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data. And notes thereto.   Probe Manufacturing, Inc.Statement of Operationsfor the years ended December 31,20102009Sales$
2,799,935$
2,153,141Cost Of Goods Sold2,004,2781,679,687Gross Profit795,657473,454General And Administrative701,144922,510Share Based Compensation26,6948,232Net Profit / (Loss) From Operations67,819(457,288)Other Income / (Expenses)190,890518,244Interest Expense(15,341)(33,457)Net Profit / (Loss) Before Income Taxes243,36827,499Income Tax Expense--Net Profit / (Loss)$
243,368$
27,499    17 of 60    PROBE MANUFACTURING, INC.Condensed consolidated Balance sheetas ofDecember 31,December 31,20102009Working Capital$
64,442$
50,810Total Assets994,964653,959Long term Debt5,932265,781Stockholder Equity$
183,175$
(86,887)    Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.  You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.  We intend that our forward-looking statements be subject to the safe harbors created by the Securities and Exchange Act of 1934, as amended. The forward-looking statements are generally accompanied by words such as intend, anticipate, believe, estimate, expect and other similar words and statements and variations or negatives of these words. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect, including those discussed under the heading Risk Factors in this report filed with the United States Securities and Exchange Commission or the SEC. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from our anticipated outcomes. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. The inclusion of forward-looking information should not be regarded as a representation by our company or any other person that the future events, plans or expectations contemplated by Probe Manufacturing, Inc. will be achieved. We disclaim any intention or obligation to update or revise any forward-looking statements contained in the documents incorporated by reference herein, whether as a result of new information, future events or otherwise.  Overview  Probe Manufacturing Industries, Inc. was incorporated on July 7, 1995. On April 21, 2005, the Company was re-domiciled from California to Nevada, and changed its name to Probe Manufacturing, Inc. We provide a range of engineering, manufacturing and business services to companies who design and market electronic products, Original Equipment Manufacturers (OEM). Our revenue is generated from sales of our services primarily to customers in the medical device, aerospace, automotive, industrial and instrumentation product manufacturers. We provide our domestic customers with low cost, low risk, agile, flexible and high quality manufacturing services. We utilize global partnerships and manufacturing scale to secure the best cost and material availability providing both easy on shore access with local program management during product conceptualization and offshore volume manufacturing. The services that we provide are commonly referred to as Electronics Manufacturing Services (EMS). Our EMS offerings include new product introduction, collaborative design, procurement and materials management, product manufacturing, product warranty repair, and end-of-life support. We offer our customers comprehensive and integrated design and manufacturing services, from initial product design to production and direct order fulfillment. Our engineering services include product design, printed circuit board layout, prototyping, and test development. Our supply chain management solutions include purchasing, management of materials, and order fulfillment. Our manufacturing services include surface mount and through-hole assembly, cable assembly, mechanical assembly, and fully integrated box build systems for high complexity electronics.  For example, we build an Engine Control Unit (ECU) for a customer, which is used in alternative fuel engines. We have supported this customer from the inception of its product. Our services started with full design review for manufacturability and testability of the product. Once the design review and recommendations were completed we source the materials and procure the components. Then we take responsibility for assembling the components on to the printed circuit boards,   18 of 60  assembling the mechanical parts, installing the product inside the enclosure, and finally we perform a full functional test. Then the finished product is shipped to the customer, who integrates it into their final fuel delivery system and its then delivered to the end customer.  The majority of our revenue is driven from manufacturing a mix of complex printed circuit board assemblies (PCBA), and box build assemblies.  Some examples of our customers finished goods products includes medical devices such as ventilators, electronic control units that help vehicles run on natural gas or hydrogen, electronic control units for welding equipment, control units for electric-hybrid drives, portable ultrasound and electro-stimulation therapy equipment, fluid control units for airliners, and devices for defense industry.  Our vision is to be the eminent manufacturing foundry for start-ups and innovators, while growing our technology business services leveraging global opportunities.  As innovation, cost, and time to market become hyper competitive, domestic OEMs are forced to use EMS partners with easy on shore access, providing local program management during product conceptualization, development, and integration.  Many of the mid-tier OEMs in industries such as military/aerospace, medical, industrial/instrumentation, and green tech products tend to be too small for $1 billion-plus revenue EMS companies. Most of these OEMs value close proximity and the ability to provide complex manufacturing and personal customer service, which often favors regional providers that truly value and foster their relationships.  The low to medium EMS market compared to high volume has proved to be a higher margin with high Gross Profit and sustained growth momentum. Our target accounts are mid-tier, U.S. based OEMs with annual sales from $15 million to $150 million.  With the recent cost increases in labor, currency movements and freight concerns, the ability to also provide near-shore manufacturing is expected to generate increased interest.  We believe that, with our domestic presence, experience, scalable engineering, global relationships and robust customer centric program management team is well positioned to take advantage of this opportunity.   EMS companies are the principal beneficiaries of the increased use of outsourced manufacturing services by the electronics and other industries. Outsourced manufacturing refers to OEMs use of EMS companies to manufacture their products, rather than internal manufacturing. Historically, EMS companies only manufactured components or sub assemblies. As the EMS industry has evolved, OEMs have increased their reliance on EMS companies for additional, more complex manufacturing services, including collaborative product design services, supply chain management and full box manufacturing.  EMS companies now often participate in designing, manufacturing and testing of complete systems and manage the entire supply chains of their OEM customers. Industry leading EMS companies offer end-to-end services, including product design and engineering, volume manufacturing, final system assembly and testing, direct order fulfillment, after-sale product service and support and global supply chain management. Outsourcing demand for advanced manufacturing capabilities, design and engineering services and after-market services continues to grow rapidly. This demand continues to increase for several reasons, including the intensely competitive nature of the electronics industry, the continually increasing complexity and sophistication of electronics products, pressure on OEMs to reduce product costs, and shorter product life cycles. As a result, the number of OEMs that utilize EMS providers as part of their business and manufacturing strategies continues to increase. Utilizing EMS providers allows OEMs to take advantage of the global design, manufacturing and supply chain management expertise of EMS providers, and enables OEMs to concentrate on product research, development, marketing and sales.  We believe that OEMs realize the following benefits through their strategic relationships with EMS providers:   Reduction in Operating Costs and Capital Investment.In the competitive global market, OEMs are under significant pressure to reduce manufacturing costs and capital expenditures. EMS companies can provide OEMs with flexible, cost-efficient manufacturing services. In addition, as OEM products have become more technologically advanced, the manufacturing and system test processes have become increasingly automated and complex, requiring significant capital investments. EMS companies enable OEMs to access technologically advanced manufacturing and test equipment and facilities, without additional capital expenditures.    19 of 60   Focus on Core Competencies.The electronics industry is highly competitive and subject to rapid technological change. As a result, OEMs are increasingly focusing their resources on activities and technologies in which they expect to add the greatest value. By offering comprehensive manufacturing services and supply chain management, EMS companies enable OEMs to focus on their core competencies, including next generation product design and development as well as marketing and sales.   Access Leading Design and Engineering Capabilities.The design and engineering of electronics products has become more complex and sophisticated and in an effort to become more competitive, OEMs are increasingly relying on EMS companies to provide product design and engineering support services. EMS companies design and engineering services can provide OEMs with improvements in the performance, cost and time required to bring products to market. EMS companies are providing more sophisticated design and engineering services to OEMs, including the design and engineering of complete products following an OEMs development of a product concept.   Improve Inventory and Purchasing Power.OEMs face challenges in planning, procuring and managing their inventories efficiently due to fluctuations in customer demand, product design changes, short product life cycles and component price fluctuations. EMS companies employ sophisticated production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that, when possible, components arrive on a just-in-time; as-and-when needed basis. EMS companies are significant purchasers of electronic components and other raw materials, and can capitalize on economies of scale associated with their relationships with suppliers to negotiate price discounts, obtain components and other raw materials that are in short supply, and return excess components. EMS companies expertise in supply chain management and their relationships with suppliers across the supply chain enable them to help OEMs reduce their cost of goods sold and inventory exposure.   Access Global Manufacturing Services.OEMs seek to reduce their manufacturing costs by having EMS companies manufacture their products in the lowest cost locations that are appropriate for their products and end customers. OEMs also are increasingly requiring particular products to be manufactured simultaneously in multiple locations, often near end users, to bring products to market more quickly, reduce shipping and logistics costs and meet local product content requirements. Global EMS companies are able to satisfy these requirements by capitalizing on their geographically dispersed manufacturing facilities, including those in lower cost regions.   Accelerate Time to Market.OEMs face increasingly short product life cycles due to increased competition and rapid technological changes. As a result, OEMs need to reduce the time required to bring their products to market. OEMs can bring a product to market faster by using EMS companies expertise in new product introduction, including manufacturing design, engineering support and prototype production. OEMs can more quickly achieve volume production of their products by capitalizing on EMS companies manufacturing expertise and global presence and infrastructure.  On July 13, 2009, we entered into a stock sale agreement with Solar Masters Acquisition Company, to sell our entire interest in our investment in Solar Masters, Inc., which was a wholly owned subsidiary, for $35,000, consisting of a note receivable for $25,000 and the assumption of $10,000 in notes payable referenced above.  This resulted in a loss on sale of investment of $190,464.  Barrett Evans, our then interim chief executive officer and a member of our board of directors resigned on July 27, 2009 and took a position with Solar Masters as a consultant. Kambiz Mahdi, was a member of the board of directors of Solar Masters and resigned on July 14, 2009.  On June 17, 2009 we entered into a stock purchase agreement with KB Development Group, LLC to sell 152,000,000 shares of our common stock for $120,000. Concurrently, we entered into settlement agreements with each of our note holders to settle the outstanding notes payable for $120,000 and the assumption of a $10,000 note by Solar Masters. Between July 13, 2009 and July 27, 2009 all of the notes were paid and settled, which resulted in a realized gain of $708,708 and a reduction in our notes payable of $840,203. Kambiz Mahdi, a member of our board of directors is the managing partner of KB Development Group, LLC.  On July 27, 2009, our board of directors appointed Kambiz Mahdi as chief executive officer.    20 of 60   Plan of Operation Management is taking the following steps to sustain profitability and growth: (i) utilization of global sourcing to secure best cost and availability; (ii) Customer Centric program management teams through our local factory supporting multimillion dollar relationships; (iii) strategic partnerships with technology innovators and start-ups, in return for manufacturing rights and equity; and (iv) new sales and expansion of service offerings into cable, plastics and sheet metal (v) mergers and acquisitions. Our future success is likely dependent on its 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.  Subsequently, On February 18, 2011 we entered into an Accounts Receivable Purchasing Agreement (the ARPA) with DSCH Capital Partners, LLC d/b/a Far West Capital (FWC), an unaffiliated third party.  Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of our company on a revolving basis up to a maximum of $750,000.  Under the terms of the ARPA, FWC may purchase eligible receivables from us with full recourse for the face amount of such eligible receivables less a discount of 1.0%.  In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC at a rate equal to the Wall Street Journal Prime Lending Rate plus 4.75%, with a floor of 7.00%.  FWC will retain 20% of the purchase price of the receivables as a reserve amount.  The ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by us with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date.  The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 90days prior written notice or without notice upon and during the continuance of an event of default.  Additionally, provided there does not exist an event of default under the ARPA or the rider thereto (the Rider), FWC may make advances to or for the benefit of the company  in an aggregate amount up to and not to exceed  $250,000.00 from time to time during the term of the Rider and upon our request therefore, which advances shall be subject to all of the terms and conditions of the ARPA and shall be revolving consisting of advances against our  eligible inventory as defined in the Rider as follows: (i) the advances against eligible inventory, at FWCs discretion, will be in amounts up to the sum 50% of all eligible inventory; provided, however, the advances against eligible inventory shall at no time exceed 33% of the net outstanding purchased accounts under the ARPA plus the outstanding amount due, or net funds employed, from advances made on eligible inventory within conditions contained within the Rider. The balance cap percentage shall be 25% after 120 days from date of the Rider.  Eligible inventory will be valued at the lower of cost or market value.  There can be no assurances that this financing will be sufficient 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 additional financing, or that we 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.   21 of 60   Summary of Results  For the year ended December 31, 2010, we had a net profit of $243,368, compared to a net profit of $27,499 for the same period in 2009. The increase in our net profit was due to increased sales revenue and decreased general and administrative expense. For the year ended December 31, 2010, our revenue was $2,799,935 compared to $2,153,141 for the same period in 2009, due to increased orders within existing accounts and we added 6 new customers in 2010. For the year ended December 31, 2010, our cost of goods sold was 72% compared to 78% for the same period in 2009, mainly due to the decrease in direct labor as a percent of the sales. For the twelve months ended December 31, 2010, our gross margin was 28% compared to 22% for the same period in 2009. For the twelve months ended December 31, 2010, our SG&A cost was 25% compared to 43% for the same period in 2009. For the year ended December 31, 2010, we had a net profit of $243,368 and a working capital surplus of $64,442.  Our total stockholders equity increased by $270,062, resulting in shareholder surplus of $183,175 as of December 31, 2010. As of December 31, 2010, we had a working capital surplus of $64,442 compared to working capital surplus of $50,810 as of December 31, 2009, an increase of $13,632.  Key performance indicators for the year ended December 31, 2010 and 2009:   Key performance indicators:20102009Inventory Turns4.74.1Days Sales in Backlog248167Days Receivables Outstanding3374Days Payables Outstanding5287   Inventory turns  Inventory turns are calculated as the ratio of cost of material compared to the average inventory for that period. For the year ended December 31, 2010, our inventory turns were 4.7 compared to 4.1 for the same period in 2009.  Days sales in backlog are calculated based on our back log divided by average daily sales during that period.  For the year ended December 31, 2010, Days Sales in Backlog was 248 days compared to 167 days for the same period in 2009.  Days receivables outstanding is calculated as the ratio of average accounts receivable during that period compared to average daily sales for the same period, this has worsened as a result of our customers stretching out payments and the economy in general.  For the year ended December 31, 2010, days receivables outstanding was 33 days compared to 74 days for the same period in 2009.  Days payable outstanding is calculated as the ratio of average accounts payable during that period compared to average daily sales for the same period. For the year ended December 31, 2010, days payable outstanding was 52 days compared to 87days for the same period in 2009.  Critical Accounting Policies and basis of presentation  The accompanying financial statements of the Company have been prepared in accordance with the instructions to Form 10-K for the fiscal year ending December 31, 2010.    22 of 60  We follow United States Generally Accepted Accounting Principles, or GAAP. Certain of the principles involve selection among alternatives and choices of methods, which are described in the footnotes to our financial statements.  Cash and Cash Equivalents  We maintain the majority of its 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.  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.  Accounts Receivable  We grant credit to its 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 31,2010, we had a reserve for potentially un-collectable accounts of $15,000.  Five (5) customers accounted for approximately 83% of accounts receivable at December 31, 2010 and one customer accounted for 29% 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  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 30, 2010, we had a reserve for potentially obsolete inventory of $170,000.  Property and Equipment  Property and equipment are stated at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets.  We follow the practice of capitalizing property and equipment purchased over $5,000.  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 Leasehold improvements 2 years (life of the lease)   23 of 60   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.  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, 2009, we had outstanding common shares of 184,638,320 used in the calculation of basic earnings per share.  Basic Weighted average common shares and equivalents at December 31, 2010 and 2009 were 184,638,320 and 105,931,471 respectively.  As of December 31, 2009, we had outstanding warrants to purchase 13,647,330 additional common shares, options to purchase 1,103,861 additional common shares and 4,250,000 shares to be issued, which may dilute future earnings per share. Fully diluted weighted average common shares and equivalents for the years ended 2010 and 2009 were 203,639,511 and 121,404,210 respectively.  Research and Development  We expensed $0 for research and development for the years ended December 31, 2010 and 2009.  Segment Disclosure  FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprises reportable segments. We have determined that we have one reportable segment, with contract electronics manufacturing. As such, our operations have been aggregated into one reportable segment for all periods presented.  Share Based Compensation  For a discussion on share based compensation and recently issued accounting pronouncements relating to share based compensation, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our accompanying unaudited financial statements.   24 of 60   Income Taxes  For a discussion income taxes and recently issued accounting pronouncements relating to share based compensation, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our accompanying unaudited financial statements.  Result of operations  The following table summarizes certain items in the statements of operations as a percentage of net sales. The financial information and discussion below should be read in conjunction with the accompanying financial statements and notes thereto.  Probe Manufacturing, Inc.Statement of Operationsfor the years ended December 31,20102009Sales100%100%Cost Of Goods Sold72%78%Gross Profit28%22%General And Administrative25%43%Share Based Compensation1%0%Net Profit / (Loss) From Operations2%-21%Other Income / (Expenses)7%24%Interest Expense-1%-2%Net Profit / (Loss) Before Income Taxes9%1%Income Tax Expense0%0%Net Profit / (Loss)9%1%  Net Sales  For the year ended December 31, 2010, our revenue was $2,799,935 compared to $2,153,141 for the same period in 2009.  Our revenue increased by $646,794 for the year ended December 31, 2010, compared to the same period in 2009. The increased in revenue was due to increased orders within existing accounts and we added 6 new customers in 2010. Major Customers  Our top 5 customers accounted for approximately 58% of our net sales for the year ended December 31, 2010, compared to 73%, for the same period in 2009. We believe that our ability to grow our core business depends on increasing sales to existing customers, and on successfully attracting new customers. Customer contracts can be canceled and volume levels can be changed or delayed based on our customers performance and the end users markets which we have no control over. The timely replacement of delayed, canceled or reduced orders with new business cannot be ensured. In addition, we cannot assume that any of our current customers will continue to utilize our services. Consequently, our results of operations may be materially adversely affected.   25 of 60   Gross Profit  For the year ended December 31, 2010, our gross profits increased to 28% from 22% for the same period in 2009. Our gross profits could vary from period to period and is affected by a number of factors, including product mix, production efficiencies, component availability and costs, pricing, competition, customer requirements and unanticipated restructuring or inventory charges and potential scrap.  Selling, General and Administrative (SG&A) Expenses  For the year ended December31, 2010, our SG&A expense was 25% compared to 43% for the same period in 2009.  This decrease is primarily due to the increase in revenue.  We have also made adjustments to decrease SG&A expense.  Net Income/(Loss) from operations  For the year ended December 31, 2010, our net income from operations was 2% compared to net loss from operations of (21%) for the same period in 2009. This was primarily due to a increase in revenue as well as the decrease in expenses.  For the year ended December 31, 2010 interest expense was ($15,341) compared to ($33,457)for the same period in 2009, this was to due to the settlement agreements on the notes payable referenced in Note 8.  Liquidity and Capital Resources  PROBE MANUFACTURING, INC.Condensed Statements of Cash Flowsfor the years ended December 31,20102009Net Cash provided / (Used) In Operating Activities$                  70,396$                  86,282Cash Flows Used In Investing Activities(51,556)(12,236)Cash Flows Provided / (used)  By Financing Activities(18,840)(74,046)Net (Decrease) Increase in Cash and Cash Equivalents$                            -$                            -  Capital Requirements for long-term Obligations  On July 9, 1997 and December 21, 1997, we entered into two lease agreements, with Crocker capital, which subsequently assigned the leases to The CIT Group.  In September 2004, we had outstanding balances of $457,604 and $556,293 on the two leases and were unable to make the monthly lease payments. As a result, we entered into a forbearance agreement with The CIT Group, with monthly payments of $7,500 and an early payment schedule. On April 9, 2009 we entered into an agreement with CIT to pay off the balance in full for $70,000. As a result, we realizes a net gain of $190,960.  As of June 30, 2009, we had outstanding note balances totaling $690,708, all of which were in default.  On June 17, 2009, we entered into a stock purchase agreement with KB Development group to sell 152,000,000 shares of our common stock for $120,000.  Concurrently we entered into Settlement agreements with each of our note holders to settle the outstanding notes payable for $120,000 and the assumption of a $10,000 note by Solar Masters.  Subsequently, between July 13, 2009 and July 27, 2009 all of the notes were paid and settled, which resulted in a realized gain of $708,708 and a reduction in our notes payable of $840,203.  As of December 31, 2010, we have no long-term debt obligations.   26 of 60  Subsequently, On February 18, 2011 we entered into an Accounts Receivable Purchasing Agreement (the ARPA) with DSCH Capital Partners, LLC d/b/a Far West Capital (FWC), an unaffiliated third party.  Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of our company on a revolving basis up to a maximum of $750,000.  Under the terms of the ARPA, FWC may purchase eligible receivables from us with full recourse for the face amount of such eligible receivables less a discount of 1.0%.  In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC at a rate equal to the Wall Street Journal Prime Lending Rate plus 4.75%, with a floor of 7.00%.  FWC will retain 20% of the purchase price of the receivables as a reserve amount.  The ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by us with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date.  The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 90days prior written notice or without notice upon and during the continuance of an event of default.  Additionally, provided there does not exist an event of default under the ARPA or the rider thereto (the Rider), FWC may make advances to or for the benefit of the company  in an aggregate amount up to and not to exceed  $250,000.00 from time to time during the term of the Rider and upon our request therefore, which advances shall be subject to all of the terms and conditions of the ARPA and shall be revolving consisting of advances against our  eligible inventory as defined in the Rider as follows: (i) the advances against eligible inventory, at FWCs discretion, will be in amounts up to the sum 50% of all eligible inventory; provided, however, the advances against eligible inventory shall at no time exceed 33% of the net outstanding purchased accounts under the ARPA plus the outstanding amount due, or net funds employed, from advances made on eligible inventory within conditions contained within the Rider. The balance cap percentage shall be 25% after 120 days from date of the Rider.  Eligible inventory will be valued at the lower of cost or market value.  There can be no assurances that this financing will be sufficient 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 additional financing, or that we 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.  Off-balance Sheet Arrangement  We currently have no off-balance sheet arrangements.   Item 7a. Quantitative and Qualitative Disclosures about Market Risk.  Not Applicable.   27 of 60    Item 8.  Financial Statements and Supplemental Data.   PROBE MANUFACTURING, INC. 10-Q TABLE OF CONTENTS  Financial StatementsPageReport of independent registered public accounting firm29Balance Sheet as of December 31, 2010 and 200930Statement of Operations for the years ended December 31, 2010 and 200931Statement of Stockholders Equity for the years ended December 31, 2010 and 200932Statement of Cash flows for the years ended December 31, 2010 and 200933Footnotes to the Financial Statements34      28 of 60     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  March 30, 2011 Board of Directors Probe Manufacturing, Inc.  We have audited the accompanying consolidated balance sheet of Probe Manufacturing, Inc. (the Company) as of December 31, 2010 and 2010 and the related consolidated statements of operations, stockholders deficit, and cash flows for the years ended December 31, 2010 and 2009. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and the results of its operations and changes in stockholders deficit and its cash flows for the years ended December 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America.  As discussed in Note 1 of the notes to the accompanying consolidated financial statements, the financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in the footnotes, the Company has current assets of $870,299 and current liabilities of $805,857.  Sales have increasedfrom $2,153,141 in 2009 to $2,799,935 for the comparable period in 2010.  In addition, the Company has an accumulated deficit of $(329,422) and is dependent on at least maintaining current revenue levels. Those conditions raise substantial doubt about the Companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.  /s/ W. T. Uniack & Co. CPAs P.C. Certified Public Accountants Woodstock, Georgia   29 of 60     PROBE MANUFACTURING, INC.Consolidated Balance Sheetas of December 31,20102009AssetsCurrent Assets:Cash$                          -$                          -Accounts receivable - trade - net403,109100,381Inventory447,133402,867Deposits20,05722,627Total Current Assets870,299525,875Property And Equipment - Net113,665103,084N/R Solar Acquisition corp. - net11,00025,000Goodwill--Total Assets$    994,964$    653,959Liabilities And Stockholders' ( Deficit )Current Liabilities:Bank overdraft$      47,502$      60,674Accounts payable - trade383,989187,948Customer Deposits13,73725,434Accrued Expenses282,229185,829Related Party - Notes Payable70,000-Current Portion of Long Term Debt8,40015,180Total Current Liabilities805,857475,065Long-Term Debt:Capital lease settlement obligations-260,961Notes Payable14,33220,000Less Current portion of Long Term Debt(8,400)(15,180)Net Long-Term Debt5,932265,781Total Liabilities811,789740,846Stockholders'  ( Deficit )Shares to be issued21,250-Common stock, $.001 par value; 400,000,000 shares authorized; 184,638,320 and 184,638,320 shares issued and outstanding respectively184,638184,638Additional paid-in capital306,709301,265Accumulated deficit(329,422)(572,790)Total Stockholders'  ( Deficit )183,175(86,887)Total Liabilities And Stockholders' Deficit$    994,964$    653,959  The accompanying footnotes are an integral part of these financial statements     30 of 60   Probe Manufacturing, Inc.Consolidated Statement of Operationsfor the years ended December 31,20102009Sales$        2,799,935$        2,153,141Cost Of Goods Sold2,004,2781,679,687Gross Profit795,657473,454General And Administrative701,144922,510Share Based Compensation26,6948,232Net Profit / (Loss) From Operations67,819(457,288)Other Income / (Expenses)190,890518,244Interest Expense(15,341)(33,457)Net Profit / (Loss) Before Income Taxes243,36827,499Income Tax Expense--Net Profit / (Loss)$           243,368$             27,499Per Share Information:Basic weighted average numberof common shares outstanding184,638,320105,931,471Net Profit / (Loss) per common share$               0.001$               0.000Per Share Information:Diluted, weighted average numberof common shares outstanding203,639,511121,404,210Diluted, Net Profit / (Loss) per common share$           0.001$           0.000  The accompanying footnotes are an integral part of these financial statements    31 of 60   Probe Manufacturing, Inc.Consolidated Statement of Stockholders Equityas of December 31, 2010DescriptionCommon Stock
..001 par
Shares        AmountShares to be Issued
Shares       AmountAdditional Paid in CapitalAccumulated DeficitStock
holders' Deficit TotalsBalance 12/31/0832,638,320$   32,638-$         -$           284,927$       258,300$ (242,618)Share based Option Amortization8,2328,232Stock Issued - KB Development152,000,000152,000(32,000)120,000Net Profit61,08961,089Reduction in Net Asset Value from Solar Master sale(33,589)(33,589)Balance 12/31/2009184,638,320$ 184,638-$         -$           261,159$       285,800$   (86,886)Share based Option Amortization5,4435,443Stock Issued to be issued for Compensation-4,250,00021,250-21,250Net Profit243,368243,368Balance 12/31/2010184,638,320$ 184,6384,250,000$ 21,250$           266,602$       529,168$  183,175  The accompanying footnotes are an integral part of these financial statements     32 of 60   PROBE MANUFACTURING, INC.Consolidated Statements of Cash Flowsfor the years ended December 31,20102009Cash Flows from Operating Activities:Net Income / ( Loss )$                243,368$                  27,499Adjustments to reconcile net loss to net cashused in operating activities:Depreciation and amortization40,97552,762Share based compensation26,6948,232Gain on debt Settlement(190,960)(708,707)Loss on sale of subsidiary190,466Net profit of subsidiary(4,504)Changes in assets and liabilities:(Increase) decrease in accounts receivable(288,728)593,337(Increase) decrease in inventory(44,266)243,470(Increase) decrease in other assets2,570(22,627)(Decrease) increase in accounts payable196,041(441,039)(Decrease) increase in customer deposits(11,697)-Other (Decrease) increase in accrued expenses96,399147,393Net Cash provided / (Used) In Operating Activities70,39686,282Cash Flows from Investing ActivitiesPurchase of Property and equipment(51,556)(12,236)Cash Flows Used In Investing Activities(51,556)(12,236)Cash Flows from Financing ActivitiesBank Overdraft / (Repayment)(13,172)(45,208)Proceeds from sale of common stock-120,000Payments on capital lease settlement obligations(70,000)(23,543)Proceeds / (Payments) on notes payable64,332(125,295)Cash Flows Provided / (used)  By Financing Activities(18,840)(74,046)Net (Decrease) Increase in Cash and Cash Equivalents--Cash and Cash Equivalents at Beginning of Period--Cash and Cash Equivalents at End of Period$                         -$                         -Supplemental Information:Interest Paid$               12,841$                 8,652Net effect of Disposition of SubsidiaryChange in Cash$                        -$                 9,925Change in Accounts Receivable-51,227Change in Inventory-68,875Change in Deposits-27,845   33 of 60   Change in Goodwill-67,594Change in Note Receivable Solar Acquisition corp.-(25,000)Change in Note Payable Conrad-(10,000.00)Loss from disposition of subsidiary$                        -$            190,466  The accompanying footnotes are an integral part of these financial statements   34 of 60    PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009  Notes 1- GENERAL  The Company  Probe Manufacturing, Inc. was founded in 1993. Probe is a high quality global electronics manufacturing service (EMS) company. We provide a full range of engineering, manufacturing and integrated supply chain services to original equipment manufacturers (OEM) companies, who design and market electronic products.. Currently, our revenue is generated from sales of our services primarily to customers in the medical device, aerospace, alternative fuel, industrial and instrumentation products manufacturers. Probe's EMS offerings include new product introduction, collaborative design, materials management, product manufacturing, product testing and product warranty repair, and end-of-life support. Because our core business is a service company, were impacted by our customers ability to appropriately predict market demand for their products. While we work with our customers to understand their demand needs, we are removed from the actual end-market served by our customers. Consequently determining future trends and estimates of activity can be very difficult.  On August 13, 2008 the issuer entered a definitive agreement for the sale and purchase of business assets of Solar Masters, Inc.  Solar Masters, Inc. was a wholly-owned subsidiary of Probe.  Solar Masters is an importer and distributor of solar powered products. The purchase price of the assets was $2,719 in cash payable to Solar Masters, LLC plus 250,000 shares of Probe common stock valued at $.40 each, or $100,000, for a total of $102,719. Solar Masters, Inc. was formed and is our wholly owned subsidiary. The assets of Solar Masters included $10,500 of inventory and a deposit on inventory of $25000, the web site the rights to the name Solar Masters and the customer base.  The allocation to the purchase price was $10,500 in inventory, $25,000 deposit on inventory and $67,594 in goodwill under Solar Masters, Inc.  The main product line of Solar Masters consists of various solar powered barricade lights.  Solar Masters also offers a solar powered battery charger, solar powered outdoor lighting and a solar powered flashlight.  It is the intent of Solar Masters to grow the product line as it sees demand for various other products.  Solar Masters recently made its first sale of solar panels.  On July 12, 2009, we agreed to convert a note receivable from Solar Masters in the amount of $89,156 into 8,000,000 shares of common stock in Solar Masters.  On July 13, 2009, we entered into a stock sale agreement with Solar Masters Acquisition Company, to sell its entire interest in its investment in Solar Masters, Inc. for $35,000, consisting of a note receivable for $25,000 and the assumption of $10,000 in notes payable referenced above.  This resulted in a loss on sale of investment of $190,464.  Barrett Evans, Interim chief executive officer and a member of our board of directors, resigned on July 27, 2009 and took a position with Solar Masters as a consultant. Kambiz Mahdi was a member of the board of directors of Solar Masters and resigned on July 14, 2009.  On June 17, 2009 we entered into a stock purchase agreement with KB Development Group, LLC to sell 152,000,000 shares of our common stock for $120,000. Concurrently; we entered into settlement agreements with each of our note holders to settle the outstanding notes payable for $120,000 and the assumption of a $10,000 note by Solar Masters. Between July 13, 2009 and July 27, 2009 all of the notes were paid and settled, which resulted in a realized gain of $708,708 and a reduction in our notes payable of $840,203. Kambiz Mahdi, then a member of our board of directors, is the managing partner of KB Development Group, LLC.  On July 27, 2009, our board of directors appointed Kambiz Mahdi as chief executive officer.   35 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  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 net profit of $243,368, generated $70,396 in net cash from operations, total stockholders equity of $183,175 and a working capital surplus of $64,442 for the year ended December 31, 2010; however, we still had an accumulated deficit of ($329,422) as of December 31, 2010. Therefore, the ability of the Company to operate as a going concern 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 Operations  Management is taking the following steps to sustain profitability and growth: (i) utilization of global sourcing to secure best cost and availability; (ii) Customer Centric program management teams through our local factory supporting multimillion dollar relationships; (iii) strategic partnerships with technology innovators and start-ups, in return for manufacturing rights and equity; (iv) new sales and expansion of service offerings into cable, plastics and sheet metal; and (v) mergers and acquisitions. Our future success is likely dependent on its ability to sustain profitable growth and attain additional capital to support our future success is likely dependent on our ability to attain growth capital in order to sustain growth and profitability.  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.  Subsequently, On February 18, 2011 we entered into an Accounts Receivable Purchasing Agreement (the ARPA) with DSCH Capital Partners, LLC d/b/a Far West Capital (FWC), an unaffiliated third party.  Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of our company on a revolving basis up to a maximum of $750,000.  Under the terms of the ARPA, FWC may purchase eligible receivables from us with full recourse for the face amount of such eligible receivables less a discount of 1.0%.  In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC at a rate equal to the Wall Street Journal Prime Lending Rate plus 4.75%, with a floor of 7.00%.  FWC will retain 20% of the purchase price of the receivables as a reserve amount.  The ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by us with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date.  The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 90days prior written notice or without notice upon and during the continuance of an event of default.  Additionally, provided there does not exist an event of default under the ARPA or the rider thereto (the Rider), FWC may make advances to or for the benefit of the company  in an aggregate amount up to and not to exceed  $250,000.00 from time to time during the term of the Rider and upon our request therefore, which advances shall be subject to all of the terms and conditions of the ARPA and shall be revolving consisting of advances against our  eligible inventory as defined in the Rider as follows: (i) the advances against eligible inventory, at FWCs discretion, will be in amounts up to the sum 50% of all eligible inventory; provided, however, the advances against eligible inventory shall at no time exceed 33% of the net outstanding purchased accounts under the ARPA plus the outstanding amount due, or net funds employed, from advances made on eligible inventory within conditions contained within the Rider. The balance cap percentage shall be 25% after 120 days from date of the Rider.  Eligible inventory will be valued at the lower of cost or market value.   36 of 60   PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  There can be no assurances that this financing will be sufficient 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 additional financing, or that we 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.  NOTE 2  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  The accompanying financial statements of the Company have been prepared in accordance with the instructions to Form 10-K for the fiscal year ending December 31, 2010.  We follow United States Generally Accepted Accounting Principles, or GAAP. Certain of the principles involve selection among alternatives and choices of methods, which are described in the footnotes to our audited financial statements.  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 its 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 its 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 31,2010, we had a reserve for potentially un-collectable accounts of $15,000.  Five (5) customers accounted for approximately 83% of accounts receivable at December 31, 2010 and one customer accounted for 29% 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.   37 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  Inventory  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 30, 2010, we had a reserve for potentially obsolete inventory of $170,000.  Property and Equipment  Property and equipment are stated at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets.  We follow the practice of capitalizing property and equipment purchased over $5,000. 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 Leasehold improvements 2 years (life of the lease)  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.    38 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  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, 2010, we had outstanding common shares of 184,638,320 used in the calculation of basic earnings per share.  Basic Weighted average common shares and equivalents at December 31, 2010 and 2009 were 184,638,320 and 105,931,471 respectively.  As of December 31, 2010, we had outstanding warrants to purchase 13,647,330 additional common shares, options to purchase 1,103,861 additional common shares and 4,250,000 shares to be issued, which may dilute future earnings per share. Fully diluted weighted average common shares and equivalents for the years ended 2010 and 2009 were 203,639,511 and 121,404,210 respectively.  Research and Development  We expensed $0 for research and development for the years ended December 31, 2010 and 2009.  Segment Disclosure  FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprises reportable segments. We have determined that we have one reportable segment, with contract electronics manufacturing. As such, our operations have been aggregated into one reportable segment for all periods presented.  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.   39 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  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, 2010 and 2009 we had $26,694 and $8,232 and respectively, in share based expense, due to the issuance of our options and warrants.  As of December 31, 2010 we had $0 in non-vested expense to be recognized.  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, 2010, we had a net operating loss carry forward of $(329,422) and a deferred tax asset of $112,003 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 $112,013.  December 31, 2010Deferred Tax Asset$                  112,003Valuation Allowance(112,003)Deferred Tax Asset (Net)$                              -   NOTE 3  INVENTORY  Inventories by major classification were comprised of the following at:  December 31, 2010December 31, 2009Raw Material$                    513,345$                    678,492Work in Process101,09271,161Finished Goods2,6973,214Total617,134752,867Less Reserve for excess or obsolete inventory(170,000)(350,000)Total Inventory$                    447,134$                    402,867    40 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   NOTE 4  PROPERTY AND EQUIPMENT  Property and equipment were comprised of the following at:  December 31, 2010December 31, 2009Furniture and fixtures$                     33,558$                     33,558Equipment1,888,7401,854,184Leasehold improvements36,68619,686Total1,958,9841,907,428Accumulated Depreciation(1,845,319)(1,804,344)Net Fixed Assets$                   113,665$                   103,084   NOTE 5  ACCRUED EXPENSES  December 31, 2010December 31, 2009Accrued Wages$                      195,936$                        26,681Accrued Interest2,400650Accrued Professional Fees4,35010,000Accrued Other7,96045,214Accrued Rent59,19080,432Accrued Vacation12,39322,852Total Accrued Expenses$                      282,229$                      185,829    41 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  NOTE 7 - CAPITAL LEASE SETTLEMENT OBLIGATIONS  On July 9, 1997 and December 21, 1997, we entered into two lease agreements, with Crocker capital, which subsequently assigned the leases to The CIT Group.  In September 2004, we had outstanding balances of $457,604 and $556,293 on the two leases and were unable to make the monthly lease payments. As a result, we entered into a forbearance agreement with The CIT Group, with monthly payments of $7,500 and an early payment schedule as follows:  The CIT Group would release us and its guarantors if one of the following payments were made, less the total of all monthly payments made to that date:  $375,000 if paid by October 25, 2004 $425,000 if paid by December 25, 2004 $500,000 if paid by June 25, 2005 $550,000 if paid by December 25, 2005 $600,000 if paid by June 25, 2006 $650,000 if paid by December 25, 2006 $700,000 if paid by June 25, 2007  On June 1, 2007 an amended forbearance agreement was entered into:  1) In consideration of CIT entering into this Addendum, Probe will pay CIT the sum of $7,500 on or before June 25, 2007, which was paid. 2) Recital B is amended to state that as of June 25, 2007 Probes payment obligation to CIT totals $457,500. 3) Section 2.3 of the Forbearance Agreement is amended to state that probe will pay CIT the amount of $457,500 in sixty-one (61) monthly installments of $7,500 each, commencing on July 25, 2007 and ending on July 25, 2012. If at any time Probe elects to pay in full the remaining balance, upon 30 day written notice, CIT will provide a payoff figure for the remaining balance using a present value rate of 7.0%. 4) We imputed interest at 7.00% over the term of the payments, which resulted in a present value of $384,025 and a gain of $324,330 which had an effect on Net profit per common share of $.031 and Diluted Net Profit per common share of $.022. 5) As of December 31, 2009 the outstanding balance was $ 260,960.  On April 9, 2010 we entered into an agreement with CIT to settle the balance in full for $70,000, as a result we realized a gain of $190,960.  As of December 31, 2010 the balance due to CIT was $0.    42 of 60    PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   NOTE 8  NOTES PAYABLE  Note Payable - dated March 10, 2006  special use, line of credit in the amount of $90,000, unsecured, 12.00% interest paid in cash due May 10, 2007, payable to Ashford Capital, LLC.  This note was converted to a term note payable, with an effective date of June 30, 2006, unsecured, 12.00% interest rate per annum, with a 36 month amortization, payments of $1,997 and a balloon payment of $33,068 on April 15, 2008.   On April 15, 2008 we were unable to meet the balloon payment and the note is in default. On July 21, 2009 this note was settled in full for $8,268 and recognized a gain of $22,221. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  This Note was an operating line of credit, secured by the assets of the Company. Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to Ed Lassiter.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $ $4,650 and a balloon payment of $77,014 on April 15, 2008. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. On July 20, 2009 this note was settled in full for $20,014 and recognized a gain of $53,788. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable -- This Note was an operating line of credit, secured by the assets of the Company. Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in common stock in the Company) per annum, payable to William Duncan.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $1,661 and a balloon payment of $27,505 on April 15, 2008. On April 15, 2008, we were unable to meet the balloon payment and the note is in default.  On July 13, 2009 this note was settled in full for $6,798 and recognized a gain of $18,270. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  This Note was an operating line of credit, secured by the assets of the Company.   Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to Benner Exemption Trust.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, payments of $4,650 and a balloon payment of $77,014 on April 15, 2008. On April 15, 2008 we were unable to meet the balloon payment and the note is in default.  On July 13, 2009 this note was settled in full for $19,450 and recognized a gain of $52,270. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  This note was an operating line of credit, secured by the assets of the Company. Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to Ashford Capital, LLC.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $3,321 and a balloon payment of $55,010 on April 15, 2008.  On April 15, 2008 we were unable to meet the balloon payment and the note is in default.  On July 20, 2009 this note was settled in full for $14,133 and recognized a gain of $37,982. As of December 31, 2009 the outstanding balance was zero.  Note Payable  This Note was an operating line of credit, secured by the assets of the Company.  Borrowings under this line of credit were at an interest rate of 15.00% per annum, payable to Hoa Mai.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $1,661 and a balloon payment of $27,505 on April 15, 2008.  The note was extended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date.   On July 13, 2009 this note was settled in full for $2,605 and recognized a gain of $7,002.  As of December 31, 2009 and 2010 the outstanding balance was zero.   43 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   Related Party  Notes payable  Note Payable - dated March 10, 2006   related party, special use, line of credit in the amount of $45,000, unsecured, 20.00% interest per annum (10.00% paid in cash and 10% paid in our common stock shares), Due May 10, 2007.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12.00% interest rate, with a 36 month amortization, monthly payments of $1,001 and a balloon payment of $16,588 on April 15, 2008.  This note is payable to Kambiz Mahdi. On April 15, 2008 we were unable to meet the balloon payment and the note is in default.  On July 27, 2009 this note was settled in full for $0 and recognized a gain of $14,227. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable - dated March 10, 2006  related party, special use, line of credit in the amount of $45,000, unsecured, 20.00% interest per annum (10.00% paid in Cash and 10.00% paid in our common stock shares), Due May 10, 2007.   This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12.00% interest rate, with a 36 month amortization, monthly payments of $1,001 and a balloon payment of $16,588 on April 15, 2008.  This note is payable to Reza Zarif. The note was extended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 27, 2009 this note was settled in full for $3,585 and recognized a gain of $9,636. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party, unsecured, 20.00% interest per annum (10.00% paid in cash and 10.00% paid in our common stock shares due on May 10, 2007, Payable to Kambiz Mahdi.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 10.00% interest rate, with a 36 month amortization, monthly payments of $7,871 and a balloon payment of $130,366 on April 15, 2008. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. On July 27, 2009 this note was settled in full for $0 and recognized a gain of $124,304. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party, unsecured, 20.00% interest per annum (10.00% paid in cash and 10.00% paid in our common stock shares) due on May 10, 2007, Payable to Reza Zarif.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $7,871 and a balloon payment of $130,366 on April 15, 2008.The note wasextended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 27, 2009 this note was settled in full for $34,583 and recognized a gain of $92,941. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party.  This note was an operating line of credit, secured by the assets of the Company. Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to Rufina Paniego.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12.00% interest rate, with a 36 month amortization, monthly payments of $2,491 and a balloon payment of $39,759 on April 15, 2008.  As of June 30, 2008 the outstanding balance was $42,893. The note was extended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date.  On July 27, 2009 this note was settled in full for $10,563 and recognized a gain of $28,388. As of December 31, 2009 and 2010 the outstanding balance was zero.   44 of 60   PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   Note Payable  related party.  This note was an operating line of credit, secured by the assets of the Company.   Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to eFund Capital Partners, LLC.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $4,982 and a balloon payment of $82,516 on April 15, 2008. The note was extended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date.  On July 27, 2009 this note was settled in full for $0 and recognized a gain of $81,879. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party. This is a term note payable, with an effective date of January 15, 2008, payable to Jeff Conrad, Esq. at a 12.00% interest rate pr annum, with a 30 month amortization and monthly payments of $1,162.  As of June 30, 2009 the note was in default with outstanding balance of $27,796. On July 27, 2009 this note was settled in full for $0 and recognized a gain of $27,796. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party. This is a term note payable, unsecured, dated November 03, 2009 payable to Linwood Goddard at a 12.00% interest rate, with a 36 month amortization and monthly payments of $334.14.  As of December 31, 2010 the balance was $9,666.  Note Payable  related party. This is a term note payable, unsecured, dated December 24, 2009 payable to Linwood Goddard at a 12.00% interest rate, with a 36 month amortization and monthly payments of $334.14.  As of December 31, 2010 the balance was $4,666.  Note Payable - On June 23, 2010 we entered short term $70,000 demand note to B&S Development group.  The term of this note is four month due on October 23, 2010 with an interest rate of %15 percent per annum.  This note required the payment of a 12% due diligent fee to be amortized over the life of the note. Total payments for interest and due diligent fees are $3,000 per month.  Bijan Israel the managing partner of B&S development is also a managing partner of KB Development Group.  KB Development Group is the largest shareholder of the company at 152,000,000 shares. As of December 31,2010 the outstanding balance was $70,000. Subsequently, on February 17, 2010 the balance of this note was paid in full.  Other Long-Term Debt  We negotiated a settlement with the IRS and have entered into a payment plan with them in which we pay the IRS $3,000 per month. All payments to date are current. The balance is included in other long-term debt.  This was paid in full in October of 2009 and as of December 31, 2009 and 2010 the balance was $0.   45 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   NOTE 9  COMMITMENTS AND CONTIGENCIES  Operating Rental Leases  On September 11, 2006 we entered into a sublease agreement for 10,000 sq ft. of manufacturing space which includes office space with Quantum Fuel System Technologies Worldwide, Inc. for $15,500 per month. On May 19, 2008 we entered into a new extension of the sublease agreement with an effective termination date ofAugust 31, 2009. The facility is located at 25242 Arctic Ocean Drive, Lake Forest, CA 92630.   On October 14, 2009 we entered into a 5 year lease with Benard family trust, with a commencement date of December 31, 2009.  The facility is approximately 19,701 square feet and located at 17475 Gillette, Irvine CA, 92614.  YearMonthly Rent17,88029,850310,835411,820512,805  Subsequently on March 28, 2011 we signed an amendment to our facility lease with an increase of 1,600 square feet. The increase in the lease commences on April 1, 2011 and continues through year five.  The amended lease has the following payments:  Original LeaseAmended leaseYearMonthly RentMonthly Rent17,8807,88029,85010,650310,83511,715411,82012,780512,80513,845  Litigation  The Company may be involved from time to time in various claims, lawsuits, and disputes with third parties, action involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business. As of December 31, 2009, we believe that there are no claims or litigation pending.  NOTE 10  CAPITAL STOCK TRANSACTIONS  On April 21, 2005, our Board of Directors and shareholders approved the following capital stock transactions:  We re-domiciled in the state of Nevada, whereby increasing the number of authorized common shares to 200,000,000 and designating a par value of $.001 per share.  On May 25, 2006, our Board of Directors and shareholders approved the following capital stock transactions:  An amendment to the Articles of Incorporation of the Company authorizing a new series of Preferred stock, which shall be designated as Series C, and shall consist of 15,000 shares.   46 of 60    PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued) Common Stock Transactions  On July 11, 2009, we issued 152,000,000 shares to KB Development Group, LLC, of which Kambiz Mahdi is the managing partner and also is our chief executive officer and a member of our board of directors.  On July 12, 2009, we agreed to convert a note receivable from Solar Masters in the amount of $89,156 into 8,000,000 shares of common stock in Solar Masters.  For the year ended December 31, 2010, we accrued 4,250,000 shares of common stock to be issued.  As of December 31, 2010, these shares were un-issued.  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, 2010 and 2009 there were 184,638,320 and 184,638,320 shares of common stock issued and outstanding, respectively.  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 shares of common stock 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 authorizing 15,000 shares Series C Convertible Preferred Stock.  As of August 20, 2006 all preferred stock has been converted into Common stock and there are no outstanding preferred shares as of December 31, 2010.  Preferred Series A Previously, there were 440 shares of Convertible A Preferred Stock outstanding, with a stated value of $1,000.  Each share is convertible into 0.1% percent of the shares of our common stock outstanding at the date of conversion, which shall convert upon election of the holder.  The holders of series A Preferred stock have the right to vote with the holders of common stock on any matter to which the common stock holders are entitled to vote and they are entitled to vote number of shares of common stock into which the series A Preferred Stock is convertible. If we are liquidated, distribute our assets, dissolve or wind-up, the holders of Convertible A Preferred Stock shall receive the greater of (i) $2,500 per share of Convertible A Preferred Stock they hold at the time of such liquidation, or (ii) their pro rata share of the total value of our assets and funds to be distributed, assuming the Convertible A preferred stock is converted to common stock.  On August 14, 2006 the holders converted 440 shares of the Preferred Series A for 4,544,188 shares of our common stock.   47 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   Preferred Series B  Previously there were 12,500 shares of Series B Convertible stock outstanding, with a stated value of $100. Each share of Series B Stock shall be converted into a number of shares of common stock that is equal to each share being divided by the average of the 3 lowest intraday bids in the twenty (20) days prior to conversion multiplied by 100 (1 divided by x, multiplied by 100), or 125 shares per Series B, whichever is greater. The minimum conversion price which Series B shareholders shall convert their Series B shares to common stock shall be $0.10.  Exchange of Preferred Series B to Preferred Series C  On May 25, 2006 the Board of Directors approved the exchange of Series B Convertible Preferred Stock for Series C No-Par, Convertible Preferred Stock for its Series B stockholders. After the exchange took place Series B Convertible Preferred Stock was cancelled. The Series C Convertible Preferred Stock carries the same rights as Series B Convertible Preferred Stock except that Series C Convertible Preferred Stock can be redeemed by us. At any time, we may, in its sole discretion, redeem some or all of the outstanding shares of Series C Stock at a Redemption Price equal to the greater of $120.00 per share for the first year from the date of this certificate and after which the redemption price shall increase by twelve percent (12%) per year until all outstanding shares of Series C have been redeemed. To redeem Series C Stock, we, at least five (5) days prior to the date on which it desires to redeem such stock (the Redemption Date), shall send the applicable holder of Series C Stock a notice of the redemption provided, however, that failure to give such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceedings for the redemption of any shares of Series C Stock.  Such notice shall state:  (i) the redemption date; (ii) the redemption price; and (iii) the number of shares of Series C Stock to be redeemed.  Furthermore, the holders of Series C Convertible Preferred Stock shall receive one A Warrant and one B Warrant for every Ten (10) shares of common stock received from converting a share of our Series C Convertible Preferred stock.  This series A and B Warrants are pursuant to the terms and conditions of our Series A and B warrant agreement as amended.  Preferred Series C  Previously there were 14,040 shares of Convertible C Preferred Stock outstanding.   Originally as filed on May 25, 2006 each share of Series C Stock shall be converted into a number of shares of Common Stock that is equal to each share being divided by the average of the 3 lowest intraday bids in the twenty (20) days prior to conversion or $0.10, whichever is greater, multiplied by 100 (1 divided by x, multiplied by 100), or 125 shares per Series C, whichever is greater. However, on August 07, 2006 the terms of Series C were amended as follows: Each share of Series C stock shall be converted into a number of shares of Common Stock that is equal to each share divided $0.267 multiplied by 100 (1 divided by $0.267, multiplied by 100).  On August 14, 2006 the holders of Preferred Series C elected to convert their shares into common stock.  As a result 14,040 shares of Preferred Series C were converted into 5,265,000 shares of 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.   48 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   Warrants  Series A - Common Stock Warrants We currently have 1,192,875 Series A Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 5 shares of common stock (5,964,375 total shares) at $0.33 per share.  The Series A Warrants expire on November 15, 2011.  Series B - Common Stock Warrants We currently have 1,192,875 Series B Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 5 shares of common stock (5,964,375 total shares) at $0.50 per share.  The Series B Warrants will expire on May 15, 2012.  Series C  Common Stock Warrants We currently have 600,000 Series C Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 1 shares of common stock (600,000 total shares) at $0.267 per share.  The Series C Warrants expired on November 5, 2010.  Series D  Common Stock warrants  We currently have 1,718,580 Series D Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 1 share of common stock (1,718,580 total shares) at $0.133 per share. The Series D Warrants expire on November 5, 2012.  For the year ended December 31, 2008 and 2009, we recognized share based compensation expense of d $14,403 and $8,232, respectively from the issuance of options and Warrants.  Warrants Activity for the Period and Summary of Outstanding Warrants  On April 2, 2008, the following notes were converted and series D warrants were issued:  Note Payable  This Note was an operating line of credit, secured by the assets of the Company. Borrowings under this line of credit were at an interest rate of 15.00% per annum, payable to Hoa Mai.  This note was converted to a term note payable, with an effective date of December 31, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $1,661 and a balloon payment of $27,505 on April 15, 2008. The note was extended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 13, 2009 this note was settled in full for $2,605 and recognized a gain of $7,002. As of December 31, 2009, the note had outstanding balance of zero.  Note Payable - dated March 10, 2006  related party, special use, line of credit in the amount of $45,000, unsecured, 20.00% interest per annum (10.00% paid in cash and 10.00% paid in our common stock shares), Due May 10, 2007. This note was converted to a term note payable, with an effective date of December 31, 2006, un-secured, 12.00% interest rate, with a 36 month amortization, monthly payments of $1,001 and a balloon payment of $16,588 on April 15, 2008.  This note is payable to Reza Zarif.  The note was extended by 18 months, with an interest rate of 13.00% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 27, 2009 this note was settled in full for $3,585 and recognized a gain of $9,636. As of December 31, 2009, the note had outstanding balance of zero.  Note Payable  related party.  This note was an operating line of credit, secured by the assets of the Company. Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to Rufina Paniego. This note was converted to a term note payable, with an effective date of December 31, 2006, un-secured, 12.00% interest rate, with a 36 month amortization, monthly payments of $2,491 and a balloon payment of $39,759 on April 15, 2008. The note was extended by 18 months, with an interest rate of 13.00% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 27, 2009 this note was settled in full for $10,563 and recognized a gain of $28,388. As of December 31, 2009, the note had outstanding balance of zero.   49 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   Note Payable  related party. This note was an operating line of credit, secured by the assets of the Company.  Borrowings under this line of credit were at an interest rate of 20.00% per annum (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to eFund Capital Partners, LLC.  This note was converted to a term note payable, with an effective date of December 31, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $4,982 and a balloon payment of $82,516 on April 15, 2008.. The note was extended by 18 months, with an interest rate of 13.00% per annum.  The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 27, 2009 this note was settled in full for $0 and recognized a gain of $81,879. As of December 31, 2009, the note had outstanding balance of zero.  Note Payable  related party, unsecured, 20.00% interest per annum (10.00% paid in cash and 10.00% paid in our company stock shares) due on May 10, 2007, Payable to Reza Zarif. This note was converted to a term note payable, with an effective date of December 31, 2006, un-secured, at 12.00% interest rate, with a 36 month amortization, monthly payments of $7,871 and a balloon payment of $130,366 on April 15, 2008.The note wasextended by 18 months, with an interest rate of 13.00% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. On July 27, 2009 this note was settled in full for $34,583 and recognized a gain of $92,941. As of December 31, 2009, the note had outstanding balance of zero.   50 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   A summary of warrant activity for the periods is as follows:  Warrants - Common Share EquivalentsWeighted Average Exercise priceWarrants exercisable - Common Share EquivalentsWeighted Average Exercise priceOutstanding December 31, 2003--Granted5,118,7500.425,118,7500.42Exercised--Outstanding December 31, 20045,118,7500.425,118,7500.42Granted2,145,0000.422,145,0000.42Exercised--Outstanding December 31, 20057,263,7500.427,263,7500.42Granted5,265,0000.425,265,0000.42Exercised--Outstanding December 31, 200612,528,7500.4212,528,7500.42Granted1,275,0000.131,275,0000.13Exercised--Outstanding December 31, 200713,803,7500.3813,803,7500.38Granted443,5800.13443,5800.13Exercised--Outstanding December 31, 200814,247,3300.3814,247,3300.38Granted----Exercised---Outstanding December 31, 200914,247,3300.3814,247,3300.38Granted----Expired600,0000.27600,0000.27Exercised---Outstanding December 31, 201013,647,3300.3813,647,3300.38    51 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   Note: The weighted average exercise price has been adjusted retroactively due to price decreases in the warrant strike prices.  Warrants OutstandingWarrants ExercisableRange of Warrant Exercise PriceWarrants - Common Share EquivalentsWeighted Average Exercise priceWeighted Average Remaining Contractual lifeWarrants - Common Share EquivalentsWeighted Average Exercise price0.335,964,375$0.330.875,964,375$0.330.505,964,375$0.501.385,964,375$0.500.27-$0.270-$0.270.131,275,000$0.131.851,275,000$0.130.13443,580$0.131.85443,580$0.13Total13,647,33013,647,330  STOCK OPTIONS  On February 8, 2007 pursuant to our 2006 Qualified Incentive Option Plan which was adopted by our Board of Directors granted Company employees an incentive stock option to purchase up to 652,766 shares of our common stock.  These options were granted at $.173 cents, the fair market value of the Company at the time of the grant. These options expire on February 8, 2017. As of December 31, 2009 we had a reduction in the outstanding stock options of 403,779 as a result of employee termination and forfeiture of the options. As of December 31, 2010 there were 203,861 outstanding options under this plan.  On February 8, 2008, we granted stock options to its key employees, to purchase up to 750,000 shares of our common stock, which was approved by our Board of Directors. These options were granted at $.173 cents, the fair market value of the Company at the time of the grant. These options expire on February 8, 2017. As a result, we recognized share-based compensation expense in the amount of $5,313 for the year ended December 31, 2007, $2,657 for the year ended December 31, 2008, $2,656 for the year ended December 31, 2009 and $2,656 for the year ended December 31, 2010. As of December 31, 2010 the balance of the outstanding options under this plan is 600,000.  On February 28, 2008 our granted stock options to a key employee, to purchase up to 300,000 shares of our common stock, which was approved by our Board of Directors. These options were granted at $.033 cents, the fair market value of the Company at the time of the grant.  These options expire on February 8, 2017. As a result, we recognized share-based compensation expense in the amount of $5,574 for year ended December 31, 2008, $5,576 for the year ended December 31, 2009 and $2,786 for the year ended December 31, 2010.  Stock to be issued under option and warrant plans  Any shares issued under the existing option or warrant plans will come from the companys authorized but un-issued, un-registered shares.   52 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)   NOTE 11  RELATED PARTY TRANSACTIONS  Note Payable - dated March 10, 2006   related party, special use, line of credit in the amount of $45,000, unsecured, 20.00% interest (10.00% paid in cash and 10% paid in our common stock shares), Due May 10, 2007.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12.00% interest rate, with a 36 month amortization, monthly payments of $1,001 and a balloon payment of $16,588 on April 15, 2008.  This note is payable to Kambiz Mahdi. On April 15, 2008 we were unable to meet the balloon payment and the note is in default.  On July 27, 2009 this note was settled in full for $0 and recognized a gain of $14,227. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party, unsecured, 20.00% interest (10.00% paid in cash and 10.00% paid in our common stock shares due on May 10, 2007, Payable to Kambiz Mahdi.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, at 10.00% interest rate, with a 36 month amortization, monthly payments of $7,871 and a balloon payment of $130,366 on April 15, 2008. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. On July 27, 2009 this note was settled in full for $0 and recognized a gain of $124,304. As of December 31, 2009 and 2010 the outstanding balance was zero.  Note Payable  related party. This is a term note payable, unsecured, dated November 03, 2009 payable to Linwood Goddard at a 12.00% interest rate, with a 36 month amortization and monthly payments of $334.14. As of December 31, 2009 and 2010 the balance was $10,000.  Note Payable  related party. This is a term note payable, unsecured, dated December 24, 2009 payable to Linwood Goddard at a 12.00% interest rate, with a 36 month amortization and monthly payments of $334.14. As of December 31, 2009 and 2010 the balance was $10,000.  On June 17, 2009, we entered into a stock purchase agreement with KB Development group to sell 152,000,000 shares of our common stock for $120,000. Concurrently we entered into Settlement agreements with each of our note holders to settle the outstanding notes payable for $120,000 and the assumption of a $10,000 note by Solar Masters.  Subsequently, between July 13, 2009 and July 27, 2009 all of the notes were paid and settled, which resulted in a realized gain of $710,203 and a reduction in our notes payable of $840,203.   Kambiz Mahdi, a member of our board of directors and chief executive officer is the managing partner of KB Development Group, LLC.  On July 13, 2009, we entered into a stock sale agreement with Solar Masters Acquisition Company, to sell its entire interest in its investment in Solar Masters, Inc. (a wholly owned subsidiary) for $35,000, consisting of a Note Receivable for $25,000 and the assumption of $10,000 in notes payable referenced above.  This resulted in a loss on sale of investment of $190,464.  Barrett Evans a member of our board of directors on December 31, 2009, subsequently resigned on July 27, 2009 and took a position with Solar Masters as a consultant.  Kambiz Mahdi was a member of the board of directors of Solar Masters as of December 31, 2009, subsequently resigned on July 14, 2009.  Note Payable - On June 23, 2010 we entered short term $70,000 demand note to B&S Development group.  The term of this note is four month due on October 23, 2010 with an interest rate of %15 percent per annum. This note required the payment of a 12% due diligent fee to be amortized over the life of the note. Total payments for interest and due diligent fees are $3,000 per month.  Bijan Israel the managing partner of B&S development is also a managing partner of KB Development Group.  KB Development Group is the largest shareholder of the company at 152,000,000 shares. As of December 31, 2010 the outstanding balance was $70,000. Subsequently, on February 17, 2010 the balance of this note was paid in full.   53 of 60  PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS    (Continued)  NOTE 12  Acquisition of Solar Masters  On August 13, 2008, we entered a definitive agreement for the sale and purchase of business assets of Solar Masters Company.  The purchase price of the assets was: $2,719.65 in cash payable to Solar Masters, LLC plus 250,000 shares of Probe common stock valued at $.40 each, or $100,000.00, for a total of $102,719.65.  Solar Masters, inc. was formed and is our wholly owned subsidiary. The assets of Solar Masters included $10,125 of inventory, $25,000 in deposits paid by the previous owner on the container of product the web site, the rights to the name Solar Masters and the customer base.  The allocation to the purchase price was as follows:  Inventory10,125.00Deposit on Container25,000.00Goodwill67,594.65  On July 13, 2009 we entered into a stock sale agreement with Solar Masters Acquisition Company, to sell its entire interest in its investment in Solar Masters, Inc. (a wholly owned subsidiary) for $35,000, consisting of a Note Receivable for $25,000 and the assumption of $10,000 in notes payable referenced above.  This resulted in a loss on sale of investment of $190,464.  NOTE 13  Subsequent Events  On February 18, 2011 we entered into an Accounts Receivable Purchasing Agreement (the ARPA) with DSCH Capital Partners, LLC d/b/a Far West Capital (FWC), an unaffiliated third party.  Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of our company on a revolving basis up to a maximum of $750,000.  Under the terms of the ARPA, FWC may purchase eligible receivables from us with full recourse for the face amount of such eligible receivables less a discount of 1.0%.  In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC at a rate equal to the Wall Street Journal Prime Lending Rate plus 4.75%, with a floor of 7.00%.  FWC will retain 20% of the purchase price of the receivables as a reserve amount.  The ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by us with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date.  The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 90days prior written notice or without notice upon and during the continuance of an event of default.  Additionally, provided there does not exist an event of default under the ARPA or the rider thereto (the Rider), FWC may make advances to or for the benefit of the company  in an aggregate amount up to and not to exceed  $250,000.00 from time to time during the term of the Rider and upon our request therefore, which advances shall be subject to all of the terms and conditions of the ARPA and shall be revolving consisting of advances against our  eligible inventory as defined in the Rider as follows: (i) the advances against eligible inventory, at FWCs discretion, will be in amounts up to the sum 50% of all eligible inventory; provided, however, the advances against eligible inventory shall at no time exceed 33% of the net outstanding purchased accounts under the ARPA plus the outstanding amount due, or net funds employed, from advances made on eligible inventory within conditions contained within the Rider. The balance cap percentage shall be 25% after 120 days from date of the Rider.  Eligible inventory will be valued at the lower of cost or market value.    54 of 60  NOTE 13  Subsequent Events - Continued   Subsequently, on March 28, 2011 we signed an amendment to our facility lease with an increase of 1,600 square feet. The increase in the lease commences on April 1, 2011 and continues through year five.  The amended lease has the following payments:  Original LeaseAmended leaseYearMonthly RentMonthly Rent17,8807,88029,85010,650310,83511,715411,82012,780512,80513,845  Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  None.   Item 9a.  Controls and Procedures.  (a) Evaluation of Disclosure Controls and Procedures  We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act, of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.  As required by Rules 13a-15(b) of the Exchange Act, an evaluation as of December 31, 2010 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2010.  (b) Report of Management on Internal Control over Financial Reporting  We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management including our of our chief executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO  Based on our evaluation under the Internal Control-Integrated Framework, our chief executive officer and chief financial officer concluded that our internal control over financial reporting was effective as of December 31, 2010.  (c) Changes in Internal Control over Financial Reporting  There have been no other changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K for the year ended 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.      55 of 60  Item 9b.  Other Information.  None.  PART III   Item 10.Directors, Executive Officers and Corporate Governance.  The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2011 annual meeting of stockholders.    Item 11.Executive Compensation.  The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2011 annual meeting of stockholders.  Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2011 annual meeting of stockholders.  Item 13.Certain Relationships and Related Transactions, and Director Independence.  The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2011 annual meeting of stockholders. Item 14.Principal Accounting Fees and Services.   The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2011 annual meeting of stockholders.   Item 15.  Exhibits, Financial Statement Schedules.  (a)(1) Financial Statements:  The consolidated financial statements and the related notes are included in Item 8. herein.   (a)(2)Financial Statement Schedule:   All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.    56 of 60   (a)(3) Exhibits:   The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.   (b) Exhibits:   See Item 15(a)(3) above.   (c) Financial Statement Schedule:   All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.     57 of 60     SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California on the 31st day of March 2011.  PROBE MANUFACTURING, INC. ______________________________ REGISTRANT   /s/ Kambiz Mahdi ___________________ By: Kambiz Mahdi Chief Executive Officer  Date: March 31, 2011  /s/ John Bennett ___________________ By: John Bennett Chief Financial Officer  Date: March 31, 2011  Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.  Signature Title   /s/ Kambiz Mahdi  Chief Executive Officer and Director _______________________ (principal executive officer) By: Kambiz Mahdi  Date: March 31, 2011  /s/ John Bennett Chief Financial Officer and Director _______________________ (principal financial officer) By: John Bennett  Date: March 31, 2011  /s/ Shervin Talieh Director _______________________ By: Shervin Talieh  Date: March 31, 2011   58 of 60   EXHIBIT INDEX   Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.   The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (and are numbered in accordance with Item 601 of Regulation S-K).  EXHIBIT NUMBER                                         DESCRIPTION  3.1 Articles of Incorporation (included as exhibit 3.1 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  3.2 Bylaws (included as exhibit 3.2 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  4.1 Certificate of Designation for Series A Convertible Preferred Stock, dated May 20, 2004 (included as exhibit 4.1 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  4.2 Certificate of Designation for Series B Convertible Preferred Stock dated December 31, 2004 (included as exhibit 4.2 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  4.3 Sample Series A Warrant Purchase Agreement (included as exhibit 4.3 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  4.4 Sample Series B Warrant Purchase Agreement (included as exhibit 4.4 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  4.5 Sample Amended Series A Warrant Purchase Agreement (included as exhibit 4.5 to the Form SB-2/A filed on November 25, 2005 and incorporated herein by reference).  4.6 Sample Amended Series B Warrant Purchase Agreement (included as exhibit 4.6 to the Form SB-2/A filed on November 25, 2005 and incorporated herein by reference).  4.7. Certificate of Designation of Series C Convertible Preferred Stock dated May 25, 2006 (included as exhibit 4.1 to the Form 8-K filed on June 14, 2006 and incorporated herein by reference).  4.8 Amended Certificate of Designation of Series C Convertible Preferred Stock dated May 25, 2006 (included as exhibit 4.1 to the Form 8-K filed on August 14, 2006 and incorporated herein by reference).  4.9 Sample Amended Series A Warrant Purchase Agreement (included as exhibit 10.1 to the Form 8-k filed on November 15, 2006 and incorporated herein by reference).  4.10 Sample Amended Series B Warrant Purchase Agreement (included as exhibit 10.2 to the Form 8-k filed on November 15, 2006 and incorporated herein by reference).  10.1 Form of Settlement Agreements between Probe Manufacturing and Creditor Parties (included as Exhibit 10.1 to our Current Report on Form 8-K filed August 12, 2009 and incorporated herein by reference).  10.2 Stock Purchase Agreement between Probe Manufacturing and Solar Masters Acquisition Company, LLC (included as Exhibit 10.2 to our Current Report on Form 8-K filed August 12, 2009 and incorporated herein by reference).  10.3 Stock Purchase Agreement between Probe Manufacturing and KB Development Group, LLC (included as Exhibit 10.3 to our Current Report on Form 8-K filed August 12, 2009 and incorporated herein by reference).  14.1 Code of Ethics (included as exhibit 14.1 to the Form 10-KSB on April 5, 2007 and incorporated herein by reference).   59 of 60   21.1* List of Subsidiaries  31.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.  31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act  of  2002.  32.1** Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002.  32.2** Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002. _________________  * Filed herewith. ** Furnished herewith.   60 of 60