UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.  20549  FORM 10-Q  xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period endedSeptember 30, 2009   ̈TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  Commission file number333-125678  PROBE MANUFACTURING, INC. (Exact name of small business issuer as specified in its charter)  Nevada20-2675800(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)  25242 Arctic Ocean Dr. Lake Forest, CA 92630 (Address of principal executive offices)  (949) 206-6868 (Issuers telephone number)   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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. Yes   þ     No   o  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).Yes   þ     No   o  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 filer Accelerated filer o o  Non-accelerated filer Smaller reporting company o þ  1  of 51      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   o     No   þ  APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each of the registrants classes of common stock, as of November 10, 2009 was as follows: 184,638,320


PROBE MANUFACTURING, INC. 10-Q   TABLE OF CONTENTS  Part I Page Item 1.Financial Statements (Unaudited)4Item 2.Managements discussion and Analysis of Financial Condition and Results of Operation31Item 3.Quantitative and Qualitative Disclosures About Market Risk40Item 4.Controls and Procedures40Item 4T.Controls and Procedures40   Part II Page Item 1.Legal Proceedings41Item 1A.Risk Factors41Item 2.Unregistered Sales of Equity Securities and Use of Proceeds43Item 3.Default Upon Senior Securities43Item 4.Submission of Matters to a Vote of Security Holders45Item 5.Other Information45Item 6.Exhibits45signatures46


2  of 51


PART 1  FINANCIAL INFORMATION   Item 1. Financial Statements  PROBE MANUFACTURING, INC. 10-Q TABLE OF CONTENTS  Financial StatementsPageReport of independent registered public accounting firm5Balance Sheet as of September 30, 2009 and December 31, 2008 (Unaduited)6Statement of Operations for the three and nine month periods ended September 30, 2009 and 2008 (Unaudited)7Statements of Cashflows for the nine months ended September 30, 2009 and 2008 (Unaudited)8Footnotes to the Financial Statements7


3  of 51


W. T. UNIACK & CO. CPAS, P.C. CERTIFIED PUBLIC ACCOUNTANTS  1003 Weatherstone Pkwy., Ste. 320     12600 Deerfield Pkwy., Ste 100 Woodstock, GA  30188       Alpharetta, GA  30004 Phone: 770-592-3233       Phone: 678-566-3774 _____________________________________________________________________________________  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors Probe Manufacturing, Inc. Los Angeles, CA  We have reviewed the accompanying balance sheet of Probe Manufacturing, Inc. as of September 30, 2009, and the related statements of operations for the three and nine month period ending September 30, 2009 and statement of cash flows for the nine month period ending September 30, 2009. These financial statements are the responsibility of the Companys management.  We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of personal responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.  Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.  The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, conditions exist which raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the uncertainty.   W.T. UNIACK & CO. CPAs, P.C.  November 18, 2009


4  of 51


PROBE MANUFACTURING, INC.Consolidated Balance SheetUn-auditedSeptember 30,December 31,20092008AssetsCurrent Assets:Cash$                          -$                    9,754Accounts receivable - trade - net189,487700,490Inventory340,509786,416Deposits6,25052,600Total Current Assets536,2461,549,260Property And Equipment - Net96,846143,610N/R Solar Acquisition corp.25,000-Goodwill-67,594Total Assets$    658,092$ 1,760,464Liabilities And Stockholders' ( Deficit )Current Liabilities:Bank overdraft$      30,277$    105,882Accounts payable - trade204,122668,464Customer Deposits23,21431,540Accrued Expenses109,838194,764Notes payable - Related Party1,321414,948Notes payable11,925302,979Current Portion of Long Term Debt120,00072,377Total Current Liabilities500,6971,790,954Long-Term Debt:Capital lease settlement obligations260,961284,504Less Current portion of Long Term Debt(120,000)(72,377)Net Long-Term Debt140,961212,127Total Liabilities641,6582,003,081Stockholders'  ( Deficit )Common stock, $.001 par value; 200,000,000 shares authorized; 184,638,320 and 32,638,320 shares issued and outstanding respectively184,63832,638Additional paid-in capital299,207325,033Accumulated deficit(467,411)(600,288)Total Stockholders'  ( Deficit )16,434(242,617)Total Liabilities And Stockholders' Deficit$    658,092$ 1,760,464  The accompanying notes are integral part of these financial statements.


5  of 51


Probe Manufacturing, Inc.Consolidated Statement of Operationsfor the three and nine month periods endedSeptember 30, 2009 and 2008 respectivelyUn-auditedUn-auditedThree month period endedNine month period ended2009200820092008Sales$          544,357$       2,022,233$       1,850,332$       6,018,623Cost Of Goods Sold357,9731,625,7171,456,4604,575,651Gross Profit186,384396,516393,8721,442,972General And Administrative177,700338,083741,4301,020,749Share Based Compensation2,0582,0586,17444,951Research and Development-21,093-140,667Net Profit / (Loss) From Operations6,62635,282(353,732)236,605Other Income / (Expenses)270(360)(458)Gain debt settlement708,708-708,708-Loss on sale of subsidiary(190,464)-(190,464)-Interest Expense(3,947)(29,339)(31,635)(109,302)Net Profit / (Loss) Before Income Taxes521,1935,583132,877126,845Income Tax Expense----Net Profit / (Loss)$          521,193$              5,583$          132,877$          126,845Per Share Information:Basic weighted average numberof common shares outstanding171,420,92931,896,47179,407,55131,695,615Net Profit / (Loss) per common share$              0.003$              0.000$              0.002$              0.004Per Share Information:Diluted, weighted average numberof common shares outstanding186,810,37347,677,83694,796,99545,890,949Diluted, Net Profit / (Loss) per common share$          0.003$          0.000$          0.001$          0.003  The accompanying notes are integral part of these financial statements.


6  of 51


PROBE MANUFACTURING, INC.Consolidated Statements of Cash Flowsfor the nine months ended September 30,Un-AuditedUn-Audited20092008Cash Flows from Operating Activities:Net Income / ( Loss )$                132,877$                126,845Adjustments to reconcile net loss to net cash used in operating activity:Depreciation and amortization39,31451,244Share based compensation6,17511,985Gain on debt settlement(708,707)-Loss on from disposition of  subsidiary190,466-Net profit of subsidiary(4,504)Stock issued for Services-32,966Changes in assets and liabilities (net of disposition of  subsidiary)(Increase) decrease in accounts receivable504,232(165,185)(Increase) decrease in inventory330,82812,973(Increase) decrease in other assets(31,250)(50,937)(Decrease) increase in accounts payable(440,079)235,002(Decrease) increase in customer deposits23,2143,961Other (Decrease) increase in accrued expenses (net of gain from settlement)73,106(52,352)Net Cash provided / (Used) In Operating Activities115,672206,502Cash Flows from Investing ActivitiesDisposed of Property and equipment7,450-Investment in Solar Masters-(2,720)Cash Flows Used In Investing Activities7,450(2,720)Cash Flows from Financing ActivitiesBank Overdraft / (Repayment)(75,605)-Proceeds from sale of common stock120,000-Payments on capital lease settlement obligations(23,543)(50,179)Proceeds / (Payments) on notes payable(143,974)(161,987)Cash Flows Provided / (used)  By Financing Activities(123,122)(212,166)Net (Decrease) Increase in Cash and Cash Equivalents-(8,384)Cash and Cash Equivalents at Beginning of Period-29,490Cash and Cash Equivalents at End of Period$                         -$                  21,106  The accompanying notes are integral part of these financial statements.


7  of 51


Supplemental Information:Interest Paid$                    8,652$                  89,576Net effect of Disposition of SubsidiaryChange in Cash9,923-Change in Accounts Receivable51,227-Change in Inventory68,875-Change in Deposits27,845-Change in Goodwill67,594-Change in Note Receivable Solar Acquisition corp.(25,000)-Change in Note Payable Conrad(10,000)-Loss from disposition of subsidiary$                190,464$                         -   The accompanying notes are integral part of these financial statements.


8  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED) For the Three and Nine Months Ended September 30, 3009 and 2008  Notes 1- GENERAL  The Company  Probe Manufacturing Industries, Inc. was incorporated on July 7, 1995. On April 21, 2005, we was re-domiciled from California to Nevada, and changed our name to Probe Manufacturing, Inc.  Probe Manufacturing, Inc. (the Company or Probe) is a global provider of advanced electronics manufacturing services, or EMS, to original equipment manufacturers, or OEMs, primarily in the medical device, aerospace, industrial, instrumentation and alternative fuel segments. This includes end-to-end manufacturing solutions ranging from engineering to manufacturing of printed circuit board assembly, cable assembly, enclosures, complete system integration and testing, as well as global order fulfillment.  In August 2008, we acquired the assets of Solar Masters, LLC, a distributer of solar powered products. Our headquarters are located in Lake Forest, California.  Solar Masters is located in Fountain Valley, California.  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. (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, Interim CEO 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.  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. Although; for the nine months ended September 30, 2009, we had a net profit of $132,877 and a working capital surplus of $35,549 and we had shareholder surplus of $16,434, our ability to operate as a going concern is still dependent upon our ability (1) to obtain sufficient debt and/or equity capital and/or (2) continue to generate positive cash flow from operations.


9  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)  Plan of Operations  We have seen a dramatic drop in revenue beginning in the fourth quarter of 2008 and continuing through 2009.  We have made significant expense cuts as a direct result of this drop in revenue.  In addition to the steps discussed below, we have initiated a major sales push in an attempt to gain new revenue; however no guarantees can be made as to whether or not we will be successful in winning the quoted business or if it will be able to keep its existing business.  Management is taking the following steps to address this situation: (a) to improve operational efficiencies by: (i) global expansion of our material sourcing and reducing our direct cost of materials (ii) by creating a strategic alliance with global suppliers in lower cost regions and outsourcing some of our end-to-end services (iii) by making a settlement with our note holders (iv) increase revenue by focusing on organic growth and acquisition of new domestic customers by offering both local and lower cost off shore end-to-end solutions (v) and investing into technology by becoming an incubator to technology innovators. Our future success is likely dependent on our ability to attain additional capital to support growth and ultimately, upon its ability to reach profitability and then maintain that 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.   NOTE 2  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  Our accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles.  It is suggested that these condensed financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's audited financial statements on Form 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission, or the SEC on April 15, 2009.  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 unaudited 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.


10  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)  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 September 30,2009, we had a reserve for potentially un-collectable accounts of $16,620.  Five (5) customers accounted for approximately 72% of accounts receivable at September 30, 2009 and one customer accounted for 20% 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 September 30, 2009, we had a reserve for potentially obsolete inventory of $410,000.  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)


11  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   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 September 30, 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 for the three and nine months ended September 30, 2009, were 171,420,929 and 79,407,551 respectively.  As of September 30, 2009, we had outstanding warrants to purchase 14,247,330 additional common shares and options to purchase 1,142,111 additional common shares, which may dilute future earnings per share. Fully diluted weighted average common shares and equivalents for the three and nine months ended at September 30, 2009, were 186,810,373 and 94,796,995 respectively.


12  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   Research and Development:  We are curtailing its research and development and focusing our business on its core business of electronics contract manufacturing.  Research and Development Costs incurred in association with the alternative fuels technology development (which include salaries and equipment) were expensed as incurred.  We expensed $0 in R&D during the three and nine months ended September 30, 2009.  We expensed $21,093 and $140,667 for the 3 months and nine months ended September 30, 2008, for the acquisition of a 125 KW natural gas distributed power generator converted to run on hydrogen fuel. We have tabled the development of this project.  Our second research and development project involves an Engine Control Unit (ECU) to help convert gasoline cars to run on natural gas.  The Solaris project is in prototype stage.  We have suspended the development of these projects.  Segment Information  Except as identified above in the research and development section, we operate our primary business of electronics contract manufacturing.  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.


13  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 nine months ended, September 30, 2009 and 2008, we recognized $6,174 and $44,951 respectively, in share based expense, due to the issuance of our options and warrants.  We also had $7,500 in non-vested expense to be recognized over the next three years.  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 September 30, 2009, we had a net operating loss carry forward of $(467,412) and a deferred tax asset of $158,920 using the statutory rate of 34%. The deferred tax asset may be recognized in future periods, not to exceed 20 years.  However, due to the uncertainty of tour ability to operate as a going concern, we have not booked any deferred tax asset as a result.   NOTE 3  INVENTORY  Inventories by major classification were comprised of the following at:  September 30, 2009December 31, 2008Raw Material$                    703,404$                 1,176,337Work in Process37,93253,870Finished Goods9,1726,208Total750,5091,236,416Less Reserve for excess or obsolete inventory(410,000)(450,000)Total Inventory$                    340,509$                    786,416


14  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   NOTE 4  PROPERTY AND EQUIPMENT  Property and equipment were comprised of the following at:  September 30, 2009December 31, 2008Furniture and fixtures$                        33,558$                       57,044Equipment1,854,1832,397,325Leasehold improvements210,403210,403Total2,098,1442,664,772Less accumulated depreciation and amortization(2,001,298)(2,521,162)Net Fixed Assets$                        96,846$                     143,610   NOTE 5  ACCRUED EXPENSES   September 30,December 31, 2008Accrued Wages$                     31,273$                     49,248Accrued Interest-2,512Accrued Professional Fees-37,000Accrued Other3,2661,639Accrued Rent47,432-Accrued CEO Compensation-45,000Accrued Vacation27,86659,365Total Accrued Expenses$                   109,837$                   194,764


15  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 was 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 September 30, 2009 the outstanding balance was $ 260,960.  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, 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 September 30, 2009 the outstanding balance was zero.


16  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   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% (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 September 30, 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 20.00% (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 September 30, 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 20.00% (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 September 30, 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 20.00% (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 September 30, 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 September 30, 2009 the outstanding balance was $9,607.


17  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 (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 September 30, 2009 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 (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 September 30, 2009 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 September 30, 2009 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 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 September 30, 2009 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% (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 September 30, 2009 the outstanding balance was zero.


18  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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% (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to eFund Capital Partners.  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 September 30, 2009 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, 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 September 30, 2009 the outstanding balance was zero.  Other Long-Term Debt  1) We have reached a settlement with I-Source, a supplier, with monthly payments of $2,500. As of September 30, 2009 the outstanding balance was $11,925.  2) We currently owe the Internal Revenue Service $1,322 for past tax liabilities.  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.  The balance as of September 30, 2009 is $1,322. Subsequently this has been paid in full.  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 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


19  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   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 September 30, 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.  Common Stock transactions:  On February 11, 2008, we issued 472,599 shares of common stock for officer compensation.  On April 12, 2008, we issued 113,424 shares of common stock for officer compensation.  On August 11, 2008, our board of directors approved a 3-for-1 forward stock split of its outstanding and issued common stock.  Pursuant to the forward stock split our  issued and outstanding share capital will increase from 10,594,258 shares of common stock to 31,782,774 shares of common stock.  The effective date of the forward stock split will be September 1, 2008.  All computations for common shares and equivalents have been adjusted accordingly.  On August 13, 2008, we issued 105,465 shares of common stock for officer compensation..  On September 30, 2008 we issued 750,000 shares of its common stock for the purchase of the assets of Solar Masters, Inc.  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.


20  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   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 September 30, 2009 there were 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 September 30, 2008.  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 ofour common stock.  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.


21  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (Continued)   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.


22  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 $.33 per share.  The Series A Warrants expire on November 15, 2009.  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 $.50 per share.  The Series B Warrants will expire on May 15, 2010.  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 $.267 per share.  The Series C Warrants expire 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 $.133 per share. The Series D Warrants expire on November 5, 2012.  For the year ended December 31, 2007 and 2008, we recognized share based compensation expense of $21,921 and $14,403 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 September 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 September 30, 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 (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 September 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 September 30, 2009, the note had  outstanding balance of zero.


23  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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% (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 September 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.  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 September 30, 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% (12.00% paid in cash and 8.00% paid in our common stock shares) per annum, payable to eFund Capital Partners.  This note was converted to a term note payable, with an effective date of September 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 September 30, 2009, the note had outstanding balance of zero.  Note Payable  related party, unsecured, 20.00% interest (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 September 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 September 30, 2009, the note had outstanding balance of zero.


24  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 September 30, 200914,247,3300.3814,247,3300.38


25  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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$0.330.125,964,375$0.330.505,964,375$0.500.635,964,375$0.500.27600,000$0.271.35600,000$0.270.131,275,000$0.133.11,275,000$0.130.13443,580$0.133.1443,580$0.13Total14,247,33014,247,330    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 March 31, 2008 we had a reduction in the outstanding stock options of 307,788 as a result of employee termination and forfeiture of the options.  As of September 30, 2009 there were 242,111 outstanding options under this plan.  On February 8, 200, 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 and $1,992 for the nine months ended September 30, 2009, with a balance to be expensed over the next three years of $3,321.  As of September 30, 2009 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 year ended December 31, 2008 and $4,182 for the nine months ended September 30, 2009, with a balance to be expensed over the next three years of $4,180.  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.


26  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 September 30, 2009 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 (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. As of September 30, 2008 the note was in default. On July 27, 2009 this note was settled in full for $3,585 and recognized a gain of $9,636. As of September 30, 2009 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 September 30, 2009 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 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 September 30, 2009 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% (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.  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 September 30, 2009 the outstanding balance was zero.


27  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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% (12.00% paid in cash and 8% paid in our common stock shares) per annum, payable to eFund Capital Partners.  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 September 30, 2009 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, 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 September 30, 2009 the outstanding balance was zero.  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 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. (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 September 30, 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 September 30, 2009, subsequently resigned on July 14, 2009.


28  of 51


PROBE MANUFACTURING, INC.  NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  (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 = $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 October 14, 2009, we entered into a lease agreement for 19,700 sq ft. of manufacturing space which includes office space with the Benhard Family Trust. The lease term is five years and four months. The monthly lease payment begins on February 1, 2010 in the amount of $5,910 and increased in the months below: May 1, 2010 $ 7,880 March 1, 2011      $ 9,851 March 1, 2012     $10,836 March 1, 2013     $11,821 March 1, 2014     $12,805


29  of 51


Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation  Overview  Probe Manufacturing, Inc. was founded in 1995.  Probe is a high quality global provider of electronics manufacturing services (EMS). We provide a range of engineering, manufacturing and integrated supply chain services to companies who design and market electronic products, original equipment manufacturers (OEM). Currently, our revenue is generated from sales of our services primarily to customers in the medical device, aerospace, alternative fuel and industrial 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.  Solar Masters is a wholly-owned subsidiary of Probe.  Solar Masters is an importer and distributor of solar powered products. The purchase price of the assets was: $2,719.65 in cash payable to Solar Masters, LLC. plus 250,000 shares of Probe common stock valued at $.40 each which equals to  $100,000.00,  for a total of $102719.65.  Solar Masters, inc. was formed and is our wholly owned subsidiary. The assets of Solar Masters included $10,500 of inventory, the web site the rights to the name Solar Masters and the customer base.  The allocation to the purchase price was $10,500.00 in inventory and $92,219.65 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 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 (see Note 13).  This resulted in a loss on sale of investment of $190,464.


30  of 51


Selected Financial Data  The following selected historical financial information of Probe Manufacturing, Inc. has been derived from the historical results and are not necessarily indicative of future results. 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.   Probe Manufacturing, Inc.Consolidated Statement of Operationsfor the three and nine month periods endedSeptember 30, 2009 and 2008 respectivelyUn-auditedUn-auditedThree month period endedNine month period ended2009200820092008Sales$          544,357$       2,022,233$       1,850,332$       6,018,623Cost Of Goods Sold357,9731,625,7171,456,4604,575,651Gross Profit186,384396,516393,8721,442,972General And Administrative177,700338,083741,4301,020,749Share Based Compensation2,0582,0586,17444,951Research and Development-21,093-140,667Net Profit / (Loss) From Operations6,62635,282(353,732)236,605Other Income / (Expenses)270(360)(458)Gain debt settlement708,708-708,708-Loss on sale of subsidiary(190,464)-(190,464)-Interest Expense(3,947)(29,339)(31,635)(109,302)Net Profit / (Loss) Before Income Taxes521,1935,583132,877126,845Income Tax Expense----Net Profit / (Loss)$          521,193$              5,583$          132,877$          126,845   PROBE MANUFACTURING, INC.Condensed consolidated Balance sheetUn-auditedSeptember 30,December 31,20092008Working Capital$             35,549$          (241,694)Total Assets658,0921,760,464Long term Debt140,961212,127Stockholder Equity$             16,434$         (242,617)


31  of 51


Plan of Operations  We have seen a dramatic drop in revenue beginning in the fourth quarter of 2008 and continuing through 2009.  We have made significant expense cuts as a direct result of this drop in revenue.  In addition to the steps discussed below, we  have initiated a major sales push in an attempt to gain new revenue; however no guarantees can be made as to whether or not we will be successful in winning the quoted business or if it will be able to keep its existing business.  Management is taking the following steps to address this situation: (a) to improve operational efficiencies by: (i) global expansion of our material sourcing and reducing our direct cost of materials (ii) by creating a strategic alliance with global suppliers in lower cost regions and outsourcing some of our end-to-end services (iii) by making a settlement with our note holders (iv) increase revenue by focusing on organic growth and acquisition of new domestic customers by offering both local and lower cost off shore end-to-end solutions (v) and investing into technology by becoming an incubator to technology innovators. Our future success is likely dependent on its ability to attain additional capital to support growth and ultimately, upon its ability to reach profitability and then maintain that 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.  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.  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.  On July 13, 2009, we entered into a stock sale agreement with Solar Masters Acquisition Company, to sell its entire interest 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.  Summary of Results:  For the nine month period ended September 30, 2009, we had a net profit of $132,877 of which $708,708 was from a gain on notes settlements and $(190,464) was from a loss on the sale of Solar Masters, compared to net profit of $126,845 for the same period in 2008. For the nine month period September 30, 2009, our revenue was $1,850,332 compared to $6,018,623 for the same period in 2008, due to the loss of 3 major customers and reduced orders from existing accounts. For the nine month period ended September 30, 2009, our cost of goods sold was 79% compared to 76% for the same period in 2008, mainly due to the increase in direct labor as a percent of the sales. For the nine month period ended September 30, 2009, our gross margin was 21% compared to 23.9% for the same period in 2008. For the nine month ended September 30, 2009, our SG&A cost was 40% compared to 17% for the same period in 2008.


32  of 51


For the nine months ended September 30, 2009, we had a net profit of $1132,877 and a working capital surplus of $35,549.  Our total stockholders deficit increased in the quarter by 259,051, resulting in shareholder surplus of $16,434 as of September 30, 2009; As of September 30, 2009, we had a working capital surplus of $35,549 compared to working capital deficit of ($241,694) as of December 31, 2008, an increase of $302,243.  Key performance indicators for the nine months ended September 30, 2009 and 2008:  20092008Inventory Turns3.496.49Days Sales in Backlog14579Days Receivables Outstanding6642Days Payables Outstanding8163   Inventory turns: are calculated as the ratio of cost of material compared to the average inventory for the nine months ended September 30, 2009. For the nine months ended September 30, 2009, our inventory turns were 3.49 compared to 6.49 for the same period in 2008.  Days sales in backlog is calculated based on our back log divided by average daily sales during that period.  For the nine months period ended September 30, 2009, Days Sales in Backlog was 145 days compared to 79 days for the same period in 2008.  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 nine months period ended September 30, 2009, days receivables outstanding was 66 days compared to 42 days for the same period in 2008.  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 nine months period ended September 30, 2009, days payable outstanding was 81 days compared to 63 days for the same period in 2008.  Critical Accounting Policies and basis of presentation  Our accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles.  It is suggested that these condensed financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's audited financial statements on Form 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Company on April 15, 2009.  We follow United States Generally Accepted Accounting Principles. Certain of the principles involve selection among alternatives and choices of methods, which are described in the footnotes to our unaudited 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.


33  of 51


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 grants credit to its customers located within the United States of America; and does 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 September 30,2009, we had a reserve for potentially un-collectable accounts of $16,620.  Five (5) customers accounted for approximately 72% of accounts receivable at September 30, 2009 and one customer accounted for 20% 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 makes 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 September 30, 2009, we had a reserve for potentially obsolete inventory of $410,000.  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.


34  of 51


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 September 30, 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 for the three and nine months ended September 30, 2009 were 171,420,929 and 79,407,551 respectively.  As of September 30, 2009,we had outstanding warrants to purchase 14,247,330 additional common shares and options to purchase 1,142,111 additional common shares, which may dilute future earnings per share. Fully diluted weighted average common shares and equivalents for the three and nine months ended at September 30, 2009 were 186,810,373 and 94,796,995 respectively.  Research and Development:  We are curtailing its research and development and focusing its business on its core business of electronics contract manufacturing.  Research and Development Costs incurred in association with the alternative fuels technology development (which include salaries and equipment) were expensed as incurred.  We expensed $0 in R&D during the three and nine months ended September 30, 2009.  We expensed $21,093 and $140,667 for the 3 months and nine months ended September 30, 2008, for the acquisition of a 125 KW natural gas distributed power generator converted to run on hydrogen fuel. We have tabled the development of this project.  Our second research and development project involves an Engine Control Unit (ECU) to help convert gasoline cars to run on natural gas.  The Solaris project is in prototype stage.  We have suspended the development of these projects.  Segment Information  Except as identified above in the research and development section, we operate our primary business of electronics contract manufacturing.  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.


35  of 51


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 Operations (Percentage Based)for the three and nine month periods endedSeptember 30, 2009 and 2008 respectivelyUn-auditedUn-auditedThree month period endedNine month period ended2009200820092008Sales100%100%100%100%Cost Of Goods Sold66%80%79%76%Gross Profit34%20%21%24%General And Administrative33%17%40%17%Share Based Compensation0%0%0%1%Research and Development0%1%0%2%Net Profit / (Loss) From Operations1%2%-19%4%Other Income / (Expenses)0%0%0%0%Gain debt settlement130%0%38%0%Loss on sale of subsidiary-35%0%-10%0%Interest Expense-1%-1%-2%-2%Net Profit / (Loss) Before Income Taxes96%0%7%2%Income Tax Expense0%0%0%0%Net Profit / (Loss)96%0%7%2%    Net Sales  For the nine month period ended September 30, 2009, our revenue was $1,850,332 compared to $6,018,390 for the same period in 2008.  Our revenue decreased $4,168,291 for the nine month period ended September 30, 2009, compared to the same period in 2008.  The decrease in revenue was the result of fewer orders from our customer base as well as a loss of 3 major customers.


36  of 51


Major Customers  Our top 5 customers accounted for approximately 72% of our net sales for the nine month period ended September 30, 2009, compared to 84%, for the same period in 2008. 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.  Gross Profit  For the nine month period ended September 30, 2009, our gross profits were 21% from 23.9% in the same period in 2008.   This was caused primarily due to the fixed portions of our direct labor in relation to the severe drop in sales. 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 nine month period ended September 30, 2009, our SG&A expense was 40% compared to 17% for the same period in 2008.  This increase is primarily due to the decrease in revenue.  We have made adjustments to decrease SG&A expense.  Net Income/ (Loss) from operations  For the nine months ended September 30, 2009, our net income from operations was (19.1%) compared to 3.9% for the same period in 2008. This was primarily due to a decrease in orders from customers.  For the nine month period ended September 30, 2009, our interest expense was ($31,635) compared to ($109,302) for the same period in 2008, this was to due to the settlement agreements referenced in Note 13.  Liquidity and Capital Resources:  PROBE MANUFACTURING, INC.Condensed Statements of Cash Flowsfor the nine months ended September 30,Un-auditedUn-audited20092008Net Cash provided / (Used) In Operating Activities$                115,672$                206,502Cash Flows Used In Investing Activities7,450(2,720)Cash Flows Provided / (used)  By Financing Activities(123,122)(212,166)Net (Decrease) Increase in Cash and Cash Equivalents$                         -$                  (8,384)


37  of 51


Capital Requirements for long-term Obligations  Capital Requirements for long-term Obligations2009201020112012Capital Lease Settlement  Obligations42,83277,60983,22051,296Total$        42,832$             77,609$           83,220$           51,296   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 the Company had outstanding balances of $457,604 and $556,293 on the two leases and was unable to make the monthly lease payments. As a result, the Company entered into a forbearance agreement with The CIT Group, with monthly payments of $7,500 and an early payment schedule as follows:  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 $0.031 and Diluted Net Profit per common share of $0.022. 5) As of September 30, 2009 the outstanding balance was $260,960.  As of June 30, 2009, we had outstanding note balances totaling 690,708, all of which were in default.  On June 17, 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.


38  of 51


Off-balance Sheet Arrangement  We currently have no off-balance sheet arrangements.   Item 3.  Quantitative and Qualitative Disclosure about Market Risk.  Not applicable to smaller reporting companies.   Item 4. Controls and Procedures.  Not Applicable.   Item 4T.  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 under 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 United States Securities and Exchange Commission, or the SEC, rules and forms and that such information is accumulated and communicated to us, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.  As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of September 30, 2009 was conducted under the supervision and with the participation of our chief executive officer and our 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 on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2009, were effective for the purposes stated above.  (b) Changes in internal control over financial reporting.There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


39  of 51


PART II--OTHER INFORMATION   Item 1. Legal Proceedings  We 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 September 30, 2009, we believe that there are no claims or litigation pending.   Item 1A.  Risk Factors.  There are no material changes from the risk factors previously disclosed in our 2008 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 15, 2009, except as disclosed below.   RISKS ABOUT OUR BUSINESS  IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING COSTS SUFFICIENTLY, AND THE EFFECT OF OTHER UNKNOW ADVERSE FACTORS COULD THREATEN OUR EXISTENCE AS A GOING CONCERN.  THEREFORE. WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.  THEREFORE,  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. Although; for the nine months ended September 30, 2009, we had a net profit of $132,877 and a working capital surplus of $35,549 and we had shareholder surplus of $16,434, our ability to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) continue to generate positive cash flow from operations.   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 September 30, 2009, we had current liabilities of $500,697. 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 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.


40  of 51


During the nine months ended September, 30 2009, we derived approximately 37% of our revenue from customers in the Medical Device Manufacturing, 46% Industrial Products, 9% from customers in Alternative Fuel, and 8% 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.  · The inability of our customers to successfully market their products, and the failure of these products to gain widespread commercial acceptance; could affect 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 77% of net sales during the nine months ended September 30, 2009.  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.  Please see attcahed filing of several samples of these purchase orders. 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.


41  of 51


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.   Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  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.    Item 3. Defaults upon Senior Securities  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, 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 September 30, 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 20.00% (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 September 30, 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 20.00% (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 September 30, 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 20.00% (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 September 30, 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 20.00% (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,


42  of 51


2009 this note was settled in full for $14,133 and recognized a gain of $37,982. As of September 30, 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.  As of June 30, 2008 the outstanding balance was $24,726.  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 September 30, 2009 the outstanding balance was $9,607.  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 (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 September 30, 2009 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 (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. As of September 30, 2008 the note was in default.. On July 27, 2009 this note was settled in full for $3,585 and recognized a gain of $9,636. As of September 30, 2009 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 September 30, 2009 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 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. As of June 30, 2008 the outstanding balance was $126,759.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 September 30, 2009 the outstanding balance was zero.


43  of 51


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% (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.  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 September 30, 2009 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% (12.00% paid in cash and 8% paid in our common stock shares) per annum, payable to eFund Capital Partners.  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 September 30, 2009 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, with a 30 month amortization and monthly payments of $1,162.  On July 27, 2009 this note was settled in full for $0 and recognized a gain of $27,796. As of September 30, 2009 the outstanding balance was zero.   Item 4. Submission of Matters to a Vote of Security Holders  On June 11, 2009, our stockholders holding a majority of the voting stock approved the following actions by written consent pursuant to our by-laws and the Nevada Revised Statutes:  Election of Directors:  Barrett Evans Kambiz Mahdi  Appointment of W. T. Uniack & Co. CPAs P.C. as our independent auditors.  Ratification of the Sale of Solar Masters  Ratification Of the stock sale to KB Development Group  GENERAL PROVISIONS AND BE IT FURTHER RESOLVED,that the officers of this Company are hereby authorized to execute and deliver on behalf of this Company such instruments as may be deemed necessary or proper and in general to do whatever is necessary to carry out the purpose and intent of the foregoing resolutions.  The Secretary of the Company is hereby directed to file the original executed copy of this Written Consent with the minutes of the Company, and said action is to have the same force and effect as if an annual meeting of the shareholders had been held. This Written Consent may be executed in counterparts and with facsimile signatures with the effect as if all parties hereto had executed the same document. All counterparts shall be construed together and shall constitute a single Written Consent.    Item 5. Other Information  None.   Item 6.  Exhibits  The exhibit listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.


44  of 51


SIGNATURES    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  Date  /s/ Kambiz Mahdi Chief Executive Officer  November 19, 2009  _______________________ Kambiz Mahdi  /s/ John Bennett Chief Financial Officer November 19, 2009 _______________________ John Bennett


45  of 51


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 Quarterly Report on Form 10-Q for the period ended September 30, 3009 (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).  4.11 Amended Series A Warrant Purchase Agreement (included as exhibit 4.1 to Form 8-K filed on November 10, 2008 and incorporated herein by reference).  4.12 Amended Series B Warrant Purchase Agreement (included as exhibit 4.2 to Form 8-K filed on November 10, 2008 and incorporated herein by reference).


46  of 51


10.1 Lease Agreement between Probe Manufacturing, Inc. (F.K.A. Probe Manufacturing Industries, Inc. and Reza Zarif and Kambiz Mahdi, dated May 2, 1997 (included as exhibit 10.1 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.2 Consulting Agreement between Probe Manufacturing Industries and Anthony Reed dated December 31, 2004 (included as exhibit 10.2 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.3 Legal retainer agreement between Probe Manufacturing, Inc. and Jeffrey Conrad dated (included as exhibit 10.3 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.4 Line of Credit agreement between Probe Manufacturing, Inc. and eFund Capital Partners, LLC dated January 1, 2005 (included as exhibit 10.4 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.5 Line of Credit agreement between Probe Manufacturing, Inc. and Ashford Capital, LLC dated January 1, 2005 (included as exhibit 10.5 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.6 Line of Credit agreement between Probe Manufacturing, Inc. and Benner Exemption Trust dated March 8, 2005 (included as exhibit 10.6 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.7 Line of Credit agreement between Probe Manufacturing, Inc. and Edward Lassiter dated March 22, 2005 (included as exhibit 10.7 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.8 Line of Credit agreement between Probe Manufacturing, Inc. and Rufina V. Paniego dated January 1, 2004  (included as exhibit 10.8 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.9 Promissory Note between Probe Manufacturing, Inc and Ashford Transitional Fund, L.P. dated September 20, 2004 (included as exhibit 10.9 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.10 Engagement Letter between Probe Manufacturing, Inc. and eFund Capital Partners, LLC dated May 20, 2004 (included as exhibit 10.10 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.11 Series A Convertible Preferred Stock Purchase Agreement with eFund Capital Partners, LLC dated May 20, 2004 (included as exhibit 10.11 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.12 Series A Convertible Preferred Stock Purchase Agreement with Reza Zarif dated May 20, 2004 (included as exhibit 10.12 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.13 Series A Convertible Preferred Stock Purchase Agreement with Kambiz Mahdi dated May 20, 2004. (included as exhibit 10.13 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.14 Series B Convertible Preferred Stock Purchase Agreement with eFund Capital Partners, LLC dated December 31, 2004 (included as exhibit 10.14 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).


47  of 51


10. 15 Series B Convertible Preferred Stock Purchase Agreement with Reza Zarif dated December 31, 2004 (included as exhibit 10.15 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.16 Series B Convertible Preferred Stock Purchase Agreement with Kambiz Mahdi dated December 31, 2004 (included as exhibit 10.16 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.17 Agreement to Cancel and Return shares of common stock between Probe and eFund Capital Partners, LLC, Ashford Capital, LLC, Reza Zarif, Kambiz Mahdi, dated December 31, 2004 (included as exhibit 10.17 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.18 Promissory note with eFund Capital Partners, LLC dated October 12, 2004 (included as exhibit 10.18 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.19 Promissory note with Rufina V. Paniego dated July 1, 2004 (included as exhibit 10.19 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  10.20 Sample purchase order agreement with Celerity, Inc (included as exhibit 10.20 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  10.21 Sample purchase order agreement with Newport Corporation (included as exhibit 10.21 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  10.22 Sample purchase order agreement with Asymtek Corporation (included as exhibit 10.22 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  10.23 Sample purchase order agreement with Jetline Engineering Corporation (included as exhibit 10.23 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  10.24 Sample purchase order agreement with our supplier Future Active, Inc (included as exhibit 10.24 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  10.25 Sample purchase order agreement with our supplier Arrow Electronics, Inc. (included as exhibit 10.25 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  10.26 Lease Agreement between Probe Manufacturing, Inc. and Mitchell Fitch, LLC, dated November 15, 2005 (included as exhibit 10.26 to the Form 10-KSB on April 5, 2007 and incorporated herein by reference).  10.27 Employment Agreement with Reza Zarif, Chief Executive Officer of Probe Manufacturing, Inc. (included as exhibit 10.1 to Form 8-K filed on June 14, 2006 and incorporated herein by reference).  10.27 Series C Convertible Preferred Exchange Agreement with eFund Capital Partners, LLC (included as exhibit 10.2 to Form 8-K filed on June 14, 2006 and incorporated herein by reference).  10.28 Series C Convertible Preferred Exchange Agreement with Reza Zarif (included as exhibit 10.3 to Form 8-K filed on June 14, 2006 and incorporated herein by reference).  10.29 Series C Convertible Preferred Exchange Agreement with Kambiz Mahdi (included as exhibit 10.4 to Form 8-K filed on June 14, 2006 and incorporated herein by reference).  10.30 Amended Series C Convertible Preferred Exchange Agreement with eFund Capital Partners, LLC (included as exhibit 10.1 to Form 8-K filed on August 14, 2006 and incorporated herein by reference).


48  of 51


10.31 Amended Series C Convertible Preferred Exchange Agreement with Reza Zarif (included as exhibit 10.2 to Form 8-K filed on August 14, 2006 and incorporated herein by reference).  10.32 Amended Series C Convertible Preferred Exchange Agreement with Kambiz Mahdi (included as exhibit 10.3 to Form 8-K filed on August 14, 2006 and incorporated herein by reference).  10.33 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Kambiz Mahdi dated August 10, 2006 (included as exhibit 10.1 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.34 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Reza Zarif dated August 10, 2006 (included as exhibit 10.2 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.35 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Frank Kavanaugh dated August 10, 2006 (included as exhibit 10.3 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.36 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Kambiz Mahdi dated August 10, 2006 (included as exhibit 10.4 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.37 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Reza Zarif dated August 10, 2006 (included as exhibit 10.5 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.38 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Rufina Paniego dated August 10, 2006 (included as exhibit 10.6 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.39 Amended Line of Credit agreement between Probe Manufacturing, Inc. and eFund Capital Partners, LLC dated August 10, 2006 (included as exhibit 10.7 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.40 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Benner Exemption Trust dated August 10, 2006 (included as exhibit 10.8 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.41 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Ed Lassiter dated August 10, 2006 (included as exhibit 10.9 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.42 Amended Line of Credit agreement between Probe Manufacturing, Inc. and William Duncan dated August 10, 2006 (included as exhibit 10.10 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.43 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Hoa Mai dated August 10, 2006 (included as exhibit 10.11 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.44 Amended Line of Credit agreement between Probe Manufacturing, Inc. and Ashford Transition Fund dated August 10, 2006 (included as exhibit 10.12 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.45 Employee Profit Sharing Plan (included as exhibit 10.13 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.46 Probe Manufacturing 2006 Employee Incentive Stock Option Plan (included as exhibit 10.14 to the Form 8-K filed on August 23, 2006 and incorporated herein by reference).  10.47 Employment offer to John Bennett, the Companys Chief Financial Officer (included as exhibit 10.1 to Form 8-K filed March 26, 2008).  10.48 Letter of intent to acquire the assets of Solar Master, LLC (Included as exhibit 10.1 to Form 8-K filed July 28, 2008).  10.49 Amended Letter of intent to acquire the assets of Solar Master, LLC (included as exhibit 10.1 to Form 10-Q/A filed November 18, 2008 and incorporated here in by reference).  10.50 Purchase and Sale of Assets Agreement between Solar Masters, LLC and Probe (filed as exhibit 10.1 to Form 8-K dated August 21, 2008 and incorporated herein by reference).  10.51 Lease Agreement for Solar Masters, Inc., our subsidiary (included as exhibit 10.1 to form 10-Q/A filed November 18, 2008 and incorporated herein by reference).  10.52. Executive Consulting Agreement with Barrett Evans ((included as exhibit 10.1 to form 8-K filed September 12, 2008 and incorporated herein by reference).  10.53. 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).  10.54 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).  10.57 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).  21.1 List of Subsidiaries (included as Exhibit 21.1 to the Form 10-K filed on April 15, 2009 and incorporated herein by reference).  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 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 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.


49  of 51