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 endedMarch 31, 2008   ̈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 Circle 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer Accelerated filer o o  Non-accelerated filer Smaller reporting company o þ   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 May 12, 2008 was as follows: 10,556,477   Table of contents   PROBE MANUFACTURING, INC. 10-Q   TABLE OF CONTENTS  Part I  Item 1.Financial Statements2Item 2.Managements discussion and Analysis of Financial Condition and Results of Operation26Item 3.Quantitative and Qualitative Disclosures About Market Risk35Item 4.Controls and Procedures35Item 4T.Controls and Procedures36   Part II Item 1.Legal Proceedings36Item 1A.Risk Factors36Item 2.Unregistered Sales of Equity Securities and Use of Proceeds39Item 3.Default Upon Senior Securities40Item 4.Submission of Matters to a Vote of Security Holders41Item 5.Other Information41Item 6.Exhibits41Signatures41  Page 1 of 45  Table of contents   PART 1  FINANCIAL INFORMATION  Item 1. Financial Statements  PROBE MANUFACTURING, INC. 10-Q TABLE OF CONTENTS    FINANCIAL StatementsPageReport of independent registered public accounting firm3Balance Sheet as of March 31, 2008 and December 31, 20074Statement of Operations for the three months ended March 31, 2008 and 20075Statements of Cashflows for three months ended March 31, 2008 and 20076Foot Notes to the Financial Statements7   Page 2 of 45  Table of contents  JASPERS + HALL, PC CERTIFIED PUBLIC ACCOUNTANTS 9175 E Kenyon Avenue Denver, CO 80237 303-796-0099 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board of Directors Probe Manufacturing, Inc. Lake Forest, CA  We have reviewed the accompanying balance sheet of Probe Manufacturing, Inc. as of March 31, 2008, and the related statements of operations and of cash flows for the three month period ended March 31, 2008. 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 persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company 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 this uncertainty.   Jaspers + Hall, PC Denver, Colorado May 14, 2008     Page 3 of 45  Table of contents   PROBE MANUFACTURING, INC.Balance SheetUnauditedMarch 31, 2008December 31, 2007AssetsCurrent Assets:Cash$              6,685$             29,490Accounts receivable - trade - net1,164,993702,052Inventory1,023,232953,803Total Current Assets2,194,9101,685,345Property And Equipment - Net173,284211,782Total Assets$       2,368,194$       1,897,127Liabilities And Stockholders' DeficitCurrent Liabilities:Accounts payable - trade$          902,111$          600,405Customer Deposits34,82934,829Accrued Expenses293,723280,501Current Portion of Long Term Debt863,571944,267Total Current Liabilities2,094,2341,860,002Long-Term Debt:Other long-term debt508,933420,261Notes payable - Related Party437,036482,159Capital lease settlement obligations335,566352,002Less Current portion of Long Term Debt(863,571)(944,267)Net Long-Term Debt417,964310,155Total Liabilities2,512,1982,170,157Stockholders' Deficit:Common Stock to issue, 37,808 and 157,533 shares at  March 31, 2008 and December 31,2007respectively18,90418,904Common stock, $.001 par value; 200,000,000 shares authorized; 10,556,477 and 10,398,944 shares issued and outstanding at March 31, 2008 and December 31,2007 respectively10,55610,399Additional paid-in capital202,164181,360Accumulated deficit(375,628)(483,693)Total Stockholders' Deficit(144,004)(273,030)Total Liabilities And Stockholders' Deficit$       2,368,194$          897,127   See Accountants review report   Page 4 of 45  Table of contents   Probe Manufacturing, Inc.Statement of Operationsfor the 3 months ended March 31,Unaudited20082007Sales$      2,185,444$      1,877,090Cost Of Goods Sold1,550,6121,386,529Gross Profit634,832490,561General And Administrative380,074396,837Share Based Compensation20,96218,904Research and Development83,324-Net Profit From Operations150,47274,820Other Income / (Expenses)(40)(33)Interest Expense(42,367)(35,836)Net Profit  Before Income Taxes108,06338,951Income Tax Expense--Net Profit$         108,065$           38,951Per Share Information:Basic weighted average numberof common shares outstanding10,485,50110,273,725Net Profit  per common share$             0.010$             0.004Per Share Information:Diluted, weighted average numberof common shares outstanding15,619,1399,250,330Diluted, Net Profit per common share$                0.007$                0.004   See Accountants review report    Page 5 of 45  Table of contents   PROBE MANUFACTURING, INC.Statements of Cash Flowsfor the three months ended March 31,Unaudited20082007Cash Flows from Operating Activities:Net Income / ( Loss )$          108,065$           38,951Adjustments to reconcile net loss to net cashused in operating activities:Depreciation and amortization38,49772,651Gain on debt settlement--Stock issued for Interest--Share Based Compensation20,96218,904Changes in assets and liabilities:(Increase) decrease in accounts receivable(462,941)72,240(Increase) decrease in inventory(69,429)(707)(Increase) decrease in other assets--(Decrease) increase in accounts payable301,706(4,698)Other (Decrease) increase in accrued expenses13,222(14,857)Net Cash provided / (Used) In Operating Activities(49,918)182,484Cash Flows from Investing ActivitiesPurchase of property and equipment-(81,000)Cash Flows Used In Investing Activities-(81,000)Cash Flows from Financing ActivitiesBank Overdraft / (Repayment)--Borrowings / (Payments) under line of credit, net--Payments on capital lease settlement obligations(16,436)(35,052)Proceeds / (Payments) on notes payable43,549(85,668)Cash Flows Provided / (used)  By Financing Activities27,113(120,720)Net (Decrease) Increase in Cash and Cash Equivalents(22,805)(19,236)Cash and Cash Equivalents at Beginning of Period29,49042,580Cash and Cash Equivalents at End of Period$             6,685$           23,344Supplemental Information:Interest Paid$           36,568$           35,426Income Taxes Paid$                     -$                     -  See Accountants review report       PROBE MANUFACTURING, INC.  Page 6 of 45  Table of contents  Notes to Financial Statements   Notes 1- GENERAL  The Company Probe Manufacturing Industries, Inc. was incorporated on July 7, 1995. On April 21, 2005, the Company was re-domiciled from California to Nevada, and changed its name to Probe Manufacturing, Inc.  Probe Manufacturing, Inc. (the Company or Probe) is a leading 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 card assembly, cable assembly, enclosures, complete system integration and testing, as well as global order fulfillment.  Going Concern The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a net profit of $108,063 and a working capital surplus of $100,676 and improved their total stockholders deficit by $129,026 for the three months endedMarch 31, 2008.However, they still had shareholder deficit of $(144,004) as of March 31, 2008. Therefore the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to continue generating positive cash flow from operations.  Management is taking the following steps to address this situation: (a) to continue improving operational efficiencies by: (i) re-negotiating direct material cost with all of our suppliers, (ii) by setting up Managed inventory Solutions, such as bonded inventory levels and auto-release programs with our major suppliers, whereby they maintain stock at their facilities and deliver Just-in-Time.  This will improve the utilization of our line of credits with suppliers and maintains inventory at its lowest value point; however from time to time inventory levels may increase temporarily, due to scheduling issues and acquisition of new customers and/or products;  (iii) by improving all systems and processes across operations and streamlining production lines; (b) we have refinanced our lines of credit with agreement(s) that have more attractive terms, as well as increased our credit lines with suppliers; (c) To increase revenue; (i) we are acquiring new customers that are a better fit for us, (ii) and we are  growing the business with our existing customers with offering more value added; and finally (iii) were focusing on more stable customer base such as medical device, aerospace, and alternative fuel industries that have a better chance of  maintaining their manufacturing in Southern California instead of moving it to low cost and offshore regions;  (e)  to ensure long term sustainability of the Company, were allocating more resources to develop propriety technology within the alternative energy industry while continuing to operate our EMS business. The future success of the Company is likely dependent on its ability to attain additional capital to support growth and ultimately, upon its ability to continue profitable operations.  There can be no assurance that the Company will be successful in obtaining such financing, or that it will continue 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, the Company 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 the Company be unable to continue as a going concern.  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company follows 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 the Companys reviewed financial statements.  Cash and Cash Equivalents The Company maintains 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 $100,000 per commercial bank. For purposes of the  Page 7 of 45  Table of contents  statement of cash flows the Company considers all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.  Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.  Accounts Receivable The Company grants credit to its customers located within the United States of America; and does not require collateral. The Companys ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by the Company.  Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts.  Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. As of March 31,2008, the Company had a reserve for potentially un-collectable accounts of $35,212.  Five (5) customers accounted for approximately 88% of accounts receivable at March 31, 2008.  The Companys trade accounts primarily represent unsecured receivables.  Historically, the Companys 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 the raw materials, as well as changing customer demand.  The Company 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. For the three months ended March 31, 2008 the company wrote off $60,034 of excess inventory against the reserve.  As of March 31, 2008, the Company had a reserve for potentially obsolete inventory of $240,456.  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.  The Company follows 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 The Companys 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 the Companys 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  Page 8 of 45  Table of contents  right of inspection and acceptance. The Company has 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 The Company has 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 March 31, 2008 the Company had outstanding common shares of 10,556,477, and 37,808 shares to be issued for officer compensation, for a total of 10,594,285 used in the calculation of basic earnings per share.  Basic Weighted average common shares and equivalents at March 31, 2008 were 10,485,501.  As of March 31, 2008 the Company had outstanding warrants to purchase 4,601,250 additional common shares and options to purchase 517,664 additional common shares, which may dilute future earnings per share. Fully diluted weighted average common shares and equivalents at March 31, 2008 were 15,619,139.  Research and Development: To ensure long term sustainability and growth of the company we have started research and development towards growth markets of the future by investing in alternative energy technologies.  While we continue to operate our Electronics Manufacturing business, we are now directing more resources towards developing technologies in the alternative energy industry.  Our alternative energy research and development is focused on the alternative fuel industry as defined by the Energy Policy Act of 1992 (EPAct) including ethanol, natural gas, propane, hydrogen, bio-diesel, electricity and methanol. These fuels are being used worldwide in a variety of vehicle and power generator applications. We believe three independent market factors; economics, energy security/independence and environmental concerns are driving the growth of alternative energy technologies today and will in the foreseeable future.  Research and Development Costs incurred in association with the alternative fuels technology development (which include salaries and equipment) are expensed as incurred.  We expensed $83,324 in R&D during the three months ended March 31, 2008. We acquired a 125 kW natural gas distributed power generator and have converted it to run on hydrogen fuel. We will be performing validation testing for performance; and later for emission.  Emission testing will require additional funding.  This distributed power generator will have near zero carbon based emission and very low NOx emissions.  When completed, thishydrogen-fueled internal combustion engine will address two major needs:  power and near-zero emissions.  These engines serve as replacement engines for the industrial user who has been dependent upon a manufacturer of traditional gasoline or diesel-fueled industrial engines.  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 stages, and will be 100% Probes proprietary technology.  Once completed this functionally advanced Electronics Controller Units (ECU) can operate under the hood, and will be appropriately priced for different vehicle type and markets.  Segment Information Except as identified above in the research and development section, we operate primarily in a single operating segment providing printed circuit boards and electronic assemblies.  Share Based Compensation The company has adopted the use of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS No. 123R), 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  Page 9 of 45  Table of contents  model that meets certain requirements. We use the Black- Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the risk-free interest rate, we use the Constant Maturity Treasury rate on 90 day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20 trading day average. At the time of grant, the share based-compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly.  It is also adjusted to account for the restricted and thinly traded nature of the shares.  The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates. We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the awardthe requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.   For the year ended December 31, 2007 we recognized $97,537 of share based compensation which included $21,920 of expense, due to the issuance of our options and warrants. For the three months ended March 31, 2008 we recognized $20,962 of share based compensation which included $2,058 of expense, due to the issuance of our options and warrants, we also had $19,847 in non-vested expense to be recognized over the next three years.  Income Taxes The Company accounts for income taxes under SFAS No. 109, 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. The net profit for the quarter ended, March 31, 2008 of $108,063 is offset by previous losses.  As of March 31, 2008 the Company had a net operating loss carry forward of $(375,630). The Company has not booked any deferred tax asset as a result.   NOTE 3  INVENTORY  Inventories at March 31, 2008 and December 31, 2007 by major classification were comprised of the following:  March 31, 2008December 31, 2007Raw Material$                    971,107$                    994,922Work in Process285,334253,969Finished Goods7,2485,403Total1,263,6891,254,294Less Reserve for excess or obsolete inventory(240,457)(300,491)Total Inventory$                 1,023,232$                    953,803   NOTE 4  PROPERTY AND EQUIPMENT  Property and equipment were comprised of the following at March 31, 2008 and December 31, 2007:  March 31, 2008December 31, 2007Furniture and fixtures$                 57,044$                   57,044  Page 10 of 45  Table of contents   Equipment2,397,3252,397,325Leasehold improvements210,403210,404Total2,664,7732,664,773Less accumulated depreciation and amortization(2,491,489)(2,452,991)Net Fixed Assets$               173,284$                 211,782   NOTE 5  ACCRUED EXPENSES  As of March 31, 2008 and December 31, 2007 the Company had the following accrued expenses:  March 31, 2008December 31, 2007Sales Tax Payable$                          163$                          151Property Tax accrual(4,554)6,693Accrued Wages81,03377,326Accrued Interest11,1415,342Accrued Professional Fees26,50050,500Accrued Utilities and other rents-59,317Accrued Vacation100,98581,172Other Accruals78,455-Total Accrued Expenses$                   293,723$                   280,501   NOTE 7 - CAPITAL LEASE SETTLEMENT OBLIGATIONS  On July 9, 1997 and December 21, 1997, the Company 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:  The CIT Group would release the Company 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) The Company imputed interest at 7% over the term of the payments, which resulted in a present value of $384,025 at June 30, 2007.  Page 11 of 45  Table of contents  5) This resulted in 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. 6) As of March 31, 2007 the outstanding balance was $335,566.  NOTE 8  NOTES PAYABLE  Note Payable  secured by deed of trust, 12% interest, originally due on September 2006 to Ashford Capital Transition Fund I, LP, and was subsequently extended to March 2006. The balance of $456,000 was paid in full on March 10, 2006.  Note Payable - dated March 10, 2006  special use, line of credit in the amount of $90,000, unsecured, 12% 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% interest rate, with a 36 month amortization, payments of $1,997 and a balloon payment of $33,068 on April 15, 2008. As of March 31, 2008 the outstanding balance was $34,410.  Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $ $4,650 and a balloon payment of $77,014 on April 15, 2008.  As of March 31, 2008 the outstanding balance was $80,139.  Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% 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% 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 March 31, 2008 the outstanding balance was $28,621. Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, payments of $4,650 and a balloon payment of $77,014 on April 15, 2008. As of March 31, 2008 the outstanding balance was $80,139. Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $3,321 and a balloon payment of $55,010 on April 15, 2008.  As of March 31, 2008 the outstanding balance was $57,241. Subsequently, this note was extended until June 14, 2008.  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% 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% 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 March 31, 2008 the outstanding balance was $27,233.   Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  Note Payable  Term note payable, with an effective date of April 23, 2006, payable to Hoa Mai at 15% interest rate, with a 12 month amortization, monthly payments of $ 2,166. As of March 31, 2008 the outstanding balance was $2,139.46.   Page 12 of 45  Table of contents  Note Payable  Note payable, with an effective date of February 1, 2008, payable to Hoa Mai at 15% interest rate per annum, due on April 30, 2008. As of March 31, 2008 the outstanding balance was $50,000.  Note Payable  Note payable, with an effective date of February 8, 2008, payable to Linwood Goddard at 15% interest rate per annum, due on May 30, 2008. As of March 31, 2008 the outstanding balance was $30,000.  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% interest (10% paid in Cash and 10% paid in Company stock),  due May 10, 2007.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12% 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.  As of March 31, 2008 the outstanding balance was $17,262.  Subsequently, this note was extended until June 14, 2008.  Note Payable - dated March 10, 2006   related party, special use, line of credit in the amount of $45,000, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock),  due May 10, 2007.   This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12% 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.  As of March 31, 2008, the outstanding balance was $17,262.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  Note Payable  related party, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock) 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 12% 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 March 31, 2008 the outstanding balance was $135,655. Subsequently, this note was extended until June 14, 2008.  Note Payable  related party, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock) 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% 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 March 31, 2008 the outstanding balance was $135,655.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $2,491 and a balloon payment of $41,257 on April 15, 2008.  As of March 31, 2008 the outstanding balance was $42,893.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $4,982 and a balloon payment of $82,516 on April 15, 2008. As of March 31, 2008 the outstanding balance was $85,863.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  Note Payable  This is a related party term note payable. Borrowings under this term note were at an interest rate of 15%, with 12 months amortization, monthly payments of $2,256 payable to Rufina Paniego. As of March 31, 2008 the outstanding balance was $2,408.   Page 13 of 45  Table of contents  Note Payable  This is a related party term note payable, with an effective date of February 11, 2008, payable to Rufina Paniego at 15% interest rate per annum, due on April 11, 2008. As of March 31, 2008 the outstanding balance was $24,600.  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% interest rate, with a 30 month amortization and monthly payments of $1,162.  As of March 31, 2008 the outstanding balance was $29,138.  Other Long-Term Debt  1) We have settlement reached with I-Source, a supplier, with monthly payments of $2,500. As of March 31, 2008 the outstanding balance was $11,925. Payments continue through September, 2008.  2) We currently owe the Internal Revenue Service $53,386 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.   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. The initial lease which ends on May 31, 2008 has an option to renew for three years, contingent upon Quantum, renewing their master lease. The new facility is located at 25242 Arctic Ocean Drive, Lake Forest, CA 92630.  Quantum has extended their master lease agreement and we are currently negotiating the terms of our sub-lease agreement.  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 March 31, 2008 we have the following legal proceedings and legal settlements:  1. Cadence has a judgment against us for $98,000 which was entered by the Superior Court Santa Clara County, California in September 2, 2003.  The judgment was due to lack of payment by Probe to Cadence after Probe purchased the license to use its Alegro software program.  Due to economic conditions after September 11th the market for the use of this product disappeared and Probe was not able to resell the services.  Consequently, Probe was not able to generate any revenues from reselling of the software and was unable pay Cadence.  On August 9th 2004 we entered into a payment agreement with the Cadence in which we pay them $2,500 a month until such time the debt is paid off.  As of December 31, 2006 the balance due to Cadence under the agreement was $8,853.   This was paid in full in April 2007.  We believed this settlement was paid in full; however on March 13, 2008 a Notice of Levy was filed against the Company for $26,840 claimed by Cadence Design Systems, Inc.  The Company, however, believes the Notice of Levy was not filed in good faith since the Company and Cadence entered into a settlement agreement on November 29, 2004 and Probe has paid in full the balance due under the settlement agreement.  Probe is currently in the process of seeking resolution to this matter, however, no favorable resolution can be guaranteed.  Management believes that their claim is without merit.  We believe that there are no other claims or litigation pending, the outcome of which could have a material adverse effect on our financial condition or operating results.  However, if litigation should arise and the company was to receive an unfavorable ruling, there is a possibility that it would have a material adverse impact on our financial condition, results of operations, or liquidity of the period in which the ruling occurs, or future periods.   Page 14 of 45  Table of contents  While we are currently able to service any and all payment obligation to the creditors, if we are unable in the future to service any payments, anyone of the creditors may instigate foreclosure proceedings against us.  If we are unable to satisfy our obligations, we could be forced into bankruptcy.  We believe that there are no other claims or litigation pending, the outcome of which could have a material adverse effect on our financial condition or operating results.  However, if litigation should arise and the company was to receive an unfavorable ruling, there is a possibility that it would have a material adverse impact on our financial condition, results of operations, or liquidity of the period in which the ruling occurs, or future periods.  NOTE 10  CAPITAL STOCK TRANSACTIONS  On April 21, 2005 the Companys Board of Directors and shareholders approved the following capital stock transactions:  The Company 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 the Companys 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: From June 16, 2004 to April 1, 2005 the Company sold 2,221,250 shares of common stock through a Private Placement Memorandum at $.80 per Share to 49 individuals generating net proceeds of $1,777,000, of which 715,000 shares were sold in 2005, generating net proceeds of $572,000.  During 2005 the Company issued 31,118 shares of common stock, in lieu of interest payments at $.80 per share for a total of $24,894.  In February 2006 the Company issued 13,438 shares of common stock, in lieu of interest payments at $.80 per share for a total of $10,751.  In May 2006 the Company issued 16,336 shares of common stock, in lieu of interest payments at $.80 per share for a total of $13,094.  On May 25, 2006 the Company issued 500,000 shares of common stock at .10 cents (Market value of shares on that date), for a total of $50,000,  to compensate its directors for services through a stock grant pursuant to Form S-8 in the following amounts:  NameAmount of Common Stock issuedKambiz Mahdi100,000Reza Zarif100,000Barrett Evans100,000Jeffrey Conrad100,000Dennis Benner100,000   In August 2006 the Company issued 30,254 shares of common stock, in lieu of interest payments at $.80 per share for a total of $24,205.  In August 2006 the Company issued 11,678 shares of common stock, in lieu of interest payments at $.80 per share for a total of $9,343.   Page 15 of 45  Table of contents  In August 2006 the Company issued 4,205 shares of common stock for officer compensation at $.80 per share for a total of $3,365.  In August 2006 the Company accrued 47,260 shares of common stock for officer compensation at $.10 per share (fair market value at time of accrual) for a total of $4,726. These shares had been classified as issued in quarterly filings.  In September 2006 the Company accrued 29,083 shares of common stock for officer compensation at $ .65 per share (fair market value at time of accrual) for a total of $18,904.  In December 2006 the Company accrued 34,370 shares of common stock for officer compensation at $.55 per share (fair market value at time of accrual) for a total of $18,904.  In July 2006 the Company converted 12,500 shares from Preferred B to Preferred C, 14,040 shares.  In August 2006 the holders of preferred series C elected to convert 14,040 shares into 1,755,000   shares of common stock.  On August 14, 2006 the holders converted 440 shares of the Preferred Series A for 4,472,424 shares of the Companys common stock.  On March 30, 2007 the Company issued 110,713 shares of common stock for officer compensation which were accrued but un-issued as of December 31, 2006, .  On June 30, 2007 the company issued 78,363 shares of common stock for officer compensation for the first and second quarter of 2007.  On October 15, 2007 the company issued 47,260 shares of common stock for officer compensation for the 3rd quarter of 2007.  For the quarter ended December 31, 2007 the company accrued 157,533 shares of common stock for officer compensation, which were issued on February 11,2008  For the quarter ended March 31, 2008 the company accrued 37,808 shares of common stock for officer compensation, which were un-issued, as of March 31, 2008  On November 5, 2007 the company entered into a consulting services agreement with Global Capital Management (GCM), to provide investment banking services, for one year.  As a result we issued 425,000 warrants to purchase 425,000 shares of common stock at a price of .40 per share.  As a result we recognized share based compensation expense in the amount of $16,607 for the year ended December 31, 2007.  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 March 31, 2008 and December 31, 2007 there were 10,556,477 and 10,398,944 shares of common stock issued and outstanding, respectively.  We also had 37,808 shares to be issued, for officer compensation which were accrued and un-issued as of March 31, 2008.  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  Page 16 of 45  Table of contents  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.  Preferred Series A Previously, there were 440 shares of Convertible A Preferred Stock outstanding, with a stated value of $1,000.  Each share is convertible into 0.1% percent of the shares of our common stock outstanding at the date of conversion, which shall convert upon election of the holder.  The holders of series A Preferred stock have the right to vote with the holders of common stock on any matter to which the common stock holders are entitled to vote and they are entitled to vote number of shares of common stock into which the series A Preferred Stock is convertible. If we are liquidated, distribute our assets, dissolve or wind-up, the holders of Convertible A Preferred Stock shall receive the greater of (i) $2,500 per share of Convertible A Preferred Stock they hold at the time of such liquidation, or (ii) their pro rata share of the total value of our assets and funds to be distributed, assuming the Convertible A preferred stock is converted to common stock.  On August 14, 2006 the holders converted 440 shares of the Preferred Series A for 4,544,188 shares of the Companys 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.  Exchange of Preferred Series B to Preferred Series C On May 25, 2007 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 the Company.  At any time, the Company 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, the Company, 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 Series C Convertible Preferred stock of the Company.  This series A and B Warrants are pursuant to the terms and conditions of the Companys 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, which ever 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 $0.80 multiplied by 100 (1 divided by $0.80, 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 1,755,000 shares of common stock.  Page 17 of 45  Table of contents   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.  Warrants Series A - Common Stock Warrants: We currently have 407,625 Series A Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 5 shares of common stock (2,038,125 total shares) at $1.00 per share.  The Series A Warrants expire on November 15, 2008.  Series B - Common Stock Warrants We currently have 407,625 Series B Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 5 shares of common stock (2,038,125 total shares) at $1.50 per share.  The Series B Warrants will expire on May 15, 2009.  Series C  Common Stock Warrants We currently have 200,000 Series C Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 1 shares of common stock (200,000 total shares) at $.80 per share.  The Series C Warrants expire on November 5, 2010.  Series D  Common Stock warrants We currently have 200,000 Series D Warrants issued and outstanding.  Each warrant gives the holder the right to purchase 1 shares of common stock (200,000 total shares) at $.40 per share. The Series D Warrants expire on November 5, 2012.  For the year ended December 31, 2007 we recognized $16,607 share based compensation expense as a result of the issuance of Series D Warrants.   Warrants Activity for the Period and Summary of Outstanding Warrants From June 16, 2004 to April 1, 2005 the Company sold 222,125 common stock units pursuant to a private placement memorandum at $8.00 per unit to 49 individuals generating net proceeds of $1,777,000.  Each Unit consists of ten (10) shares of common stock.  In addition, each unit entitles the holder to purchase a total of 10 shares of Probe Common Stock through the exercise of Warrants as follows: series A Warrants, for 5 shares at a price of $1.00 per share which would expire on November 16, 2005, which has been subsequently extended to November 15, 2008 and series B Warrants, for 5 shares at a price of $1.50 per share which would expire on May 16, 2005, which was subsequently extended to May 15, 2009.  As of June 30, 2007 no warrants were exercised.  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 1,755,000 shares of common stock.  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 Series C convertible Preferred stock of the Company.  On December 31, 2004 the company issued 100,000 shares of its common stock for services.  Each share of stock issued included two warrants, for a total of 200,000 common share equivalents, which were replaced with series C warrants created, approved and issued on November 5, 2007 by the board of directors.   Page 18 of 45  Table of contents  On November 5, 2007 the company entered into a consulting services agreement with Global Capital Management (GCM), to provide investment banking services, for one year.  As a result we issued 425,000 warrants to purchase 425,000 shares of common stock at a price of .40 per share.  As a result we recognized share based compensation expense in the amount of $16,607 for the year ended December, 31, 2007.   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--Granted1,706,250$1.201,706,250$1.20Exercised--Outstanding December 31, 20041,706,250$1.201,706,250$1.20Granted715,000$1.25715,000$1.25Exercised--Outstanding December 31, 20052,421,250$1.212,421,250$1.21Granted1,755,000$1.251,755,000$1.25Exercised--Outstanding December 31, 20064,176,250$1.234,176,250$1.23Granted425,000$0.40425,000$0.40Exercised--Outstanding December 31, 20074,601,250$1.154,601,250$1.15Granted--Exercised--Outstanding March 31, 20074,601,250$1.154,601,250$1.15   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 price$1.001,988,125$1.000.871,988,125$1.00$1.501,988,125$1.501.381,988,125$1.50$0.80200,000$0.802.6200,000$0.80$0.40425,000$0.404.6425,000$0.40Total4,601,2504,601,250   Page 19 of 45  Table of contents   STOCK OPTIONS On February 8, 2007 pursuant to the Companys 2006 Qualified Incentive Option Plan which was adopted by the Companys Board of Directors granted Company employees an incentive stock option to purchase up to 205,505 shares of common stock in the Company.  These options were granted at $.52 cents, the fair market value of the Company at the time of the grant. These options expire on February 8, 2017.  On February 8, 2007 the Company granted stock options to its key employees, to purchase up to 250,000 shares of the Companys common stock, which was approved by the companys Board of Directors.  These options were granted at $.52 cents, the fair market value of the Company at the time of the grant.  These options expire on February 8, 2017.   As of December 31, 2007 we had a reduction in the outstanding stock options of 37,841 as a result of employee termination and forfeiture of the options.  As a result the company recognized share-based compensation expense in the amount of $5,313 for the Year ended December 31, 2007 and $664 for the three months ended March 31, 2008, with a balance to be expensed over the next three years of $7,305.  On February 28, 2008 the Company granted stock options to a key employee, to purchase up to 100,000 shares of the Companys common stock, which was approved by the companys Board of Directors.  These options were granted at $.1 cents, the fair market value of the Company at the time of the grant.  These options expire on February 8, 2017.   As of December 31, 2007 we had a reduction in the outstanding stock options of 37,841 as a result of employee termination and forfeiture of the options.  As a result the company recognized share-based compensation expense in the amount of $1,394 for the three months ended March 31, 2008, with a balance to be expensed over the next three years of $12,542.  Stock to be issued under option and warrant plans Any shares issued under the existing option or warrant plans will come from the companies authorized but un-issued, un-registered shares.  NOTE 11  RELATED PARTY TRANSACTIONS  Jeffrey Conrad provides legal services for the Company and receives a monthly retainer of $2,500 and is one of the Company directors.  Jeffrey Conrad is also a venture partner of eFund Capital Partners, LLC. Jeffrey Conrad does not have an equity stake in eFund Capital Partners, LLC.  eFund Capital Partners, LLC received their shares pursuant to an investment agreement with us in April of 2004. Total payments for the threemonths ended March 31, 2008 were $4,000.  On May 25, 2006 the holders of Series B Convertible Preferred Stock exchanged their stock for Series C Convertible Preferred Stock.  Pursuant to the exchange Reza Zarif, our CEO, received 4,500 shares of Series C; Kambiz Mahdi received 4,500 shares of series C; and eFund Capital Partners, LLC received 5,040 shares of series C.  As originally 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, which ever 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 being divided $0.80 multiplied by 100 (1 divided by $0.80, multiplied by 100).  For the 1st quarter of 2006, the Company leased its 35,000 sq/ft facility for $19,700 per month from Kambiz Mahdi, Reza Zarif and Pacific Sail Bay Trust.   Kambiz Mahdi was the former Chief Executive Officer and a Director of the company.  Reza Zarif is the Chief Executive Officer and a Director of the company.   Pacific Sail Bay Trust is managed by Frank Kavanaugh.  Frank Kavanaugh is also the managing member of Ashford Capital, LLC, and the managing partner of Ashford Transition Fund, L.P.  Furthermore, Mr. Kavanaugh was a director of the company from July 2004 to December 2004; however, he is no longer a member of the Board of Directors. Total payments made for the year ended December 31, 2006 were $59,100.  This lease was terminated on March 7, 2006  NOTE 12  Subsequent Events     Page 20 of 45  Table of contents  Note Payable - dated March 10, 2006  special use, line of credit in the amount of $90,000, unsecured, 12% 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% interest rate, with a 36 month amortization, payments of $1,997 and a balloon payment of $33,068 on April 15, 2008. As of March 31, 2008 the outstanding balance was $34,410.  Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $ $4,650 and a balloon payment of $77,014 on April 15, 2008.  As of March 31, 2008 the outstanding balance was $80,139.  Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% 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% 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 March 31, 2008 the outstanding balance was $28,621. Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, payments of $4,650 and a balloon payment of $77,014 on April 15, 2008. As of March 31, 2008 the outstanding balance was $80,139. Subsequently, this note was extended until June 14, 2008.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $3,321 and a balloon payment of $55,010 on April 15, 2008.  As of March 31, 2008 the outstanding balance was $57,241. Subsequently, this note was extended until June 14, 2008.  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% 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% 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 March 31, 2008 the outstanding balance was $27,233.   Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  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% interest (10% paid in Cash and 10% paid in Company stock),  due May 10, 2007.  This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12% 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.  As of March 31, 2008 the outstanding balance was $17,262.  Subsequently, this note was extended until June 14, 2008.  Note Payable - dated March 10, 2006   related party, special use, line of credit in the amount of $45,000, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock),  due May 10, 2007.   This note was converted to a term note payable, with an effective date of June 30, 2006, un-secured, 12% 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.  As of March 31, 2008, the outstanding balance was $17,262.  Subsequently the note was  Page 21 of 45  Table of contents  extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  Note Payable  related party, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock) 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 12% 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 March 31, 2008 the outstanding balance was $135,655. Subsequently, this note was extended until June 14, 2008.  Note Payable  related party, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock) 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% 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 March 31, 2008 the outstanding balance was $135,655.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $2,491 and a balloon payment of $41,257 on April 15, 2008.  As of March 31, 2008 the outstanding balance was $42,893.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.  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% (12% paid in cash and 8% paid in common stock in the Company) 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% interest rate, with a 36 month amortization, monthly payments of $4,982 and a balloon payment of $82,516 on April 15, 2008. As of March 31, 2008 the outstanding balance was $85,863.  Subsequently the note was extended by 18 months, with an interest rate of 13% per annum.  The holder was also issued 1 series D Warrant for every $2.00 of outstanding note balance on that date.    Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations.   You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.  We intend that our forward-looking statements be subject to the safe harbors created by the Exchange Act. The forward-looking statements are generally accompanied by words such as intend, anticipate, believe, estimate, expect and other similar words and statements and variations or negatives of these words. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect, including those discussed under the heading Risk Factors in this report filed with the Securities and Exchange Commission. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from our anticipated outcomes. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. The inclusion of forward-looking information should not be regarded as a representation by our company or any other person that the future events, plans or expectations contemplated by Probe Manufacturing, Inc. will be achieved. We disclaim any intention or obligation to update or revise any forward-looking statements contained in the documents incorporated by reference herein, whether as a result of new information, future events or otherwise.  Overview Probe Manufacturing, Inc. was founded in 1995, and is one of Southern California's highest quality Electronics Manufacturing Services (EMS) companies. We provide a range of quality manufacturing and integrated supply chain services at affordable prices to companies who design and market electronic products, Original Equipment  Page 22 of 45  Table of contents  Manufacturers (OEM). Currently, our revenue is generated from sales of our services primarily to customers in the medical devise, aerospace, alternative fuel and industrial products manufacturers. The Company provides OEMs with lowest cost of ownership, flexibility, and quality that improves their competitive advantage. 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 to determine future trends and estimates of activity can be very difficult.  To provide for long term sustainability and growth, the Company is now leveraging its manufacturing and commercializing competencies, combined with product knowledge to develop its own propriety products in alternative fuel technologies.  Our focus products are power electronics, and controllers which enable vehicles and power generators to operate on clean alternative fuels. Probe Manufacturing's headquarters are located in Lake Forest, California.  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 the results to be expected in the future. The following table is qualified by reference to and should be read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data.  Probe Manufacturing, Inc.Statement of Operations (Percentage Based)for the 3 months ended March 31200820072006Sales$      2,185,444$      1,877,090$      2,049,322Cost Of Goods Sold1,550,6121,386,5291,425,878Gross Profit634,832490,561623,444General And Administrative380,076396,837481,571Share Based Compensation20,96218,904-Research and Development83,324--Net Profit / (Loss) From Operations150,47074,820141,873Other Income / (Expenses)(40)(33)1,774Interest Expense(42,367)(35,836)(78,845)Net Profit / (Loss) Before Income Taxes108,06338,95164,802Income Tax Expense---Net Profit / (Loss)$         108,063$           38,951$           64,802    PROBE MANUFACTURING, INC.Condensed Balance sheetas of March 31,200820072006Working Capital$        100,676$      (257,954)$        131,335Total Assets2,368,1942,203,7012,688,669  Page 23 of 45  Table of contents   Long term Debt417,9641,789,4941,439,020Stockholder Equity$      (144,004)$      (687,607)$      (967,506)   Plan of Operations: The Company had a net profit of $108,063 and a working capital surplus of $100,676 and improved their total stockholders deficit by $129,026 for the quarterendedMarch 31, 2008.However, as of March 31, 2008 they still had shareholder deficit of $(144,004); therefore the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to continue generating positive cash flow from operations.  Management is taking the following steps to address this situation: (a) to continue improving operational efficiencies by: (i) re-negotiating direct material cost with all of our suppliers, (ii) by setting up Managed inventory Solutions, such as bonded inventory levels and auto-release programs with our major suppliers, whereby they maintain stock at their facilities and deliver Just-in-Time.  This will improve the utilization of our line of credits with suppliers and maintains inventory at its lowest value point; however from time to time inventory levels may increase temporarily, due to scheduling issues and acquisition of new customers and/or products;  (iii) by improving all systems and processes across operations and streamlining production lines; (b) we have refinanced our lines of credit with agreement(s) that have more attractive terms, as well as increased our credit lines with suppliers; (c) To increase revenue; (i) we are acquiring new customers that are a better fit for us, (ii) and we are  growing the business with our existing customers with offering more value added; and finally (iii) were focusing on more stable customer base such as medical device, aerospace, and alternative fuel industries that have a better chance of  maintaining their manufacturing in Southern California instead of moving it to low cost and offshore regions;  (e)  to ensure long term sustainability of the Company, were allocating more resources to develop propriety technology within the alternative energy industry while continuing to operate our EMS business. The future success of the Company is likely dependent on its ability to attain additional capital to support growth and ultimately, upon its ability to continue profitable operations.  There can be no assurance that the Company will be successful in obtaining such financing, or that it will continue 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, the Company 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 the Company be unable to continue as a going concern.  Summary of Results: For the three months ended March 31, 2008 we generated a net profit of $108,063 compared to net profits of $38,951 for the same period in 2007, and net profits of $64,802 for the same period in 2006.  For the three months ended March 31, 2008 our revenue increased by 16% to $2,185,444 compared to $1,877,090 for the same period in 2006, and it increased by 7%, compared to same period in 2006. For the three months ended March 31, 2008 our cost of goods sold was 71% compared to 73% and 70% for the same period in 2007 and 2006 respectively. For the three months ended March 31, 2008 our gross margins was 29% compared to 26% and 30% for the same period in 2007 and 2006 respectively. For the three month ended March 31, 2008 our SG&A cost was 17% compared to 21% and 23% for the same period in 2007 and 2006 respectively. As of March 31, 2008 we had a working capital surplus of $106,676, compared to working deficit of ($174,657) as of December 31, 2007.  As of March 31 2008, our total stockholders equity was ($144,004) compared to ($273,030) in December 31, 2007; an improvement of ($129,026).  Key performance indicators:  Page 24 of 45  Table of contents   for the 3 months ended March 31200820072006Inventory Turns4.423.672.97Days Sales in Backlog132143201Days Receivables Outstanding384234Days Payables Outstanding636066   Inventory turns: are calculated as the ratio of cost of material compared to the average inventory for the quarter. Despite substantial increase in revenues, the three month period ended March 31, 2008 our inventory turns were 4.42 compared to 3.674 and 2.97 in 2007 and 2006 respectively.  Days Sales in Backlog is calculated based on our back log divided by average daily sales during the quarter.  For the three months ended March 31, 2008 Days Sales in Backlog was 132 days compared to 143 and 201 days for the same period in 2007 and 2006 respectively.  Days Receivables Outstanding is calculated as the ratio of average accounts payable during the fiscal year compared to average daily sales for the same period, this has improved as a result in improved collection efforts.  Days Payable Outstanding, is calculated as the ratio of average accounts payable during the fiscal year compared to daily cost of sales for the same period.  Critical Accounting Policies The Company follows 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 the Companys reviewed financial statements.  Cash and Cash Equivalents The Company maintains 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 $100,000 per commercial bank. For purposes of the statement of cash flows, the Company considers all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.  Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collectibility of accounts receivable and valuation of inventory and reserves. Accounts Receivable The Company grants credit to its customers within the United States of America, and does not require collateral. The Companys ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by the Company.  Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts.  Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts. As of March 31, 2008, the Company had a reserve for potentially un-collectable accounts of $35,212.  Five (5) customers accounted for approximately 88% of accounts receivable at March 31, 2008.  The Companys trade accounts primarily represent unsecured receivables.  Historically, the Companys bad debt write-offs related to these trade accounts have been insignificant.   Page 25 of 45  Table of contents   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 the raw materials, as well as changing customer demand.  The Company 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. For the three months ended March 31, 2008 the company wrote off $60,034 of excess inventory against the reserve.  As of March 31, 2008, the Company had a reserve for potentially obsolete inventory of $240,456.  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.  The Company follows the practice of capitalizing property and equipment purchased over $5000.  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 are as follows:  Furniture and fixtures 3 to 7 years Equipment 7 to 10 years Leasehold improvements 2 years (life of the lease)  Long Lived Assets The Companys 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 the Companys 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.  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 The Company has no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods. Segment Information The Corporation operates primarily in a single operating segment, providing printed circuit boards and electronic assemblies.  Income Taxes The Company accounts for income taxes under SFAS No. 109, 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. The net profit for the quarter ended March 31, 2008 of 108,063 is offset by previous losses.  As of march 31, 2008 the Company had a net operating loss carry forward of $(375,630). The Company has not booked any deferred tax asset as a result.  Research and Development: To ensure long term sustainability and growth of the company we have started research and development towards growth markets of the future by investing in alternative energy technologies.  While we continue to operate our  Page 26 of 45  Table of contents  Electronics Manufacturing business, we are now directing more resources towards developing technologies in the alternative energy industry.  Our alternative energy research and development is focused on the alternative fuel industry as defined by the Energy Policy Act of 1992 (EPAct) including ethanol, natural gas, propane, hydrogen, bio-diesel, electricity and methanol. These fuels are being used worldwide in a variety of vehicle and power generator applications. We believe three independent market factors; economics, energy security/independence and environmental concerns are driving the growth of alternative energy technologies today and will in the foreseeable future.  Research and Development Costs incurred in association with the alternative fuels technology development (which include salaries and equipment) are expensed as incurred.  We expensed $83,324 in R&D during the three months ended March 31, 2008. We acquired a 125 kW natural gas distributed power generator and have converted it to run on hydrogen fuel. We will be performing validation testing for performance; and later for emission.  Emission testing will require additional funding.  This distributed power generator will have near zero carbon based emission and very low NOx emissions.  When completed, thishydrogen-fueled internal combustion engine will address two major needs:  power and near-zero emissions.  These engines serve as replacement engines for the industrial user who has been dependent upon a manufacturer of traditional gasoline or diesel-fueled industrial engines.  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 stages, and will be 100% Probes proprietary technology.  Once completed this functionally advanced Electronics Controller Units (ECU) can operate under the hood, and will be appropriately priced for different vehicle type and markets.  Share Based Compensation The company has adopted the use of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS No. 123R), which supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance and eliminates the alternative to use Opinion 25s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date, (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black- Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the risk-free interest rate, we use the Constant Maturity Treasury rate on 90 day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20 trading day average. At the time of grant, the share based-compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly.  It is also adjusted to account for the restricted and thinly traded nature of the shares.  The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates. We re-evaluate the assumptions used to value our share-based awards on a quarterly basis and if changes warrant different assumptions, the share-based compensation expense could vary significantly from the amount expensed in the past. We may be required to adjust any remaining share-based compensation expense, based on any additions, cancellations or adjustments to the share based awards. The expense is recognized over the period during which an employee is required to provide service in exchange for the awardthe requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.   For the year ended December 31, 2007 we recognized $97,537 of share based compensation which included $21,920 of expense, due to the issuance of our options and warrants. For the three months ended March 31, 2008 we recognized $20,962 of share based compensation which included $2,058 of expense, due to the issuance of our options and warrants, we also had $19,847 in non-vested expense to be recognized over the next three years.   Page 27 of 45  Table of contents  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 3 months ended March 31,200820072006Sales100.0%100.0%100.0%Cost Of Goods Sold71.0%73.9%69.6%Gross Profit29.0%26.1%30.4%General And Administrative17.4%21.1%23.5%Share Based Compensation1.0%1.0%0.0%Research and Development3.8%0.0%0.0%Net Profit / (Loss) From Operations7.8%5.0%6.9%Other Income / (Expenses)0.0%0.0%0.1%Interest Expense-1.9%-1.9%-3.8%Net Profit / (Loss) Before Income Taxes4.9%2.1%3.2%Income Tax Expense0.0%0.0%0.0%Net Profit / (Loss)4.9%2.1%3.2%   Net Sales For the three months ended March 31, 2008 our revenue increased by 16% to $2,185,444 compared to $1,877,090 for the same period in 2007.   The increase in revenue was the result of our new customer base getting fully engaged in production, and increasing their orders. Major Customers Our top 5 customers accounted for approximately 88% of our net sales for the three months ended March 31, 2008 compared to 73%, and 86% for the same period in 2007 and 2006 respectively. In addition, the top 3 customer concentration was 72% for the three months ended March 31, 2008 compared to 56% and 78% in the same period in 2007 and 2006 respectively.  Over the last couple of years, we have changed our customer base from primarily semiconductor, industrial, and communication industries to medical device manufacturing, aero-space/defense and alternative energy industries.  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 three months ended March 31, 2008 our gross profits increased to 29% from 26% in the same period in 2007.   This improvement was primarily due to increase in revenue and improved operational efficiencies.   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.  Page 28 of 45  Table of contents   Selling, General and Administrative (SG&A) Expenses For the three months ended March 31, 2008 our SG&A expenses was 17% compared to 21% for the same period in 2007.  The improvements were primarily due to increased revenues.  Net Income/ (Loss) from operations For the three months ended March 31, 2008, our net income from operations improved to 5% compared to 2% in 2007.  Improved net income was due to increased revenue and lower percentage of SG&A.  For the three months ended March 31, 2008 our interest expense was ($42,367) compared to (35,836) for the same period in 2007.  Liquidity and Capital Resources:  PROBE MANUFACTURING, INC.Condensed Statements of Cash Flowsfor the three months ended March 31,200820072006Net Cash provided / (Used) In Operating Activities$           (49,918)$           182,484$             68,114Cash Flows Used In Investing Activities-(81,000)(3,500)Cash Flows Provided / (used)  By Financing Activities27,113(120,720)(64,614)Net (Decrease) Increase in Cash and Cash Equivalents$           (22,805)$           (19,236)$                     -   For the three months ended March 31, 2008, we used net cash in our operating activities of ($49,918) compared to generating net cash of $182,484 for same period in 2007. For the three months ended March 31, 2008, we incurred $43,549 net of debt to support operational growth.  The following is a summary of certain obligations and commitments as of March 31, 2008 for continuing operations:  Capital Requirements for long-term Obligations2008200920102011Notes Payable$      746,921$                -$                -$                -Other Long term debt47,925---Capital Lease Settlement  Obligations51,06272,37777,60983,220Total$      845,908$      72,377$      77,609$      83,220  We reduced our interest rate from 20% to 12% in August 2006 by refinancing our lines of credit into term notes.  On July 9, 1997 and December 21, 1997, the Company 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:  The CIT Group would release the Company and its guarantors if one of the following payments were made, less the total of all monthly payments made to that date:  Page 29 of 45  Table of contents   $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) The Company imputed interest at 7% over the term of the payments, which resulted in a present value of $384,025 at June 30, 2007. 5) This resulted in 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. 6) As of March 31, 2007 the outstanding balance was $335,566.  We have a balloon payment of $710,358 due on April 15, 2008, from notes payables.  We are currently exploring venues to extend the notes payable term by 18 to 36 month.  Subsequently, we were able to extend $295,680 of the notes by 18 months and $387,405 until June 14, 2008,  leaving $27,273 with  balloon payments still due on April 15, 2008, which subsequently were in default.  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  Our  management evaluated, with the participation of our Chief Executive Officer and  our  Chief  Financial Officer, the effectiveness of our disclosure controls and  procedures  as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we  file  or  submit  under the Securities Exchange Act of 1934 (i) is recorded, processed,  summarized  and  reported  within  the  time  periods  specified  in Securities  and Exchange Commission rules and forms, and (ii) is accumulated and communicated  to  our  management, including our Chief Executive Officer and our Chief  Financial  Officer,  as  appropriate  to allow timely decisions regarding required  disclosure.  Our  disclosure  controls  and procedures are designed to provide  reasonable  assurance  that  such  information  is  accumulated  and communicated  to  our management. Our disclosure controls and procedures include components  of  our  internal  control  over  financial  reporting. Management's assessment of the effectiveness of our internal control over financial reporting is  expressed  at  the level of reasonable assurance that the control system, no matter  how  well  designed  and  operated, can provide only reasonable, but not absolute,  assurance  that  the  control  system's  objectives  will  be  met.  Changes in Internal Control over Financial Reporting   Page 30 of 45  Table of contents  There  was  no  change  in  our  internal  control over financial reporting that occurred  during  our  last  fiscal  quarter  that  materially  affected,  or is reasonably  likely  to  materially  affect,  our internal control over financial reporting.     PART II--OTHER INFORMATION   Item 1. Legal Proceedings  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 March 31, 2008 we have the following legal proceedings and legal settlements:  1. Cadence has a judgment against us for $98,000 which was entered by the Superior Court Santa Clara County, California in September 2, 2003.  The judgment was due to lack of payment by Probe to Cadence after Probe purchased the license to use its Alegro software program.  Due to economic conditions after September 11th the market for the use of this product disappeared and Probe was not able to resell the services.  Consequently, Probe was not able to generate any revenues from reselling of the software and was unable pay Cadence.  On August 9th 2004 we entered into a payment agreement with the Cadence in which we pay them $2,500 a month until such time the debt is paid off.  As of December 31, 2006 the balance due to Cadence under the agreement was $8,853.   This was paid in full in April 2007.  We believed this settlement was paid in full; however on March 13, 2008 a Notice of Levy was filed against the Company for $26,840 claimed by Cadence Design Systems, Inc.  The Company, however, believes the Notice of Levy was not filed in good faith since the Company and Cadence entered into a settlement agreement on November 29, 2004 and Probe has paid in full the balance due under the settlement agreement.  Probe is currently in the process of seeking resolution to this matter, however, no favorable resolution can be guaranteed.  Management believes that their claim is without merit.  We believe that there are no other claims or litigation pending, the outcome of which could have a material adverse effect on our financial condition or operating results.  However, if litigation should arise and the company was to receive an unfavorable ruling, there is a possibility that it would have a material adverse impact on our financial condition, results of operations, or liquidity of the period in which the ruling occurs, or future periods.  While we are currently able to service any and all payment obligation to the creditors, if we are unable in the future to service any payments, anyone of the creditors may instigate foreclosure proceedings against us.  If we are unable to satisfy our obligations, we could be forced into bankruptcy.  We believe that there are no other claims or litigation pending, the outcome of which could have a material adverse effect on our financial condition or operating results.  However, if litigation should arise and the company was to receive an unfavorable ruling, there is a possibility that it would have a material adverse impact on our financial condition, results of operations, or liquidity of the period in which the ruling occurs, or future periods.     Item 1A.  Risk Factors. RISKS ABOUT OUR BUSINESS  OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING COSTS SUFFICIENTLY, WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.  Page 31 of 45  Table of contents   The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a net profit of $108,063 and a working capital surplus of $100,676 and improved their total stockholders deficit by $129,026 for the quarterended,March 31, 2008.However, they still had shareholder deficit of $(144,004) as of March 31, 2008. Therefore the ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to continue generating 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 March 31, 2008, we had current liabilities of $2,094,234. Our debt could limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or other purposes in the future, as needed; to plan for, or react to, changes in technology and in our business and competition; and to react in the event of an economic downturn.  We may not be able to meet our debt service obligations. If we are unable to generate sufficient cash flow or obtain funds for required payments, or if we fail to comply with covenants in our revolving lines of credit, we will be in default.  WE FACE INTENSE COMPETITION, WHICH MAY REDUCE OUR SALES, OPERATING PROFITS, OR BOTH.  The market segments in which we compete are rapidly evolving and intensely competitive.The electronic manufacturing service or EMS industry is extremely competitive and includes hundreds of companies, several of which have achieved substantial market share. We compete with numerous domestic and foreign EMS firms, including Benchmark Electronics, Inc.; Celestica Inc; Flextronics International Ltd.; Jabil Circuit, Inc.; Pemstar, Inc.; Plexus Corp.; Sanmina-SCI Corporation; CTS Electronics; Solectron Corporation; SMS Technologies, Inc.; Express Manufacturing, Inc. and others.  Current and prospective customers also evaluate our capabilities against the merits of internal production. Some of our competitors may have greater design, manufacturing, financial or other resources than us. Additionally, we face competition from Taiwanese ODM suppliers, who have a substantial share of the global market for information technology hardware production, primarily related to notebook and desktop computers and personal computer motherboards, as well as provide consumer products and other technology manufacturing services.  In recent years, many participants in the industry, including us, have substantially expanded their manufacturing capacity. The overall demand for electronics manufacturing services has decreased, resulting in increased capacity and substantial pricing pressures, which has harmed our operating results. Certain sectors of the EMS industry are currently experiencing increased price competition, and if this increased level of competition should continue, our revenues and gross margin may continue to be adversely affected.  WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS.   IN ADDITION, WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS TO PROCURE OUR PARTS FOR PRODUCTION WHICH IF AVAILABILITY OF PRODUCTS BECOMES COMPROMISED IT COULD ADD TO OUR COST OF GOODS SOLD AND AFFECT OUR REVENUE GROWTH.  At various times, there have been shortages of some of the electronic components that we use, as a result of strong demand for those components or problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production, which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause us to experience a reduction in our sales and an increase in our costs and could adversely affect our relationship with existing customers as well as prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure  Page 32 of 45  Table of contents  products to accommodate substitute components. As a result, component shortages could adversely affect our operating results for a particular period due to the resulting revenue shortfall and increased manufacturing or component costs.  In addition, we depend upon a number of major suppliers for our products.  We do not have long-term agreements with our major suppliers, except for our purchase orders.   There is an inherent risk that certain products will be unavailable for prompt delivery or, in some cases, discontinued.  We will have only limited control over any third-party manufacturer as to quality controls, timeliness of production and deliveries and various other factors.  Lack of long-term agreement with our major suppliers could also impact material availability and could delay shipments.  Should the availability of products be compromised, it could also force us to develop alternative products, which could add to the cost of goods sold and compromise delivery commitments.  OUR PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS , IN THE AGGREGATE, BENEFICIALLY OWN MORE THAN 50% OF OUR OUTSTANDING COMMON STOCK AND THESE SHAREHOLDERS, IF ACTING TOGETHER, WILL BE ABLE TO EXERT SUBSTANTIAL INFLUENCE OVER ALL MATTERS REQUIRING APPROVAL OF OUR SHAREHOLDERS .  Our principal shareholders, directors and executive officers in the aggregate, beneficially own more than 50%our outstanding common stock on a fully diluted basis. These shareholders, if acting together, will be able to exert substantial influence over all matters requiring approval of our shareholders, including amendments to our Articles of Incorporation, fundamental corporate transactions such as mergers, acquisitions, the sale of the company, and other matters involving the direction of our business and affairs and specifically the ability to determine the members of our board of directors. (See: Principal Shareholders)  WE CURRENTLY  SERVICE AND ATTEMPT TO OBTAIN THE MAJORITY OF OUR CUSTOMERS IN THE LIMITED GEOGRAPHIC OF SOUTHERN CALIFORNIA WHICH IS A SMALL ADDRESSABLE MARKET AND COULD BE SUBJECT TO ECONOMIC HARDSHIP OR SLOWDOWN, AS A RESULT OUR GROWTH COULD BE LIMITED AND ADVERSELY AFFECT OUR PROJECTED SALES AND OPERATING INCOME.  We currently service, attempt to solicit new, and direct majority of our marketing efforts to customers in the Southern California region.  This is a very small addressable market which ultimately limits the amount of growth we could experience.  In addition, this region could experience an economic recession or other market contraction which would cause our current customers and any potential customers to also contract their businesses as well and cease outsourcing any current products that we currently service and would attempt to obtain. Both the size of the market and any potential economic hardship affecting this small regional market could adversely affect our project sales and operating incomer.  If we are forced to expand our marketing efforts outside this region we could also incur significant costs in an attempt to penetrate other regional or national markets.  WE DEPEND ON LOW TO MEDIUM VOLUME HIGH MIX TECHNOLOGY PRODUCTS THAT ARE BUILT DOMESTICALLY. THESE APPLICATIONS INCLUDE INDUSTRIAL INSTRUMENTATION, MEDICAL DEVICES, AEROSPACE-DEFENSE, ALTERNATIVE FUEL TECHNOLOGIES, SCIENTIFIC COMMUNICATION, SEMICONDUCTOR AND AUTOMOTIVE PRODUCTS, WHICH CONTINUALLY PRODUCE TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS COULD HARM OUR BUSINESS.  During the three months ended March , 2007 we derived approximately 41%  of our revenue from customers in the Medical Device Manufacturing, 22%  Industrial Products, 11% from customers in Alternative Fuel, and 17% 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  Page 33 of 45  Table of contents  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 effect their long term business plans and sales.  Our success depends upon the ability of our customers to successfully market their products and if they fail, it could result in cancellations or rescheduling orders lower sales volume and operating income.  · Recessionary periods in our customers markets will affect both our customers and our overall business output. It would require dramatic changes to the overall business model, layoffs and major adjustments to the business overhead.  If we fail to adjust to new recessionary environment, our business would be adversely affected and we may not be able to compete successfully against other companies in our industry and achieve profitability.  THE MAJORITY OF OUR SALES COME FROM A SMALL NUMBER OF CUSTOMERS WITH WHOM WE DO NOT HAVE LONG TERM CONTRACTS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY.  Sales to our five largest customers have represented a significant percentage of our net sales in recent periods. Our five largest customers accounted for approximately 78% of net sales during the three months ended March 31, 2007.  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. These purchase orders could be cancelled or rescheduled at any time. Significant reductions in sales to any of these customers would reduce our projected sales, adversely affect our profits, and seriously harm our business. IF WE LOSE KEY SENIOR MANAGEMENT PERSONNEL OUR BUSINESS COULD BE NEGATIVELY AFFECTED. FURTHER, WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL SKILLED MANAGEMENT PERSONNEL AND IF WE ARE NOT ABLE TO DO SO, OUR BUSINESS AND OUR ABILITY TO CONTINUE TO GROW COULD BE HARMED.  Our success depends to a large extent upon the continued services of our executive officers. Generally our employees are not bound by employment or non-competition agreements, and we cannot assure that we will retain our executive officers and other key employees. We could be seriously harmed by the loss of any of our executive  Page 34 of 45  Table of contents  officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. Although a number of companies in our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees.  WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS AND UNEXPECTED COSTS THAT WE MAY INCUR WITH RESPECT TO ENVIRONMENTAL MATTERS MAY RESULT IN ADDITIONAL LOSS CONTINGENCIES, THE QUANTIFICATION OF WHICH CANNOT BE DETERMINED AT THIS TIME.  We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time.   Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  For the quarter ended December 31, 2007 the company accrued 157,533 shares of common stock for officer compensation, which were issued on February 11, 2008.  For the quarter ended March 31, 2008 the company accrued 37,808 shares of common stock for officer compensation, which were un-issued, as of March 31, 2008.  We believe the issuance of the shares described above were exempt from the registration and prospectus delivery requirement of the Securities Act of 1933 by virtue of Section 4(2).  The shares were issued directly by the Company and did not involve a public offering or general solicitation.  The recipients of the shares were afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the recipients had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision.  Subsequent Issuances  None.   Item 3. Defaults Upon Senior Securities  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% (12% paid in cash and 8% 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% 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 March 31, 2008 the outstanding balance was $28,621. Subsequently, on April 15, 2008 we were unable to meet the balloon payment and the note is in default.     Item 4. Submission of Matters to a Vote of Security Holders  None.   Item 5. Other Information  Page 35 of 45  Table of contents   Note Payable  Term note payable, with an effective date of April 23, 2006, payable to Hoa Mai at 15% interest rate, with a 12 month amortization, monthly payments of $ 2,166. As of March 31, 2008 the outstanding balance was $2,139.46.  Note Payable  Note payable, with an effective date of February 1, 2008, payable to Hoa Mai at 15% interest rate per annum, due on April 30, 2008. As of March 31, 2008 the outstanding balance was $50,000.  Note Payable  Note payable, with an effective date of February 8, 2008, payable to Linwood Goddard at 15% interest rate per annum, due on May 30, 2008. As of March 31, 2008 the outstanding balance was $30,000.   Item 6.  Exhibits EXHIBIT NUMBER                                         DESCRIPTION  3.1 Articles of Incorporation (included as exhibit 3.1 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  3.2 Bylaws (included as exhibit 3.2 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  4.1 Certificate of Designation for Series A Convertible Preferred Stock, dated May 20, 2004 (included as exhibit 4.1 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  4.2 Certificate of Designation for Series B Convertible Preferred Stock dated December 31, 2004 (included as exhibit 4.2 to the Form SB-2/A filed on June 10, 2005 and incorporated herein by reference).  4.3 Sample Series A Warrant Purchase Agreement (included as exhibit 4.3 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  4.4 Sample Series B Warrant Purchase Agreement (included as exhibit 4.4 to the Form SB-2/A filed on September 26, 2005 and incorporated herein by reference).  4.5 Sample Amended Series A Warrant Purchase Agreement (included as exhibit 4.5 to the Form SB-2/A filed on November 25, 2005 and incorporated herein by reference).  4.6 Sample Amended Series B Warrant Purchase Agreement (included as exhibit 4.6 to the Form SB-2/A filed on November 25, 2005 and incorporated herein by reference).  4.7. Certificate of Designation of Series C Convertible Preferred Stock dated May 25, 2006 (included as exhibit 4.1 to the Form 8-K filed on June 14, 2006 and incorporated herein by reference).  4.8 Amended Certificate of Designation of Series C Convertible Preferred Stock dated May 25, 2006 (included as exhibit 4.1 to the Form 8-K filed on August 14, 2006 and incorporated herein by reference).  4.9 Sample Amended Series A Warrant Purchase Agreement (included as exhibit 10.1 to the Form 8-k filed on November 15, 2006 and incorporated herein by reference).  4.10 Sample Amended Series B Warrant Purchase Agreement (included as exhibit 10.2 to the Form 8-k filed on November 15, 2006 and incorporated herein by reference).  10.1 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).   Page 36 of 45  Table of contents  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).  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).   Page 37 of 45  Table of contents  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).  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).  Page 38 of 45  Table of contents   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).  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-KSB filed on March 28, 2008).  23.1 Consent of Jaspers + Hall, PC - Independent Auditors to the Form 10-K filed March 25, 2007, and filed herewith.  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 Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act  of  2002.   SIGNATURES  Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange Act  of  1934,  the  registrant  has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Costa Mesa, State  of  California  on  the  8th day  of  May 2008.    Page 39 of 45  Table of contents  PROBE MANUFACTURING, INC. ______________________________ REGISTRANT   /s/  Reza Zarif ___________________ By:       Reza Zarif Director  and  Chief  Executive  Officer  /s/  John Bennett ___________________ By: John Bennett Chief Financial Officer  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/ Reza Zarif Chief Executive Officer and Director May 14, 2008 _______________________ Reza Zarif  /s/ John Bennett Chief Financial Officer May 14, 2008 _______________________ John Bennett  /s/ Barrett Evans _______________________ Director May 14, 2008 Barrett Evans  /s/ Kambiz Mahdi Director May 14, 2008 _______________________ Kambiz Mahdi  /s/ Jeffrey Conrad Director May 14, 2008 _______________________ Jeffrey Conrad       Page 40 of 45