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Table of Contents Financial Statements

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X]

ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008.

[ ]

TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number 333-125678

PROBE MANUFACTURING, INC.

(Exact name of issuer as specified in its charter)

NEVADA 20-2675800

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

25242 Arctic Ocean Drive, Lake Forest, CA 92630

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (949) 206-6868

Securities registered under Section 12(b) of the Exchange Act: NONE.

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK, PAR VALUE $0.001 PER SHARE.

(Title of class)

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months (or 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. [X] Yes [ ] No

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 the 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. [ ]

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.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

State issuer's revenues for its most recent fiscal year: $7,394,610

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of

December 31, 2008, was approximately $450,000. The company is currently selling its common equity on the OCTBB.

State the number of shares outstanding of each of the registrant's classes of common stock as of December 31, 2008: 32,638,320

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PROBE MANUFACTURING, INC.

10-K

TABLE OF CONTENTS

Part I


		Page
Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14

Part II


Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity securities	14
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
Item 9A	Controls and Procedures	47
Item 9B	Other Information	47

Part III


Item 10	Directors, Executive Officers and Corporate Governance	47
Item 11	Executive Compensation	47
Item 12	Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters	50
Item 13	Certain Relationships And Related Transactions, and Director Independence	51
Item 14	Principal Accounting Fees And Services	53
Item 15	Exhibits	54
	Signatures	58

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PART I

ITEM 1. BUSINESS.

Probe Manufacturing Industries, Inc. was incorporated on July 7, 1995. On April 21, 2005, the Company was re-domiciled from California to Nevada, and changed its name to Probe Manufacturing, Inc. We provide a range of engineering, manufacturing and integrated supply chain services to companies who design and market electronic products, Original Equipment Manufacturers (OEM). Our revenue is generated from sales of our services primarily to customers in the medical device, aerospace, alternative fuel and industrial products manufacturers. The Company provides OEMs with lowest cost of ownership, flexibility, and quality that improves their competitive advantage. The services that we provide are commonly referred to as Electronics Manufacturing Services (EMS). Probe's EMS offerings include new product introduction, collaborative design, procurement and materials management, product manufacturing, product warranty repair, and end-of-life support. We offer our customers comprehensive and integrated design and manufacturing services, from initial product design to production and direct order fulfillment. Our engineering services include product design, printed circuit board layout, prototyping, and test development. Our supply chain management solutions include purchasing, management of materials, and order fulfillment. Our manufacturing services include surface mount and through-hole assembly, cable assembly, mechanical assembly, and fully integrated box build systems for high complexity electronics.

For example, Probe builds an Engine Control Unit (ECU) for a customer which is used in alternative fuel engines. We have supported this customer from the inception of its product. Our services started with full design review for manufacturability and testability of the product. Once the design review and recommendations were completed we source the materials and procure the components. Then we take responsibility for assembling the components on to the boards, assembling the mechanical parts, installing the product inside the enclosure, and finally we perform a full functional test. Then the finished product is shipped to the customer, who integrates it into their final fuel delivery system and it’s then delivered to the end customer.

The majority of our revenue is driven from manufacturing a mix of complex Printed Circuit Board Assemblies (PCBA), and box build assemblies. Some examples of our customer’s finished goods products includes Medical devices such as ventilators, electronic control units that help vehicles run on natural gas or hydrogen, electronic control units for welding equipment, control units for electric-hybrid drives, portable ultrasound and electro-stimulation therapy equipment, fluid control units for airliners, and devices for defense industry.

We believe that the EMS industry will grow, driven largely by the needs of OEMs to respond to rapidly changing markets and technologies and to reduce product costs. Additionally, we believe that there are significant opportunities for EMS providers to win additional business from OEMs in certain markets or industry segments that have yet to substantially utilize EMS providers.

EMS companies are the principal beneficiaries of the increased use of outsourced manufacturing services by the electronics and other industries. Outsourced manufacturing refers to OEM’s use of EMS companies to manufacture their products, rather than internal manufacturing. Historically, EMS companies only manufactured components or sub assemblies. As the EMS industry has evolved, OEMs have increased their reliance on EMS companies for additional, more complex manufacturing services, including collaborative product design services, supply chain management and full box manufacturing. EMS companies now often participate in designing, manufacturing and testing of complete systems and manage the entire supply chains of their OEM customers. Industry leading EMS companies offer end-to-end services, including product design and engineering, volume manufacturing, final system assembly and testing, direct order fulfillment, after-sale product service and support and global supply chain management. Outsourcing demand for advanced manufacturing capabilities, design and engineering services and after-market services continues to grow rapidly. This demand continues to increase for several reasons, including the intensely competitive nature of the electronics industry, the continually increasing complexity and sophistication of electronics products, pressure on OEMs to reduce product costs, and shorter product life cycles. As a result, the number of OEMs that utilize EMS providers as part of their business and manufacturing strategies continues to increase. Utilizing EMS providers allows OEMs to take advantage of the global design, manufacturing and supply chain management expertise of EMS providers, and enables OEMs to concentrate on product research, development, marketing and sales. We believe that OEMs realize the following benefits through their strategic relationships with EMS providers:

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• Reduction in Operating Costs and Capital Investment. In the competitive global market, OEMs are under significant pressure to reduce manufacturing costs and capital expenditures. EMS companies can provide OEMs with flexible, cost-efficient manufacturing services. In addition, as OEM products have become more technologically advanced, the manufacturing and system test processes have become increasingly automated and complex, requiring significant capital investments. EMS companies enable OEMs to access technologically advanced manufacturing and test equipment and facilities, without additional capital expenditures.

• Focus on Core Competencies. The electronics industry is highly competitive and subject to rapid technological change. As a result, OEMs are increasingly focusing their resources on activities and technologies in which they expect to add the greatest value. By offering comprehensive manufacturing services and supply chain management, EMS companies enable OEMs to focus on their core competencies, including next generation product design and development as well as marketing and sales.

• Access Leading Design and Engineering Capabilities. The design and engineering of electronics products has become more complex and sophisticated and in an effort to become more competitive, OEMs are increasingly relying on EMS companies to provide product design and engineering support services. EMS companies’ design and engineering services can provide OEMs with improvements in the performance, cost and time required to bring products to market. EMS companies are providing more sophisticated design and engineering services to OEMs, including the design and engineering of complete products following an OEM’s development of a product concept.

• Improve Inventory and Purchasing Power. OEMs face challenges in planning, procuring and managing their inventories efficiently due to fluctuations in customer demand, product design changes, short product life cycles and component price fluctuations. EMS companies employ sophisticated production management systems to manage their procurement and manufacturing processes in an efficient and cost-effective manner so that, when possible, components arrive on a just-in-time; as-and-when needed basis. EMS companies are significant purchasers of electronic components and other raw materials, and can capitalize on economies of scale associated with their relationships with suppliers to negotiate price discounts, obtain components and other raw materials that are in short supply, and return excess components. EMS companies’ expertise in supply chain management and their relationships with suppliers across the supply chain enable them to help OEMs reduce their cost of goods sold and inventory exposure.

• Access Global Manufacturing Services. OEMs seek to reduce their manufacturing costs by having EMS companies manufacture their products in the lowest cost locations that are appropriate for their products and end customers. OEMs also are increasingly requiring particular products to be manufactured simultaneously in multiple locations, often near end users, to bring products to market more quickly, reduce shipping and logistics costs and meet local product content requirements. Global EMS companies are able to satisfy these requirements by capitalizing on their geographically dispersed manufacturing facilities, including those in lower cost regions.

• Accelerate Time to Market. OEMs face increasingly short product life cycles due to increased competition and rapid technological changes. As a result, OEMs need to reduce the time required to bring their products to market. OEMs can bring a product to market faster by using EMS companies’ expertise in new product introduction, including manufacturing design, engineering support and prototype production. OEMs can more quickly achieve volume production of their products by capitalizing on EMS companies’ manufacturing expertise and global presence and infrastructure.

OUR PRODUCTS AND SERVICES

Engineering. Our approach is to coordinate and integrate our design, prototype and other engineering capabilities. Through this approach, we provide a broad range of engineering services and, in some cases, dedicated production lines for prototypes. These services strengthen our relationships with customers and attract new customers requiring specialized engineering services. To assist customers with initial design, we offer computer assisted engineering, computer assisted design, engineering for manufacturability, circuit board layout and test development. We also coordinate industrial design and tooling for product manufacturing. After product design, we offer quick-turn prototyping, which means a rapid process of prototyping. During this process, we assist with the transition to production. By participating in product design and prototype development, we can reduce manufacturing costs and accelerate the cycle from product introduction to production.

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Supply Chain Management. Supply chain management consists of the planning, purchasing, expediting and warehousing of components and materials. Our inventory management and volume procurement capabilities contribute to cost reductions and reduce total cycle time.

Assembly and Manufacturing. Our manufacturing operations include printed circuit board assembly, subsystem assembly, box build and system integration, the process of integrating sub-systems and downloading software before producing a fully configured product. We purchase the printed circuit boards used in our assembly operations from third parties. We employ various inventory management techniques, such as just-in-time, ship-to-stock and auto-replenish, which are programs designed to ensure timely, convenient and efficient delivery of assembled products to our customers. As OEMs seek to provide greater functionality in smaller products, they increasingly require more sophisticated manufacturing technologies and processes. Our investment in advanced manufacturing equipment and our experience in innovative packaging and interconnect technologies enable us to offer a variety of advanced manufacturing solutions.

Testing. We offer computer-aided, in-circuit testing of assembled printed circuit boards, which contributes significantly to our ability to deliver high-quality products on a consistent basis. We work with our customers to develop product-specific test strategies. Our test capabilities include manufacturing defect analysis, in-circuit tests to test the circuitry of the board, and functional tests to confirm that the board or assembly operates in accordance with its final design and manufacturing specifications. We either custom design test equipment and software ourselves or use test equipment and software provided by our customers. In addition, we provide environmental stress tests of assemblies of boards and systems.

Final System Assembly and Test. We provide final system assembly and test assemblies and modules in which they are combined to form complete, finished products. We integrate printed circuit board assemblies manufactured by us with enclosures, electronic and mechanical sub-assemblies, cables and memory modules. We assemble systems to a specific customer order and we also build to standard configurations. The complex, finished products that we produce typically require extensive test protocols. Our test services include in-circuit testing, functional and environmental tests. We also test products for conformity to applicable industry, product integrity and regulatory standards. Our test engineering expertise enables us to design functional test processes that assess critical performance elements, including hardware, software and reliability. By incorporating rigorous test processes into the manufacturing process, we can help to assure customers that their products will function as designed. We provide direct order fulfillment services shipping completed systems directly to the end consumer.

Distribution. We offer our customers flexible, just-in-time delivery programs allowing product shipments to be closely coordinated with customers' inventory and consumption requirements. We have the ability to ship products directly into customers' distribution channels or directly to the end-user. We believe that this service can provide our customers with a more comprehensive solution and enable them to be more responsive to market demands.

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STRATEGIC RELATIONSHIPS AND ALLIANCES

Customers


Name/ Industry	Services & products offered by our customers	Services or products we provide to our customers
Newport Medical	Manufacturer of dependable, life improving ventilators	New Product Introduction, Manufacturing Design Review, Materials Procurement, Printed Circuit Board Assembly and Full Functional Test
Adams Rite	Manufacturer of electronics water dispensing and other related equipment to aerospace industry	New Product Introduction, Manufacturing design review, Materials Procurement, Printed Circuit Board Assembly and Full Functional Test
Arens	Manufacturer of precision control and power management systems for alternative fuel automotive industry.	New Product Introduction, Manufacturing Design Review, Materials Procurement and Printed Circuit Board Assembly.
Jetline Engineering / Industrial	Manufactures a full range of mechanized welding equipment for all arc and other high energy processes.	Manufacturing design review, Materials Procurement, Printed Circuit Board Assembly, Box Build, and Full Functional Test
Mettler Electronics/ Medical	Manufacturer of portable ultrasound and electro-stimulation therapy equipment.	Manufacturing design review, Materials Procurement, Printed Circuit Card Assembly, Test, Mechanical, and Box Build Assembly.
Miyachi/Unitek	Manufactures of resistant welding equipment.	Manufacturing design review, Materials procurement, printed Circuit Card Assembly, and Functional Test,
Quantum / Automotive	Electronics Control Units for Hydrogen, Natural Gas & Propane engines.	Printed Circuit Card Assembly, test, mechanical assembly and full box build.
Staco Switch / Industrial	Manufactures Lighted pushbutton switches and ruggedized keyboards and keypads for both military and commercial applications.	Printed Circuit Card Assembly.

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 90 to 360 days. These purchase orders could be cancelled or rescheduled at any time. 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 products manufactured pursuant to each purchase order in accordance with the terms and conditions set forth in the purchase order. Probe manufactures hundreds of different types of assemblies on an ongoing basis and each product has a purchase order associated with it.

We currently focus on attracting and servicing customers primarily in Southern California.

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SALES AND MARKETING

Sales and marketing efforts are divided into segments as follows:

Medical Device Manufacturing

Aerospace-Defense

Alternative fuel-Automotive

Industrial

Our divisional and executive management teams are an integral part of our sales and marketing teams. We may enter into Manufacturing Services Agreements with our customers. These agreements, similar to purchase orders, generally govern the conduct of business between our customer and the company relating to, among other things, the manufacture of products which in many cases were previously produced by the customer itself. Such arrangements generally identify the specific products to be manufactured, quality and production requirements, product pricing and materials management. There can be no assurance that at any time these agreements will remain in effect or be renewed.

Our customer accounts are managed by dedicated program managers directly responsible for account management. The program managers coordinate activities across divisions to effectively satisfy customer requirements and have direct access to our executive management to quickly address customer concerns. In addition, our executive management is involved in customer relations and devotes significant attention to broadening existing, and developing new customer relationships.

Partnership Approach

Our partnership strategy is to engage potential customers as a total solution to their product life cycle and inventory management. To do this, we review our customer designs for manufacturability and test, and make recommendations for technology, quality, delivery and cost improvements. This helps to maintain inventory at its lowest value point. We also review our customer’s processes to identify value added processes, and reduce redundancy. This process has been an effective way of integrating our process to customer’s needs and has resulted in improving our customer’s performance.

SUPPLIERS

We currently procure our materials from a limited number of distributors, thus if a shortage of various components were to occur we would be forced to seek other distributors and our cost of goods could impact our revenues and cost of goods. Our main suppliers of materials include:

Arrow Electronics, Inc. is one of the world's largest distributors of electronic components and computer products and a leading provider of services to the electronics industry, with 2004 sales of $10.7 billion. Headquartered in Melville, New York, Arrow serves as a supply channel partner for more than 600 suppliers and 175,000 original equipment manufacturers, contract manufacturers, and value-added resellers through more than 200 sales facilities and 23 distribution centers in 40 countries and territories.

Future Electronics is the world’s largest distributor specializing in passive, interconnect, and electromechanical components used in commercial and military applications, and they hold the top market share for most of our product lines. Headquartered in Fort Worth, Texas, TTI has 47 locations around the globe: 33 in North America, 11 in Europe and, most recently, 3 in Asia. From these facilities, they provide local service to customers around the world.

We currently do not have long-term agreements with our major suppliers; however, we enter into purchase order agreements. Purchase orders are placed with suppliers based on our material requirement planning (MRP) operating system. When we enter a sales order in our operating system Manex, it generates a list of materials for procurement to satisfy that order. We then issue purchase orders to our suppliers with scheduled deliveries which acts as the only contractual agreements between us and our suppliers. Our major suppliers often carry inventory for us and will ship upon Auto Release mechanism.

COMPETITION

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The EMS industry is large, competitive and diverse, and is serviced by many companies, including several that have achieved significant market share We compete with numerous domestic and foreign EMS firms, including Benchmark Electronics, Inc.; Celestica Inc; Flextronics International Ltd.; Jabil Circuit, Inc.; Plexus Corp.; Sanmina-SCI Corporation; CTS Electronics.; Express Manufacturing, Inc., and others. Because of our market’s size and diversity, we do not typically compete for contracts with a discreet group of competitors. We compete with different companies depending on the type of service and/or geographic area. Certain of our competitors may have greater manufacturing, financial, research and development and marketing resources. We also face competition from current and prospective customers that evaluate our capabilities against the merits of manufacturing products internally.

COMPETITIVE POSITIONING

We believe our primary competitive advantages are integrated services which include design, manufacturing, testing and supply chain management capabilities. We offer our customers flexible manufacturing solutions throughout the life cycle of their products. These solutions provide accelerated time-to-market, time-to-volume production, and reduced production and inventory costs. As a result of working closely with our customers and responding promptly to their needs, we become an integral part of their operations. In addition, our business processes are continually being improved for systemic optimization.

STRATEGY

Our strategy is to attract new customers and become profitable by using market-focused expertise and capabilities; and to offer the most competitive vertically-integrated EMS services to our customers. To achieve this goal, we are enhancing our core EMS engineering, manufacturing and procurement/inventory management services with industry-specific expertise. To ensure long term sustainability, and growth of the company we have initiated new sales activities towards growth markets of the future such as renewable energy technologies. While we continue to operate our EMS business, we are also trying to increase sales in the renewable energy industry.

Market Focused Approach. We intend to continue to invest in growing our market-focused expertise and capabilities in Medical Device, Aerospace-Defense and renewable energy industries. By focusing our resources on serving specific markets, we are able to better understand complex market dynamics and anticipate trends that impact our OEM customers’ businesses, and we can help improve their market positioning by effectively adjusting product plans and roadmaps to deliver low-cost, high quality products, and meet their time-to-market requirements.

Expand our Vertically-Integrated Service Offering. One of our core strategies is to continue to expand our vertically-integrated services. We are actively pursuing acquisitions and internal development to strengthen our vertically-integrated capabilities.

Expand Our Design and Engineering Capabilities. We have expanded our design and engineering resources as part of our strategy to offer services that help our OEM customers achieve time-to-market, cost containment and savings for their products. We intend to continue to expand our design and engineering capabilities by expanding our internal design and engineering resources, and by developing, licensing and acquiring technologies.

Streamline Business Processes through Continual process improvement. We use a systemic approach to our business processes. We are committed to improving our systems and processes as fast and as often as we can.

Focus on long term sustainability. We leverage our expertise in new product introduction, procurement and manufacturing to help commercialize new propriety product line. We believe our recent acquisition of Solar Masters will help diversify our product offering and mitigate market risk.

SOCIAL RESPONSIBILITY

Our corporate commitment to social responsibility practices includes the global community and the environment. We intend to achieve greater corporate social responsibility by embracing renewable energy for our long term growth and sustainability strategy; and to adhere to the highest ethical standards of practice with our customers, suppliers, partners, employees, communities and investors as well as with respect to our corporate governance policies and procedures, and by providing a safe and quality work environment for our employees.

PERSONNEL

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We presently have approximately 40 employees, including production, program management, materials management, engineering, sales, quality, and administrative and management personnel. We have never experienced work stoppages, and are not a party to any collective bargaining agreement.

REGULATORY RESTRICTIONS ON OUR BUSINESS

Our operations, and the operations of businesses that we may acquire, are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. We believe we operate in substantial compliance with all applicable requirements. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements. Material cost may rise due to additional manufacturing cost of raw or made parts with the application of new regulations. Our liabilities may also increase due to additional regulations imposed by foreign, federal, state and local regulatory requirements relating to environmental, waste management, and health and safety matters. In addition, our past, current and future operations, and those of businesses we acquire, may give rise to claims of exposure by employees or the public or to other claims or liabilities relating to environmental, waste management or health and safety concerns.

ITEM 1A. RISK FACTORS

RISKS ABOUT OUR BUSINESS

OUR INDEPENDENT ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND IF WE CANNOT OBTAIN ADDITIONAL FINANCING AND/OR REDUCE OUR OPERATING COSTS SUFFICIENTLY, WE MAY HAVE TO CURTAIL OPERATIONS AND MAY ULTIMATELY CEASE TO EXIST.

The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a net loss of $(116,596), generated $129,092 in net cash from operations and improved their total stockholder’s deficit by $30,413 for the year ended December 31, 2008; however, we still had a working capital deficit of $(250,082) and a shareholder deficit of $(242,617) as of December 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 generate positive cash flow from operations.

WE HAVE AN ACCUMULATED DEFICIT AND MAY INCUR ADDITIONAL LOSSES; THEREFORE WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING NEEDED FOR WORKING CAPITAL, CAPITAL EXPENDITURES AND TO MEET OUR DEBT SERVICE OBLIGATIONS.

As of December 31, 2008, we had current liabilities of $1,799,342. 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 have a number of obligations as outlined below that are currently in default.

WE FACE INTENSE COMPETITION, WHICH MAY REDUCE OUR SALES, OPERATING PROFITS, OR BOTH.

The market segments in which we compete are rapidly evolving and intensely competitive. The electronic manufacturing service or “EMS” industry is extremely competitive and includes hundreds of companies, several of which have achieved substantial market share. We compete with numerous domestic and foreign EMS firms, including Benchmark Electronics, Inc.; Celestica Inc; Flextronics International Ltd.; Jabil Circuit, Inc.; Plexus Corp.; Sanmina-SCI Corporation; CTS Electronics; Express Manufacturing, Inc. and others. Current and prospective customers also evaluate our capabilities against

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the merits of internal production. Some of our competitors may have greater design, manufacturing, financial or other resources than us. Additionally, we face competition from Taiwanese ODM suppliers, who have a substantial share of the global market for information technology hardware production, primarily related to notebook and desktop computers and personal computer motherboards, as well as provide consumer products and other technology manufacturing services.

In recent years, many participants in the industry, including us, have substantially expanded their manufacturing capacity. The overall demand for electronics manufacturing services has decreased, resulting in increased capacity and substantial pricing pressures, which has harmed our operating results. Certain sectors of the EMS industry are currently experiencing increased price competition, and if this increased level of competition should continue, our revenues and gross margin may continue to be adversely affected.

WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS. IN ADDITION, WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS TO PROCURE OUR PARTS FOR PRODUCTION WHICH IF AVAILABILITY OF PRODUCTS BECOMES COMPROMISED IT COULD ADD TO OUR COST OF GOODS SOLD AND AFFECT OUR REVENUE GROWTH.

At various times, there have been shortages of some of the electronic components that we use, as a result of strong demand for those components or problems experienced by suppliers. These unanticipated component shortages have resulted in curtailed production or delays in production, which prevented us from making scheduled shipments to customers in the past and may do so in the future. Our inability to make scheduled shipments could cause us to experience a reduction in our sales and an increase in our costs and could adversely affect our relationship with existing customers as well as prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. As a result, component shortages could adversely affect our operating results for a particular period due to the resulting revenue shortfall and increased manufacturing or component costs. In addition, we depend upon a number of major suppliers for our products. We do not have long-term agreements with our major suppliers, except for our purchase orders. There is an inherent risk that certain products will be unavailable for prompt delivery or, in some cases, discontinued. We will have only limited control over any third-party manufacturer as to quality controls, timeliness of production and deliveries and various other factors. Lack of long-term agreement with our major suppliers could also impact material availability and could delay shipments. Should the availability of products be compromised, it could also force us to develop alternative products, which could add to the cost of goods sold and compromise delivery commitments.

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

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to expand our marketing efforts outside this region we could also incur significant costs in an attempt to penetrate other regional or national markets.

WE DEPEND ON LOW TO MEDIUM VOLUME HIGH MIX TECHNOLOGY PRODUCTS THAT ARE BUILT DOMESTICALLY. THESE APPLICATIONS INCLUDE INDUSTRIAL INSTRUMENTATION, MEDICAL DEVICES, AEROSPACE-DEFENSE, ALTERNATIVE FUEL TECHNOLOGIES, SCIENTIFIC COMMUNICATION, SEMICONDUCTOR AND AUTOMOTIVE PRODUCTS, WHICH CONTINUALLY PRODUCE TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS COULD HARM OUR BUSINESS.

During the twelve months ended December 31, 2008, we derived approximately 42% of our revenue from customers in the Medical Device Manufacturing, 24% Industrial Products, 4% from customers in the Semiconductor industry, 12% from customers in Alternative Fuel, and 18% from customers in aerospace/Defense industries.

Factors affecting these industries in general could seriously harm our customers and, as a result, us. These factors include:

Rapid changes in technology, which result in short product life cycles, often reduce the volume and market share for our customers and ultimately us. It will lead to the loss of previous design wins and frequent new product introductions and substantial development costs. This could result in loss of revenue and it could adversely affect our operating income.

Seasonality of demand for our customers’ products would force our customers to manage their inventories for seasonal variations and inventory management and excess build ups. Customers could dramatically increase their request for production quantities, which could cause lead time problems with getting the components or we may not be able to build enough products which could have loss of revenue for our customers. As a result we could lose these customers and it would adversely affect our projected sales. If the projected sales will not materialize, we will have loss of revenue and reduced margins. Any cancellation or delay in production would also have the same adverse effect on our sales projections and profitability.

The inability of our customers to successfully market their products, and the failure of these products to gain widespread commercial acceptance; could 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.

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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 80% of net sales during the twelve months ended December 31, 2008.

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.

IF WE LOSE KEY SENIOR MANAGEMENT PERSONNEL OUR BUSINESS COULD BE NEGATIVELY AFFECTED. FURTHER, WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL SKILLED MANAGEMENT PERSONNEL AND IF WE ARE NOT ABLE TO DO SO, OUR BUSINESS AND OUR ABILITY TO CONTINUE TO GROW COULD BE HARMED.

Our success depends to a large extent upon the continued services of our executive officers. Generally our employees are not bound by employment or non-competition agreements, and we cannot assure that we will retain our executive officers and other key employees. We could be seriously harmed by the loss of any of our executive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. Although a number of companies in our industry have implemented workforce reductions, there remains substantial competition for highly skilled employees.

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 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES.

Facilities

On September 11, 2006 we entered into a sublease agreement for 10,000 sq ft. of manufacturing space which includes office space with Quantum Fuel System Technologies Worldwide, Inc. for $15,500 per month. On May 19, 2008 we entered into a new extension of the sublease agreement with an effective termination date of August 31, 2009. The facility is located at 25242 Arctic Ocean Drive, Lake Forest, CA 92630.

Solar Masters entered into a lease agreement effective September 26, 2008 for a one year lease with rent beginning December 1, 2008. For approximately 1260 sq ft. of office and warehouse space, the monthly rent is $1273. The facility is located at 17451 Mr. Herrmann Street, Suite D, Fountain Valley, CA 92708.

ITEM 3. LEGAL PROCEDINGS.

The Company may be involved from time to time in various claims, lawsuits, and disputes with third parties, actions involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business.

While we are currently able to service the majority of our creditors, certain creditor/shareholders have threatened potential litigation. We are in discussions with those creditors and believe that litigation can be avoided. If we are unable to service our obligations, our creditors could instigate foreclosure proceeding or force the company into bankruptcy.

As of December 31, 2008, 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.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Bid and ask quotations for our common shares are routinely submitted by registered broker dealers who are members of the National Association of Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These quotations reflect inner-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The high and low bid information for our shares for each quarter for the last two years, so far as information is reported, through the quarter ended December 31, 2008, as reported by the Bloomberg Financial Network, are as follows:


2007 FISCAL YEAR	High	Low
First Quarter	$0.22	$0.17
Second Quarter	$0.17	$0.15
Third Quarter	$0.15	$0.13
Fourth Quarter	$0.14	$0.07


2008 FISCAL YEAR	High	Low
First Quarter	$0.17	$0.03
Second Quarter	$0.17	$0.04
Third Quarter	$0.17	$0.07
Fourth Quarter	$0.12	$0.04

DIVIDEND POLICY

We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes securities authorized for issuance under equity compensation plans:


	Equity Compensation Plan Information
Plan Category	Number of shares of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)	(b)	(c )
Qualified Equity compensation plans approved by security holders	368,747	$0.17	284,019

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Non-Qualified Equity compensation plans approved by security holders	1,050,000	$.13	0
Total	1,418,747	$0.14	284,019

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 1,275,000 warrants to purchase 1,275,000 shares of common stock at a price of $.133 per share. As a result we recognized share based compensation expense in the amount of $16,607 for the year ended December 31, 2007.

RECENT SALES OF UNREGISTERED SECURITIES

In February 2006 the Company issued 40,314 shares of common stock, in lieu of interest payments at $.267 per share for a total of $10,751.

In May 2006 the Company issued 49,008 shares of common stock, in lieu of interest payments at $.267 per share for a total of $13,094.

On May 25, 2006 the Company issued 1,500,000 shares of common stock at .033 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:


Name	Amount of Common Stock issued
Kambiz Mahdi	300,000
Reza Zarif	300,000
Barrett Evans	300,000
Jeffrey Conrad	300,000
Dennis Benner	300,000

In August 2006 the Company issued 90,762 shares of common stock, in lieu of interest payments at $.267 per share for a total of $24,205.

In August 2006 the Company issued 35,034 shares of common stock, in lieu of interest payments at $.267 per share for a total of $9,343.

In August 2006 the Company issued 12,615 shares of common stock for officer compensation at $.267 per share for a total of $3,365.

In August 2006 the Company accrued 141,780 shares of common stock for officer compensation at $.033 per share (fair market value at time of accrual) for a total of $4,726. These shares were issued on March 30, 2007.

In September 2006 the Company accrued 87,249 shares of common stock for officer compensation at $ .216 per share (fair market value at time of accrual) for a total of $18,904. These shares were issued on March 30, 2007.

In December 2006 the Company accrued 103,110 shares of common stock for officer compensation at $.183 per share (fair market value at time of accrual) for a total of $18,904. These shares were issued on March 30, 2007.

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 5,265,000 shares of common stock.

On August 14, 2006 the holders converted 440 shares of the Preferred Series A for 13,417,272 shares of the Company’s common stock.

On March 30, 2007 the Company issued 332,139 shares of common stock for officer compensation.

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On June 30, 2007 the Company issued 235,089 shares of common stock for officer compensation for the first and second quarter of 2007.

On October 15, 2007 the Company issued 141,780 shares of common stock for officer compensation for the 3rd quarter of 2007.

On February 11, 2008, the Company issued 472,599 shares of common stock for officer compensation.

On April 12, 2008, the Company issued 113,424 shares of common stock for officer compensation.

On August 11, 2008 the board of directors of the issuer approved a 3-for-1 forward stock split of its outstanding and issued common stock. Pursuant to the forward stock split the Company’s issued and outstanding share capital will increase from 10,594,258 shares of common stock to 31,782,774 shares of common stock. The effective date of the forward stock split will be September 1, 2008. All computations for common shares and equivalents have been adjusted accordingly.

On August 13, 2008, the Company issued 105,465 shares of common stock for officer compensation..

On September 30, 2008 the Company issued 750,000 shares of its common stock for the purchase of the assets of Solar Masters, Inc.

ITEM 6 - SELECTED FINANCIAL DATA

The following selected historical financial information of Probe Manufacturing, Inc. has been derived from the historical results are not necessarily indicative of the results to be expected in the future. The following table is qualified by reference to and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data.”


Probe Manufacturing, Inc.
Consolidated Statement of Operations
for the years ended December 31,

	2008	2007

Sales	$ 7,394,610	$ 6,882,302
Cost of Goods Sold	5,816,475	5,108,824
Gross Profit	1,578,135	1,773,478

General And Administrative	1,371,895	1,336,290
Share Based Compensation	14,043	21,921
Stock Issued for Services	32,966	75,616
Research and Development	140,667	138,552
Net Profit / (Loss) From Operations	18,564	201,099

Other Income / (Expenses) - Net	(585)	1,485
Gain on Debt Settlement		324,330
Interest Expense	(134,575)	(152,018)
Net Profit / (Loss) Before Income Taxes	(116,596)	374,896
Income Tax Expense	-	-

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Net Profit / (Loss)	$ (116,596)	$ 374,896


Per Share Information:
Basic weighted average number
of common shares outstanding	31,932,579	31,003,728

Net Profit / (Loss) per common share	$ (0.004)	$ 0.012


Per Share Information:
Diluted, weighted average number
of common shares outstanding	31,932,579	44,921,199

Diluted, Net Profit / (Loss) per common share	$ (0.004)	$ 0.008


PROBE MANUFACTURING, INC.
Condensed Balance sheet
as of December 31,
	2008	2007	2006

Working Capital	$ (250,082)	$ (174,657)	$ (132,688)
Total Assets	1,760,464	1,897,127	2,286,121
Long term Debt	203,739	310,155	930,616
Stockholder Equity	$ (242,617)	$ (273,030)	$ (745,462)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read this section together with our consolidated financial statements and related notes thereto included elsewhere in this report.

We intend that our forward-looking statements be subject to the safe harbors created by the 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.

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Overview

Probe Manufacturing Industries, Inc. was incorporated on July 7, 1995. On April 21, 2005, the Company was re-domiciled from California to Nevada, and changed its name to Probe Manufacturing, Inc. 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 board assembly, cable assembly, enclosures, complete system integration and testing, as well as global order fulfillment. In August, we acquired the assets of Solar Masters, LLC, a distributer of solar powered products. Probe Manufacturing's headquarters are located in Lake Forest, California. Solar Masters is located in Fountain Valley, California.

Plan of Operations:

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. For the year ended December 31, 2008, we had a net loss of $(116,596), a working capital deficit of $(250,082), and we had shareholder deficit of $(242,617). The ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.

The company has seen a dramatic drop in revenue beginning in the 4^th quarter of 2008 and continuing into 2009. The company has made significant cuts as a direct result of this drop in revenue. In addition to the steps discussed below, the company has initiated a major sales push in an attempt to gain new revenue. We have quoted a significant amount of work, but no guarantees can be made as to whether or not the company will be successful in winning the quoted business or if it will be able to keep its existing business.

Management is taking the following steps to address this situation: (a) to improve operational efficiencies by: (i) 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 maintain inventory at its lowest value point; however, from time to time inventory levels may increase 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 are attempting to renegotiate our lines of credit with agreement(s) that have more attractive terms, as well as increase our credit lines with suppliers; (c) to increase revenue; (i) we are attempting to acquire new customers that are a better fit for us, (ii) and we are trying to grow the business with our existing customers with offering more value added; and finally (iii) we’re attempting to focus on a 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 help sustainability of the company, we’re currently looking at merger and acquisition options 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 reach profitability and then maintain that profitability. There can be no assurance that the company will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, 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 year ended December 31, 2008, we generated a net loss of $(116,596) compared to net profits of $374,896 for the same period in 2007, net profits of $150,894 for the same period in 2006.

For the year ended December 31, 2008, our revenue increased by 7.4% to $7,394,610 compared to $6,882,302 in the same period in 2007, and a decrease of 26%, compared to the same period in 2006.

For the year ended December 31, 2008, our cost of goods sold was increased to 78.6% from 74% and 75% in the same period in 2007 and 2006.

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In the twelve month period ended December 31, 2008, our gross margins decreased to 21.4% from 26% and 25% in the same period in 2007 and 2006 respectively.

For the year ended December 31, 2008, our SG&A cost was 18.5% compared to 19% in 2007, and 20% in 2006.

As of December 31, 2008, we had a working capital deficit of ($250,082) compared to a deficit of ($174,657) and ($132,686) for the same period in 2007 and 2006 respectively. As of December 31 2008, our total stockholders equity improved by $30,413 and $472,433 from December 31, 2007 and 2006 respectively.

Although our revenue increased by 7.4% in 2008, our gross margins decreased and we had a net loss compared to 2007. Our loss for the year ended December 31, 2008, was primarily due to the increase of cost of goods for a specific customer. We believe this issue has been resolved at this time.


Key performance indicators:
	Twelve month period ended December 31
	2008	2007	2006
Inventory Turns	6.68	5.5	6.38
Days Sales in Backlog	239	239	159
Days Receivables Outstanding	43	43	39
Days Payables Outstanding	66	66	46

Inventory turns are calculated as the ratio of cost of material compared to the average inventory for the quarter. With the increase in revenues, for the twelve month period ended December 31, 2008, our inventory turns were 6.68 compared to 5.5 and 6.38 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 year ended December 31, 2008 Days Sales in Backlog remained consistent at 239 days compared to 2007, and 159 days in 2006.

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 $250,000 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 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

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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 December 31, 2008, the Company had a reserve for potentially un-collectable accounts of $25,000.

Five (5) customers accounted for approximately 96% of accounts receivable at December 31, 2008 and one customer accounted for 80% of the accounts receivable balance. 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 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 year ended, December 31, 2008 the company increased the inventory reserve by $149,509. As of December 31, 2008, the Company had a reserve for potentially obsolete inventory of $450,000.

Property and Equipment

Property and equipment are stated at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. 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 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

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additional common shares, which may dilute future earnings per share. For the period ended December 31, 2008, all of the Company's common stock equivalents were excluded from the calculation of diluted loss per common share because they were anti-dilutive, due to the Company's net loss in that period.

Research and Development:

The company is curtailing its research and development and focusing its business on its core business of electronics contract manufacturing and growing its subsidiary Solar Masters.

Research and Development Costs incurred in association with the alternative fuels technology development (which include salaries and equipment) are expensed as incurred. We expensed $140,667 in R&D during the year ended December 31, 2008 and $138,552 for the year ended December 31, 2007. We acquired a 125 KW natural gas distributed power generator and have converted it to run on hydrogen fuel. We have tabled the development of this project. Our second research and development project involves an Engine Control Unit (ECU) to help convert gasoline cars to run on natural gas. The Solaris project is in prototype stage. The Company is currently in the process of evaluating the efficacy of moving this project forward.

Segment Information

Except as identified above in the research and development section, we operate our primary business of electronics contract manufacturing and our subsidiary business of distribution of solar powered products.

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 $21,920 share based compensation expense, due to the issuance of our options and warrants. For the year ended December 31, 2008 we recognized $14,043 of share based compensation which of expense, due to the issuance of our options and warrants. We also had $13,674 in non-vested expense to be recognized over the next three years.

Income Taxes

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reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of December 31, 2008 the Company had a net operating loss carry forward of $600,289. The Company has not booked any deferred tax asset as a result.

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 years ended December 31

	2008	2007	2006
Sales	100.00%	100.00%	100.00%
Cost Of Goods Sold	78.66%	74.20%	75.39%
Gross Profit	21.34%	25.80%	24.61%

General And Administrative	18.55%	19.40%	20.14%
Share Based Compensation	0.64%	1.40%	1.03%
Research and Development	1.90%	2.00%	0.00%
Net Profit From Operations	0.25%	4.30%	4.47%

Other Income / (Expenses)	-0.01%	0.02%	-0.40%
Interest Expense	-1.82%	-2.20%	-2.44%
Net Profit Before Income Taxes	-1.58%	5.40%	1.62%
Income Tax Expense	0.00%	0.00%	0.00%
Net Profit	-1.58%	5.40%	1.62%

Net Sales

For the year ended December 31, 2008, our revenue increased by 7.4% to $7,394,610 compared to $6,882,302 in the same period in 2007. The increase in revenue was the result of increased orders from existing customers and acquiring new ones. We have recently seen a dramatic decrease in revenue from existing customers and have experienced the loss of some customers.

Major Customers

Our top 5 customers accounted for approximately 96% of our net sales for the year ended December 31 2008, compared to 64%, 86%, and 85% for the same period in 2007, 2006 and 2005 respectively. In addition, the top 3 customer concentration increased to 85% for the year ended December 31, 2008, compared to 49%, 69% and 78% in the same period in 2007, 2006 and 2005 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 clean 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 insured. 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 year ended December 31, 2008, our gross profits decreased to 21% from 26% , 25% and 22% in the same period in 2007, 2006 and 2005 respectively. This decrease is primarily due to increased cost of goods related to one customer. Our

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gross profits and/or losses vary from period to period and are 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.

Selling, General and Administrative (SG&A) Expenses

For the year ended December 31, 2008, our SG&A expenses was 18.5% consistent when compared to 19% for the same period in 2007, and improved from 20% for the same period in 2006 respectively. While we had higher revenue in 2008 over 2007 the SG&A costs remained consistent on a percentage basis year over year.

In May 2006, we issued 1,500,000 shares of common stock, valued at $.03 ($50,000) to our Board of Directors for services and in March 2007, we paid a one-time charge of $37,000 in late fees and payments to terminate our lease from Costa Mesa facility. Both of these expenses were booked under SG&A expense.

Net Income/ (Loss) from operations

For the year ended December 31, 2008, our net income from operations was 0.25% compared to 3% in 2007, and 4% in 2006.

For the year ended December 31, 2008, we reduced our interest expense to $134,575 from $152,018 for the same period in 2007.


PROBE MANUFACTURING, INC.
Condensed Statements of Cash Flows
for the years ended December 31,

	2008	2007	2006
Net Cash provided / (Used) In Operating Activities	$ 129,092	$ 668,293	$ 608,028
Cash Flows Used In Investing Activities	(2,720)	(131,790)	(214,025)
Cash Flows Provided / (used) By Financing Activities	(146,108)	(549,593)	(351,043)
Net (Decrease) Increase in Cash and Cash Equivalents	$ (19,736)	$ (13,090)	$ 42,580

We generated net cash from our operating activities of $93,967 for the year ended December 31, 2008, compared to $668,293 for the year ended December 31 2007, and compared to $608,028 for the year ended December 31, 2006.

We reduced debt by $251,991 for the year ended December 31, 2008, compared to $874,077 for the year ended December 31 2007. And compared to $351,423 for the year ended December 31 2006. Of our debt reduction in 2007 $324,484 resulted from gains in renegotiating our lease obligation with CIT.

The following is a summary of certain obligations and commitments as of December 31, 2008, for continuing operations:


Capital Requirements for long-term Obligations	2009	2010	2011	2012
Notes Payable	$ 678,072	-	-	-
Other Long term debt	48,233	-	-	-
Capital Lease Settlement Obligations	72,377	77,609	83,220	51,296
Total	$ 798,682	$ 77,609	$ 83,220	$ 51,296

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:

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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:

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.

Recital B is amended to state that as of June 25, 2007 Probe’s payment obligation to CIT totals $457,500.

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%.

The Company imputed interest at 7% over the term of the payments, which resulted in a present value of $384,025 and $318,841 at September, 2007 and 2008 respectively.

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.

As of December 31, 2008 the outstanding balance was $284,504

We are currently in default on a number of Notes. Please see Note 8 to Item 8 below.

Off-balance Sheet Arrangement

We currently have no off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

PROBE MANUFACTURING, INC.

10-K

TABLE OF CONTENTS

Item 8.

Consolidated Financial Statements and Supplementary Data

Page


	Report of independent registered public accounting firm	26
	Consolidated Balance Sheet as of December 31, 2008 and December 31, 2007	27
	Consolidated Statement of Operations for the years ended December 31, 2008 and 2007	28
	Consolidated Statements of Shareholders Equity as of December 31, 2008 and 2007	29
	Consolidated Statement of Cashflows for the years ended December 31, 2008	31
	Foot Notes to the Financial Statements	32

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

April 14, 2009

Board of Directors

Probe Manufacturing, Inc.

We have audited the accompanying consolidated balance sheet of Probe Manufacturing, Inc.(the “Company”) as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and changes in stockholders’ deficit and its cash flows for the years ended December 31, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

As discussed in Note 1 of the notes to the accompanying consolidated financial statements, the financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the footnotes, the Company has current assets of $1,549,260 and current liabilities of $2,064,135. In addition, the Company has an accumulated deficit of $600,289 and is dependent on the deferral of loans and interest payments along with reductions in headcount to pay operating expenses. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

W. T. Uniack & Co. CPA’s P.C.

Certified Public Accountants

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PROBE MANUFACTURING, INC.
Consolidated Balance Sheet
as of December 31,

		2008	2007
Assets
Current Assets:
	Cash	$ 9,754	$ 29,490
	Accounts receivable - trade - net	700,490	702,052
	Inventory	786,416	953,803
	Deposits on Inventory	52,600	-
	Total Current Assets	1,549,260	1,685,345

Property And Equipment - Net		143,610	211,782

Goodwill		67,594
Total Assets		$ 1,760,464	$ 1,897,127

Liabilities And Stockholders' ( Deficit )
Current Liabilities:
	Bank overdraft	$ 105,882	$ -
	Accounts payable - trade	668,464	600,405
	Customer Deposits	31,540	34,829
	Accrued Expenses	194,764	280,501
	Notes payable - Related Party	-	-
	Current Portion of Long Term Debt	798,692	944,267
	Total Current Liabilities	1,799,342	1,860,002
Long-Term Debt:
	Other long-term debt	302,979	420,261
	Notes payable - Related Party	414,948	482,159
	Capital lease settlement obligations	284,504	352,002
	Less Current portion of Long Term Debt	(798,692)	(944,267)
	Net Long-Term Debt	203,739	310,155
Total Liabilities		2,003,081	2,170,157

Stockholders' ( Deficit )
	Common Stock to issue, 0 and 472,599 shares respectively	-	18,904
	Common stock, $.001 par value; 200,000,000 shares authorized; 32,638,320 and 31,196,832 shares issued and outstanding respectively	32,638	31,197
	Additional paid-in capital	325,033	160,562
	Accumulated deficit	(600,288)	(483,693)
	Total Stockholders' ( Deficit )	(242,617)	(273,030)
Total Liabilities And Stockholders' Deficit		$ 1,760,464	$ 1,897,127

The accompanying footnotes are an integral part of these financial statements

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Probe Manufacturing, Inc.
Consolidated Statement of Operations
for the years ended December 31,




	2008	2007

Sales	$ 7,394,610	$ 6,882,302
Cost of Goods Sold	5,816,475	5,108,824
Gross Profit	1,578,135	1,773,478

General And Administrative	1,371,895	1,336,290
Share Based Compensation	14,043	21,921
Stock Issued for Services	32,966	75,616
Research and Development	140,667	138,552
Net Profit / (Loss) From Operations	18,564	201,099

Other Income / (Expenses) - Net	(585)	1,485
Gain on Debt Settlement		324,330
Interest Expense	(134,575)	(152,018)
Net Profit / (Loss) Before Income Taxes	(116,596)	374,896
Income Tax Expense	-	-
Net Profit / (Loss)	$ (116,596)	$ 374,896


Per Share Information:
Basic weighted average number
of common shares outstanding	31,932,579	31,003,728

Net Profit / (Loss) per common share	$ (0.003)	$ 0.012


Per Share Information:
Diluted, weighted average number
of common shares outstanding	31,932,579	44,921,199

Diluted, Net Profit / (Loss) per common share	$ (0.003)	$ 0.008

The accompanying footnotes are an integral part of these financial statements

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Probe Manufacturing, Inc.
Consolidated Statement of Stockholders Equity
as of December 31, 2008


	Preferred Stock A $1,000 Stated Value		Preferred Stock B $100 Stated Value		Preferred Stock C No Par		Common Stock .001 Par		Shares to be Issued
Description	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Additional Paid in Capital	Accumulated Deficit	Stockholders' Deficit Totals
Balance, December 31, 2004	440	$ 440,000	12,500	$ 1,250,000	-	$ -	7,839,375	$ 7,839			$(2,334,899)	$ (375,378)	$(1,012,438)
Stock issued for cash							2,145,000	2,145			569,855		572,000
Stock issued in lieu of Interest payments							93,354	93			24,801		24,894
Net Loss								-				(634,105)	(634,105)
Balance 12/31/05	440	440,000	12,500	1,250,000	-	-	10,077,729	10,078			(1,740,243)	(1,009,483)	(1,049,649)

Stock Issued in lieu of Interest Payments							215,208	215	-	-	57,179	-	57,394
Stock Issued for compensation - Reza							12,615	13	332,139	42,533	3,353	-	45,899
Stock issued for Services							1,500,000	1,500			48,500		50,000
Stock Converted from Prefered B to Preferred C			(12,500)	(1,250,000)	14,040	1,404,000					(154,000)	-	-
Series C Conversion @ .80					(14,040)	(1,404,000)	5,265,000	5,265			1,398,735		-
Series A Conversion shares @ 44%	-440	(440,000)					13,417,272	13,417			426,583		0
													-
Net Income 2006												150,894	150,894
Balance 12/31/06	-	-	-	-	-	-	30,487,824	30,488	332,139	42,533	40,107	(858,589)	(745,462)

Stock issued compensation - Reza							332,139	332	(332,139)	-42533	42200.861		-
Stock to be issued for compensation - Reza									109,062	18904			18,904
Stock to be issued for compensation - Reza									126,027	18904			18,904
Stock to be issued for compensation - Reza .40									141,780	18,904			18,904
							235,089	235	(235,089)	(37,808)	37,573		0
Stock Issued

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for compensation - Reza @							141,780	142	(141,780)	(18,904)	18,762		(0)
									472,599	18,904			18,904
Share Based compensation											21,920		21,920

Net Profit 2007												374,896	374,896
Balance 12/31/2007	-	$ -	-	$ -	-	$ -	31,196,832	$ 31,197	472,599	$ 18,904	$ 160,563	$ (483,693)	$ (273,030)

Stock issued for Services							472,599	473	(472,599)	(18,904)	18,431		(0)
Stock to be issued for compensation - Reza .50									113,424	18,904			18,904
Share based Comp - W&O									-		2,058		2,058
Stock issued for Services							113,424	113	(113,424)	(18,904)	18,791		-
Stock to be issued for compensation - Reza .50									105,465	14,062			14,062
Share based Comp - W&O									-		5,811		5,811
Share based Option Amortization											2,058		2,058
Stock issued for Services							105,465	105	(105,465)	(14,062)	13,957		-
Date the stock was split
Stock to be issued for compensation - Reza .50													-
Share based Comp - W&O													-
Share based Option Amortization											2,058		2,058
Shares issued for Solar Masters Assets							750,000	750			99,250		100,000
Share based Option Amortization											2,058		2,058
													-
Net Profit 2008												(116,596)	(116,596)
Solar Masters Profit												-	-
													-
Balance 12/31/08	-	$ -	-	$ -	-	$ -	32,638,320	$ 32,638	-	$ -	$ 325,034	$ (600,289)	$ (242,617)

The accompanying footnotes are an integral part of these financial statements

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PROBE MANUFACTURING, INC.
Consolidated Statements of Cash Flows
for the years ended December 31,


			2008	2007
Cash Flows from Operating Activities:
	Net Income / ( Loss )		$ (116,596)	$ 374,896
	Adjustments to reconcile net loss to net cash
		used in operating activities:
		Depreciation and amortization	68,172	237,851
		Gain on debt settlement	-	(324,484)
		Share based compensation	14,043	21,921
		Stock issued for Services	32,966	75,616
		Changes in assets and liabilities:
		(Increase) decrease in accounts receivable	1,562	200,715
		(Increase) decrease in inventory	167,387	69,128
		(Increase) decrease in other assets	(52,600)	-
		(Decrease) increase in accounts payable	68,059	(29,194)
		(Decrease) increase in customer deposits	(3,289)	34,829
		Other (Decrease) increase in accrued expenses	(85,737)	7,015
Net Cash provided / (Used) In Operating Activities			93,967	668,293

Cash Flows from Investing Activities
	Purchase of property and equipment		-	(131,790)
	Investment in Solar Masters		(2,720)	-
Cash Flows Used In Investing Activities			(2,720)	(131,790)

Cash Flows from Financing Activities
	Bank Overdraft / (Repayment)		105,882	-
	Payments on capital lease settlement obligations		(67,497)	(81,922)
		Stock issued for Solar Masters Assets	35,125
	Proceeds / (Payments) on notes payable		(184,493)	(467,671)
Cash Flows Provided / (used) By Financing Activities			(110,983)	(549,593)

Net (Decrease) Increase in Cash and Cash Equivalents			(19,736)	(13,090)

Cash and Cash Equivalents at Beginning of Period			29,490	42,580

Cash and Cash Equivalents at End of Period			$ 9,754	$ 29,490

Supplemental Information:
	Interest Paid		$ 137,403	$ 152,834
	Income Taxes Paid		$ -	$ -
	Stock issued for Investment		$ 100,000	$ -

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The accompanying footnotes are an integral part of these financial statements

PROBE MANUFACTURING, INC.

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 board assembly, cable assembly, enclosures, complete system integration and testing, as well as global order fulfillment. In August, we acquired the assets of Solar Masters, LLC, a distributer of solar powered products. Probe Manufacturing's headquarters are located in Lake Forest, California. Solar Masters is located in Fountain Valley, California.

For the year ended December 31, 2008, we had a net loss of $(116,596) and a working capital deficit of $(250,082). As of December 31, 2008 we had a shareholder deficit of $(242,617). The ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.

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. For the year ended December 31, 2008, we had a net loss of $(116,596), a working capital deficit of $(250,082), and we had shareholder deficit of $(242,617). The ability of the Company to operate as a going concern is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.

Plan of Operations:

The company had a net loss of $(116,596), generated $18,564 in net cash from operations and improved their total stockholder’s deficit by $30,413 for the year ended December 31, 2008. However, we still had a working capital deficit of $(250,082) and a total shareholder deficit of $(242,617) as of December 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 generate positive cash flow from operations.

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we’re attempting to focus on a 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 help sustainability of the company, we’re currently looking at merger and acquisition options while continuing to operate our EMS business.

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accompanying financial statements of the Company have been prepared in accordance with the instructions to Form 10-K and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. It is suggested that these condensed financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's audited financial statements on Form 10-K for the fiscal year ended December 31, 2008.

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

Estimates

Accounts Receivable

Inventory

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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 year ended, December 31, 2008 the company increased the inventory reserve by $149,509. As of December 31, 2008, the Company had a reserve for potentially obsolete inventory of $450,000.

Property and Equipment

Furniture and fixtures

3 to 7 years

Equipment

7 to 10 years

Leasehold improvements

2 years (life of the lease)

Long –Lived Assets

Revenue Recognition

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 December 31, 2008 the Company had outstanding common shares of 32,638,320 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at December 31, 2008 were 31,932,579. Fully diluted weighted average common shares and equivalents at December 31, 2008 were 47,670,826. As of December 31, 2008 the Company had outstanding warrants to purchase 14,247,330 additional common shares and options to purchase 1,527,083 additional common shares, which may dilute future earnings per share. For the period ended December 31, 2008, all of the Company's common stock equivalents were excluded from the calculation of diluted loss per common share because they were anti-dilutive, due to the Company's net loss in that period.

Research and Development:

The company is curtailing its research and development and focusing its business on its core business of electronics contract manufacturing and growing its subsidiary Solar Masters.

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project is in prototype stage. The Company is currently in the process of evaluating the efficacy of moving this project forward.

Segment Information

Share Based Compensation

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. As of December 31, 2008 the Company had a net operating loss carry forward of $600,289. The Company has not booked any deferred tax asset as a result.

NOTE 3 – INVENTORY

Inventories at December 31, 2008 by major classification were comprised of the following:


	December 31, 2008	December 31, 2007
Raw Material	$ 1,036,258	$ 994,922
Work in Process	68,170	253,969
Finished Goods	6,208	5,403
Total	1,110,637	1,254,294

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Less Reserve for excess or obsolete inventory	(450,000)	(300,491)
Total Inventory	$ 660,637	$ 953,803

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment were comprised of the following at December 31, 2008:


	December 31, 2008	December 31, 2007
Furniture and fixtures	$ 57,044	$ 57,044
Equipment	2,397,325	2,397,325
Leasehold improvements	210,404	210,404
Total	2,664,773	2,664,773
Less accumulated depreciation and amortization	(2,521,163)	(2,452,991)
Net Fixed Assets	$ 143,610	$ 211,782

NOTE 5 – ACCRUED EXPENSES

As of December 31, 2008 the Company had the following accrued expenses:


	December 31,2008	December 31, 2007
Sales Tax Payable	$ 1,639	$ 151
Property Tax accrual	-	6,693
Accrued Wages	49,248	77,326
Accrued Interest	2,512	5,342
Accrued Professional Fees	37,000	50,500
Accrued Utilities and other rents		59,317
Accrued CEO Compensation	45,000
Accrued Vacation	59,365	81,172
Total Accrued Expenses	$ 194,764	$ 280,501

NOTE 7 - CAPITAL LEASE SETTLEMENT OBLIGATIONS

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:

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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.

Recital B is amended to state that as of June 25, 2007 Probe’s payment obligation to CIT totals $457,500.

10)

The Company imputed interest at 7% over the term of the payments, which resulted in a present value of $384,025

and a gain of $324,330 which had an effect on Net profit per common share of $.031 and Diluted Net Profit per common share of $.022.

11)

As of December 31, 2008 the outstanding balance was $284,504

NOTE 8 – NOTES PAYABLE

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. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. As of December 31, 2008 the outstanding balance was $29,594.

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. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. As of December 31, 2008, the outstanding balance was $71,632.

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. On April 15, 2008, we were unable to meet the balloon payment and the note is in default. As of December 31, 2008, the outstanding balance was $24,330.43.

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. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. As of December 31, 2008 the outstanding balance was $69,252.

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. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. As of December31, 2008, the outstanding balance was $50,583.

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 June 30, 2008 the outstanding balance was $24,726. The note was extended by 18 months, with an interest rate of 13% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. As of December 31, 2008 the note is in default and the outstanding balance was $17,735.

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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. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. As of December 31, 2008 the outstanding balance was $13,809.

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. The note was extended by 18 months, with an interest rate of 13% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. As of September 30, 2008 the note was in default. As of December 31, 2008 the outstanding balance was $12,801.

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. On April 15, 2008 we were unable to meet the balloon payment and the note is in default. As of December 31, 2008 the outstanding balance was $120,648.

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 June 30, 2008 the outstanding balance was $126,759. The note was extended by 18 months, with an interest rate of 13% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. As of December 31, 2008 the note was in default and the outstanding balance was $123,469.

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 $39,759 on April 15, 2008. As of June 30, 2008 the outstanding balance was $42,893. The note was extended by 18 months, with an interest rate of 13% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. As of December 31, 2008, the note was in default and the outstanding balance was $37,713.

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 June 30, 2008 the outstanding balance was $79,371. The note was extended by 18 months, with an interest rate of 13% per annum. The holder was also issued 3 series D Warrants for every $2.00 of outstanding note balance on that date. As of December 31, 2008, the note was in default and the outstanding balance was $79,274.

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 December 31, 2008, the note was in default and the outstanding balance was $27,237.

Other Long-Term Debt

1) We have reached a settlement with I-Source, a supplier, with monthly payments of $2,500. As of December 31, 2008, the note was in default and outstanding balance was $11,925.

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2) We currently owe the Internal Revenue Service $27,926 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

Solar Masters entered into a lease agreement effective September 26, 2008 for a one year lease with rent beginning December 1, 2008. For approximately 1260 sq ft. of office and warehouse space, the monthly rent is $1273. The facility is located at 17451 Mt. Herrmann Street, Suite D, Fountain Valley, CA 92708.

Litigation

The Company may be involved from time to time in various claims, lawsuits, and disputes with third parties, action involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business.

As of December 31, 2008 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 6,663,750 shares of common stock through a Private Placement Memorandum at $.267 per Share to 49 individuals generating net proceeds of $1,777,000, of which 2,145,000 shares were sold in 2005, generating net proceeds of $572,000.

During 2005 the Company issued 93,354 shares of common stock, in lieu of interest payments at $.267 per share for a total of $24,894.

In February 2006 the Company issued 40,314 shares of common stock, in lieu of interest payments at $.267 per share for a total of $10,751.

In May 2006 the Company issued 49,008 shares of common stock, in lieu of interest payments at $.267 per share for a total of $13,094.


Name	Amount of Common Stock issued

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Kambiz Mahdi	300,000
Reza Zarif	300,000
Barrett Evans	300,000
Jeffrey Conrad	300,000
Dennis Benner	300,000