Probe Manufacturing Inc (Form: 10-Q, Received: 08/22/2016 16:27:06)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended: June 30, 2016

or

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-55656

CLEAN ENERGY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Nevada	20-2675800
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2990 Redhill Avenue, Costa Mesa, CA 92626
(Address of principal executive offices)

(949) 273-4990

(Registrant ’ s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “ large accelerated filer, ” “ accelerated filer ” and “ smaller reporting company ” in Rule 12b-2 of the Exchange Act. (check one)


Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ]	(Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ]Yes [X] No

As of August 19, 2016, there were 140,234,631 shares of the Registrant ’ s $0.001 par value common stock issued and outstanding.

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CLEAN ENERGY TECHNOLOGIES, INC.

(A Nevada Corporation)

TABLE OF CONTENTS

Page 3 of 31

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ( “ Securities Act ” ), and Section 21E of the Securities Exchange Act of 1934, as amended ( “ Exchange Act ” ). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Clean Energy Technologies, Inc. (the “ Company ” ), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “ may, ” “ will, ” “ should, ” “ expect, ” “ anticipate, ” “ estimate, ” “ believe, ” “ intend, ” or “ project ” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

* Please note that throughout this Quarterly Report, and Except as otherwise indicated by the context, references in this report to “ Company ” , “ CETY, ” PMFI, ” “ Probe, ” “ Clean Energy, ” “ we, ” “ us, ” and “ our ” are references to Clean Energy Technologies, Inc., (f/k/a Probe Manufacturing Inc. ) All references to “ USD ” or United States Dollars refer to the legal currency of the United States of America.

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Part I – Financial Information

Item 1. Consolidated Financial Statements

Clean Energy Technologies, Inc.

As of and for the three months ended June 30, 2016

(Unaudited)

Financial Statement Index

Consolidated Balance Sheets (unaudited)

Consolidated Statements of Operations (unaudited)

Consolidated Statements of Cash Flows (unaudited)

Notes to the Consolidated Financial Statements (unaudited)


Clean Energy Technologies, Inc.
Consolidated Balance Sheet

		(unaudited)
		June 30,	December 31,
		2016	2015
Assets
Current Assets:
	Cash	$ 41	$ 4,196
	Accounts receivable - net	367,565	474,699
	Inventory	1,074,582	1,207,409
	Total Current Assets	1,442,188	1,686,304
Property and Equipment - Net		164,705	215,755

	Goodwill	747,976	747,976
	License	354,322	354,322
	Patents	180,849	186,813
	Other Assets	57,690	57,708
Total Assets		$ 2,947,730	$ 3,248,878

Liabilities and Stockholders' (Deficit)
Current Liabilities:
	Bank Overdraft	$ 12,509	$ -
	Accounts payable - trade	891,138	609,407
	Accrued Expenses	1,549,932	1,412,742
	Accrued Expenses Related party	99,667	143,038
	Warranty Liability	241,612	241,612
	Notes Payable - Current	1,164,931	1,291,922
	Total Current Liabilities	3,959,789	3,698,721
Long-Term Debt:
	Notes Payable	800,000	800,000
	Net Long-Term Debt	800,000	800,000
Total Liabilities		4,759,789	4,498,721

	Commitments and contingencies	$ -	$ -

Stockholders' (Deficit)
	Preferred D stock, stated value $100 per share; 20,000 shares authorized; 5000 shares and 0 shares issued and outstanding respectively	750,000	750,000
	Common stock, $.001 par value; 400,000,000 shares authorized; 140,234,631 and 139,446,765 shares issued and outstanding respectively	140,236	139,448
	Additional paid-in capital	2,782,722	2,736,480
	Treasury Stock	(633)	(633)
	Accumulated deficit	(5,484,384)	(4,875,138)
	Total Stockholders' (Deficit)	(1,812,059)	(1,249,843)
Total Liabilities and Stockholders' Deficit		$ 2,947,730	$ 3,248,878

The accompanying footnotes are an integral part of these financial statements


Clean Energy Technologies, Inc.
Consolidated Statement of Operations
For the three and six months ended June 30, (Unaudited)

	three months ended June 30,		six months ended June 30,
	2016	2015	2016	2015
Sales	$ 177,811	$ 816,726	$ 1,407,357	$ 1,613,016
Cost of Goods Sold	198,319	510,637	706,669	1,024,719
Gross Profit / (Loss)	(20,508)	306,089	700,688	588,297

General and Administrative	131,627	104,737	230,257	207,704
Salaries	229,123	110,553	491,942	239,495
Moving Expense	72,896	-	75,008	-
Professional fees	48,069	45,908	87,039	51,573
Rent	108,889	50,765	175,917	101,618
Share Based Expense	-	-	16,000	7,200
Total Expenses	590,604	311,963	1,076,163	607,590
Net Profit / (Loss) From Operations	(611,112)	(5,874)	(375,475)	(19,293)

Loss on disposal of fixed assets	(41,459)	-	(41,459)	-
Interest Expense	(42,096)	(75,258)	(192,312)	(162,580)
Net Profit / (Loss) Before Income Taxes	(694,667)	(81,132)	(609,246)	(181,873)
Income Tax Expense	-	-	-	-
Net Profit / (Loss)	$ (694,667)	$ (81,132)	$ (609,246)	$ (181,873)

Per Share Information:
Basic and diluted weighted average number
of common shares outstanding	140,055,616	33,061,445	139,797,344	32,323,544

Net Profit / (Loss) per common share basic and diluted	(0.00)	(0.00)	(0.00)	(0.01)

The accompanying footnotes are an integral part of these financial statements


Clean Energy Technologies, Inc.
Consolidated Statements of Cash Flows
for the six months ended June 30, (Unaudited)


	2016	2015
Cash Flows from Operating Activities:
Net Income / (Loss)	$ (609,246)	$ (181,873)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization	29,411	15,963
Share based compensation	16,000	7,200
Loss on disposal of fixed assets	41,459	-
Changes in assets and liabilities:
(Increase) decrease in accounts receivable	107,134	(159,804)
(Increase) decrease in inventory	132,827	93,730
(Increase) decrease in other assets	18	(13,261)
(Decrease) increase in accounts payable	289,702	(24,251)
Other (Decrease) increase in accrued expenses	85,819	38,733
Net Cash provided / (Used) In Operating Activities	93,124	(223,563)

Cash Flows from Investing Activities
Purchase property plant and equipment	(13,826)	-
Cash Flows Used in Investing Activities	(13,826)	-

Cash Flows from Financing Activities
Bank Overdraft / (Repayment)	12,509	(48,744)
(Decrease) increase in advances line of credit	-	205,498
Proceeds from sale of common stock	-	46,000
Proceeds from notes payable	162,500	-
(Payments) on notes payable	(258,462)	-
Cash Flows Provided / (used) By Financing Activities	(83,453)	202,754

Net (Decrease) Increase in Cash and Cash Equivalents	(4,155)	(20,809)
Cash and Cash Equivalents at Beginning of Period	4,196	27,241
Cash and Cash Equivalents at End of Period	$ 41	$ 6,432

Supplemental Information:
Interest Paid	$ 133,184	$ 102,452

The accompanying footnotes are an integral part of these financial statements

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Clean Energy Technologies, Inc.

(f/k/a Probe Manufacturing, Inc.)

Notes to Consolidated Financial Statements (Unaudited)

Notes 1- GENERAL

Business Overview

We design, build, and market clean energy products focused on energy efficiency and environmentally sustainable technologies and we perform electronics manufacturing services for third parties. Our principal products are based upon the Clean Cycle ™ heat recovery system, offered by our wholly owned subsidiary Clean Energy HRS LLC. Our Clean Cycle ™ captures waste heat from a variety of sources and turns it into electricity that users can use, store, or export, such as to an external or utility power grid. The proven, cutting-edge Clean Cycle ™ technology allows commercial and industrial heat generators or sources to boost their overall energy efficiency with no fuel, no pollutants and virtually no maintenance. The engineering and manufacturing resources from our electronics manufacturing services business support our heat recovery solutions business. We intend also to leverage these capabilities to identify and exploit other clean energy technologies and opportunities.

The Clean Cycle ™ heat recovery solution is an Organic Rankine Cycle, or ORC, system. An ORC system is a closed-loop heat recovery steam generator system, sometimes referred to as an HRS or an HRSG, that utilizes heat from a heat source, such as an existing power generation system, to heat a fluid to produce steam. The steam then passes through a turbine generator, and turbine generator converts the kinetic energy in the steam to produce electrical energy, which can be used, stored, or exported. The ORC cycle then recycles and further cools fluid to again use heat from the external heat source to continue the power-generation cycle.

The technology at the heart of the Clean Cycle ™ is a magnetic levitation bearing generator, which requires no oil or lubricant and has no gear box. The turbine generator and related power management electronics are what convert the kinetic energy in the steam cycle into electrical energy. There are over 100 Clean Cycle ™ HRS units installed globally with more than one million fleet operating hours in diesel, gas and biomass applications. The magnetic levitation bearing generator technology was originally developed by Calnetix, Inc. General Electric International, Inc. acquired the rights to the technology in certain applications from Calnetix in 2010.

Our CE HRS subsidiary acquired General Electric ’ s rights to the technology in those applications, together with General Electric ’ s related HRS technology and improvements, in September 2015 pursuant to an Asset Purchase Agreement with General Electric International, Inc. and General Electric Company that was filed as Exhibit 10.1 to the Company ’ s Current Report on Form 8K dated September 11, 2015 and a concurrent Transaction Completion and Financing Agreement with ETI Partners IV, LLC. CE HRS made an initial purchase price payment of $300,000 at closing and issued a three-year $1.2 million promissory note to GEII with respect to payment of the balance of the cash portion of the purchase price. CE HRS assumed certain liabilities of GEII related to the acquired assets. In connection with the Asset Purchase Agreement, the Company also entered into various ancillary agreements customary for asset acquisition transactions of this type. Pursuant to the companion Transaction Completion and Financing Agreement facilitating our acquisition of the GE HRS assets, we issued 100,910,321 restricted shares of our common stock to ETI Partners IV, LLC (representing approximately 70% of the post-acquisition outstanding common stock). Concurrently, we entered into a Loan, Guarantee, and Collateral Agreement and a Registration Rights Agreement with ETI Partners IV, LLC to provide a framework for further financing in the Company. Pursuant to the various agreements, we expanded our Board of Directors to 11 directors, and ETI Partners IV, LLC nominated and elected five persons to the expanded Board of Directors. In late 2015, two of our directors resigned, and our Board of Directors currently consists of nine directors.

Pursuant to our license agreement with Calnetix (which we acquired from General Electric), we market and sell our Clean Cycle ™ products world-wide to ORC-based application where heat is sourced from

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reciprocating combustion engines, of any type (other than those employed on transiting marine vessels), gas or steam turbine systems used for power generation, and biomass boiler systems. Our rights in these applications are exclusive. We also market our Clean Cycle ™ products world-wide on a non-exclusive basis in the following applications, whether or not ORC-based: reciprocating combustion engines, of any type (except those employed on transiting marine vessels or in the automotive application for cars, trucks, and other motor vehicles); gas or steam turbine systems with an ISO rated power output above one megawatt (1 MW); and applications that use biomass as a source of heat. We have also periodically negotiated to obtain additional non-exclusive marketing rights to the technology from Calnetix as commercial opportunities have arisen that are not in conflict with other licensees of Calnetix.

Our growth strategy is to scale up our business by focusing on the significant installed base of power generation and biomass boiler systems ideally suited to ORC-based heat recovery systems, exploiting market segments and regions where there are significantly high electricity prices, and identifying and exploiting incentive markets as they are available. We sell equipment and complete heat recovery systems globally directly to end customers and also through distributors. We also commercialize our heat recovery systems through lease and energy-only programs where appropriate. We are also developing technology co-ventures with owners of compatible power generation technology to develop integrated energy production systems to exploit additional potential customers.

The GE HRS asset acquisition and related financing transactions resulted in a change of control of the Company according to FASB No. 2014-17 Business Combinations (Topic 805). As a result, the transactions qualify as a business combination. In accordance with Topic 805, the Company elected to apply pushdown accounting, using the valuation date of September 30, 2015. As a result we recognized $747,976 in goodwill.


ETI Recognized
Assets Acquired	2,949,592
Liabilities Acquired	3,589,558
Cash paid	300,000
Non-controlling interest	191,990
Goodwill recognized	747,976


CETY - Push down accounting election
Cash Received	300,000
Goodwill recognized	747,976
Equity	1,047,976

Following completion of the acquisition and integration of the GE HRS into our business, on November 13, 2015 we changed our name to “ Clean Energy Technologies, Inc. ” to better reflect the focus of our new business and business strategies.

Previously, in March 2013, we acquired 100% of the issued and outstanding common stock of Trident Manufacturing, Inc., a Utah corporation engaged in electronics manufacturing services focused on industrial, aerospace, military, instrumentation, and medical markets, in exchange for 1,600,000 restricted shares of our common stock. As of the Trident acquisition, we recognized $420,673 in goodwill. For the year ended December 31, 2015, we impaired the goodwill in the amount of $420,673.

Going Concern

The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had a total stockholder ’ s deficit of $1,812,059 and a working capital deficit of $2,517,601 as of June 30, 2016. The company also had an accumulated deficit of $5,484,384 as of June 30, 2016. Therefore, there is substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance

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that the Company will achieve its goals and reach a profitable operating stand and is still dependent upon its ability (1) to obtain sufficient debt and/or equity capital and/or (2) to generate positive cash flow from operations.

Plan of Operation

Management is taking the following steps to sustain profitability and growth: (i) increase sales through existing global distribution channels and utilization of direct sales (ii) sell electricity by kWH to Island nations where the cost of energy is higher and it can offset the cost of their fuel and reduce emissions.(iii) leveraging core competencies to acquire technologies and entertain equity opportunities and (iv) license patented technology and proprietary process and develop cogeneration and OEM opportunities.

Our future success is likely dependent on our ability to sustain profitable growth and attain additional capital to support growth. There can be no assurance that we will be successful in obtaining any such financing, or that it will be able to generate sufficient positive cash flow from operations. The successful outcome of these or any future activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute its business plans. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.

Our Products and Services

Our main product, the Clean Cycle ™ HRS system, converts heat from variety of heat sources into clean, affordable electricity. Our heat recovery solution system generates electricity from heat with zero additional fuel required, zero additional emissions produced, and low maintenance. The Clean Cycle ™ HRS system is also re-deployable with continuous 24x7 operation.

Sales and Marketing

Our marketing approach is to position the Company, our products and our services under our new “ Clean Energy Technologies, Inc. ” and “ CETY ” identity and brand. We intend to market our Heat Recovery Solutions products specifically using the market-recognized Clean Cycle ™ brand name. We also intend to utilize our relationships to identify new market segments and regions in which we can expand the commercialization of our products. We intend to offer our products for sale and also to commercialize them under leases, energy-based contracts and other financing structures to accelerate customer adoption and increase market penetration. We also intend to explore licensing opportunities for our patented and other proprietary technologies. We utilize both direct sales force and global distributors with expertise in clean energy.

Corporate Information

We were originally incorporated in California in July 1995 under the name Probe Manufacturing Industries, Inc. We reincorporated in Nevada in April 2005 under the name Probe Manufacturing, Inc. In November 2015, following our acquisition of heat recovery solutions assets from General Electric, we changed our name to Clean Energy Technologies, Inc. Our principal executive offices are located at 2990 Redhill Avenue, Costa Mesa, CA 92626. Our telephone number is (949) 273-4990. Our common stock is listed on the OTC Pink Market under the symbol “ CETY. ”

Our internet website address is www.cetyinc.com . The information contained on our website is not incorporated by reference into this document, and you should not consider any information contained on, or that can be accessed through, our website as part of this document.

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

The summary of significant accounting policies of Clean Energy Technologies, Inc. (formerly Probe Manufacturing, Inc.) is presented to assist in the understanding of the Company's financial statements. The financial statements and notes are representations of the Company's management, who is responsible for their integrity and objectivity.

The Company follows the accounting guidance outlined in the Financial Accounting Standards Board Codification guidelines. The accompanying unaudited interim consolidated financial statements have been

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prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10Q. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2015 included in the Company ’ s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 10K. In the opinion of Management, all adjustments considered necessary for a fair presentation, which unless otherwise disclosed herein, consisting primarily of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates may be materially different from actual financial results. Significant estimates include the recoverability of long-lived assets, the collection of accounts receivable and valuation of inventory and reserves.

Cash and Cash Equivalents

We maintain the majority of our cash accounts at a commercial bank. The total cash balance is insured by the Federal Deposit Insurance Corporation ( “ FDIC ” ) up to $250,000 per commercial bank. For purposes of the statement of cash flows we consider all cash and highly liquid investments with initial maturities of one year or less to be cash equivalents.

Accounts Receivable

We grant credit to our customers located within the United States of America; and do not require collateral. Our ability to collect receivables is affected by economic fluctuations in the geographic areas and industries served by us. Reserves for un-collectable amounts are provided, based on past experience and a specific analysis of the accounts. Although we expect to collect amounts due, actual collections may differ from the estimated amounts. As of December 31, 2015 and June 30, 2016, we had a reserve for potentially un-collectable accounts of $7,000. Five (5) customers accounted for approximately 98% of accounts receivable at June 30, 2016 and one customer accounted for 51% and no other customer accounted for more than 27% of the accounts receivable balance. Our trade accounts primarily represent unsecured receivables. Historically, our bad debt write-offs related to these trade accounts have been insignificant.

Inventory

Inventories are valued at the lower of weighted average cost or market value. Our industry experiences changes in technology, changes in market value and availability of raw materials, as well as changing customer demand. We make provisions for estimated excess and obsolete inventories based on regular audits and cycle counts of our on-hand inventory levels and forecasted customer demands and at times additional provisions are made. Any inventory write offs are charged to the reserve account. As of June 30, 2016 and December 31, 2015, we had a reserve for potentially obsolete inventory of $250,000.

Property and Equipment

Property and equipment are recorded at cost. Assets held under capital leases are recorded at lease inception at the lower of the present value of the minimum lease payments or the fair market value of the related assets. The cost of ordinary maintenance and repairs is charged to operations. Depreciation and amortization are computed on the straight-line method over the following estimated useful lives of the related assets:

Furniture and fixtures 3 to 7 years

Equipment 7 to 10 years

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Long – Lived Assets

Our management assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment if any, is measured based on fair value and is charged to operations in the period in which long-lived assets impairment is determined by management. There can be no assurance however, that market conditions will not change or demand for our services will continue, which could result in impairment of long-lived assets in the future.

Revenue Recognition

Revenue from product and services are recognized at the time goods are shipped or services are provided to the customer, with an appropriate provision for returns and allowances. Terms are generally FOB origination with the right of inspection and acceptance. We have not experienced a material amount of rejected or damaged product.

The Company provides services for its customers that range from contract design to original product design to repair services. The Company recognizes service revenue when the services have been performed, and the related costs are expensed as incurred.

Fair Value of Financial Instruments

The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments.

Other Comprehensive Income

We have no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods.

Net Profit (Loss) per Common Share

Basic profit / (loss) per share is computed on the basis of the weighted average number of common shares outstanding. At June 30, 2016, we had outstanding common shares of 140,234,631 used in the calculation of basic earnings per share. Basic Weighted average common shares and equivalents at June 30, 2016 and 2015 were 139,797,344 and 32,323,544 respectively. As of December 31, 2015, we had outstanding warrants to purchase 1,050,000 additional common shares and options to purchase 75,122 additional common shares. Fully diluted weighted average common shares and equivalents as of June 30, 2016 were 140,916,284 and were withheld from the calculation for the same period in 2015, as they were considered anti-dilutive.

Research and Development

Research and development costs incurred in association with the alternative fuels technology development (which include salaries and equipment) were expensed as incurred. We had no amounts of research and development R&D during the six months ended June 30, 2016 and 2015.

Segment Disclosure

FASB Codification Topic 280, Segment Reporting , establishes standards for reporting financial and descriptive information about an enterprise ’ s reportable segments. The Company has two reportable segments: Clean Energy HRS( HRS ) and the legacy electronic assembly division. T he segment s are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics. Refer to note 1 for a description of the various product categories manufactured under each of these segments. Prior to the t h ree months ended March 31 , 2016 we only had one reporting segment .

An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include amortization of intangibles, stock-based compensation, other charges (income), net and interest and other, net.

Selected Financial Data :


	six months ended
	June 30, 2016
Net Sales
Electronics Assembly	$ 582,783
Clean Energy HRS	824,574
Total Sales	1,407,357

Segment income and reconciliation before tax
Electronics Assembly	23,027
Clean Energy HRS	677,661
Total Segment income	700,688

Reconciling items
General and Administrative	1,060,163
Share Based Expense	16,000
Loss on disposal of fixed assets	41,459
Interest expense	192,312
Net Loss before income tax	$ (609,246)


	June 30, 2016
Total Assets
Electronics Assembly	$ 1,234,170
Clean Energy HRS	1,713,560
	$ 2,947,730

Share-Based Compensation

The Company has adopted the use of Statement of Financial Accounting Standards No. 123R, “ Share-Based Payment ” (SFAS No. 123R) (now contained in FASB Codification Topic 718, Compensation-Stock Compensation ), which supersedes APB Opinion No. 25, “ Accounting for Stock Issued to Employees, ” and its related implementation guidance and eliminates the alternative to use Opinion 25 ’ s intrinsic value method of accounting that was provided in Statement 123 as originally issued. This Statement requires an entity to measure the cost of employee services received in exchange for an award of an equity instruments, which includes grants of stock options and stock warrants, based on the fair value of the award, measured at the grant date (with limited exceptions). Under this standard, the fair value of each award is estimated on the grant date, using an option-pricing model that meets certain requirements. We use the Black-Scholes option-pricing model to estimate the fair value of our equity awards, including stock options and warrants. The Black-Scholes model meets the requirements of SFAS No. 123R; however, the fair values generated may not reflect their actual fair values, as it does not consider certain factors, such as vesting requirements, employee attrition and transferability limitations. The Black-Scholes model valuation is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility and estimated life of our stock options at grant date based on historical volatility; however, due to the thinly traded nature of our stock, we have chosen to use an average of the annual volatility of like companies in our industry. For the “ risk-free interest rate, ” we use the Constant Maturity Treasury rate on 90-day government securities. The term is equal to the time until the option expires. The dividend yield is not applicable, as the Company has not paid any dividends, nor do we anticipate paying them in the foreseeable future. The fair value of our restricted stock is based on the market value of our free trading common stock, on the grant date calculated using a 20-trading-day average. At the time of grant, the share-based compensation expense is recognized in our financial statements based on awards that are ultimately expected to vest using historical employee attrition rates and the expense is reduced accordingly. It is also adjusted to account for the restricted and thinly traded nature of the shares. The expense is reviewed and adjusted in subsequent periods if actual attrition differs from those estimates.

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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 six months ended June 30, 2016 and 2015 we had $16,000 and $7,200 respectively, in share based expense, due to the issuance of common stock. As of December 31, 2015 we had no further non-vested expense to be recognized.

Income Taxes

The Company accounts for income taxes under SFAS No. 109 (now contained in FASB Codification Topic 740-10-25, Accounting for Uncertainty in Income Taxes), which requires the asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are measured based on differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when differences are expected to reverse. As of June 30, 2016, we had a net operating loss carry-forward of approximately $(5,442,925) and a deferred tax asset of approximately $1,850,595 using the statutory rate of 34%. The deferred tax asset may be recognized in future periods, not to exceed 20 years. However, due to the uncertainty of future events we have booked valuation allowance of $(1,850,595). FASB ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At June 30, 2016 the Company had not taken any tax positions that would require disclosure under FASB ASC 740.


	June 30, 2016	December 31, 2015
Deferred Tax Asset	$ 1,850,595	$ 1,731,293
Valuation Allowance	(1,850,595)	(1,731,293)
Deferred Tax Asset (Net)	$ -	$ -

On September 15, 2015, the Company entered into a Transaction Completion and Financing Agreement (the “ TCF Agreement ” ) with ETI Partners IV LLC, and Company agreed to issue to ETI 100,910,321 shares of restricted common stock, representing 70% of the fully diluted common stock of the Company. This resulted in a change in control. We are in the process of analyzing the effect on the deferred tax asset and the numbers above may change as a result, however the Deferred Tax Asset (net) will remain unchanged.

We are subject to taxation in the U.S. and the states of California and Utah. Further, the Company currently has no open tax years ’ subject to audit prior to December 31, 2011. The Company is current on its federal and state tax returns.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders ’ equity as previously reported.

Business Combination and Goodwill

On March 20, 2013, we completed the acquisition of Trident whereby we acquired 100% of the issued and outstanding common stock shares of Trident in exchange for 1,600,000 shares of our restricted shares of common stock. As a result of the acquisition, Trident has become a wholly-owned subsidiary of the Company. As a result, we recognized $420,673 in goodwill. On January 2, 2016 we closed the Trident facility in Utah and as for the year ended December 31, 2015 we booked an impairment of the Goodwill in the amount of $420,673.

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Recently Issued Accounting Standards

The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.

Update 2016-12 — Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

Update 2016-10 — Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

Update 2016-09 — Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

Update 2016-08 — Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

Update 2016-07 — Investments — Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

Update 2016-03 — Intangibles — Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council)

Update 2015-16 — Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

Update 2015-15 — Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)

Update 2015-14 — Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

Update 2015-11 — Inventory (Topic 330): Simplifying the Measurement of Inventory

Update 2015-08 — Business Combinations (Topic 805): Pushdown Accounting — Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update)

Update No. 2015-03 — Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs

Update No. 2015-02 — Consolidation (Topic 810): Amendments to the Consolidation Analysis.

NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE


	June 30, 2016	December 31, 2015
Accounts Receivable Trade	$ 374,565	$ 481,699
Less Reserve for uncollectable accounts	(7,000)	(7,000)
Accounts Receivable (Net)	$ 367,565	$ 474,699

NOTE 4 – ASSET ACQUISITION

On September 11, 2015, we issued a promissory note in the initial principal amount of $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with the Company ’ s acquisition from General Electric International, Inc., a Delaware corporation ( “ GEII ” ) of certain GEII ’ s heat recovery solutions, or HRS, assets, including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures.


Acquired Assets
Inventory	$ 848,029
Leased asset	217,584
Property and Equipment	130,887
Intellectual Property	545,112
Assumed warranty Liability	(241,612)
Net Assets Acquired	$ 1,500,000

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NOTE 5 – INVENTORY

Inventories by major classification were comprised of the following at:


	June 30, 2016	December 31, 2015
Raw Material	$ 1,194,062	$ 1,311,069
Work in Process	127,705	143,119
Finished Goods	2,812	3,221
Total	1,324,582	1,457,409
Less reserve for excess or obsolete inventory	(250,000)	(250,000)
Total Inventory	$ 1,074,582	$ 1,207,409

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment were comprised of the following at:


	June 30, 2016	December 31, 2015
Capital Equipment	$ 1,809133	$ 1,842,329
Accumulated Depreciation	(1,644,428)	(1,626,574)
Net Fixed Assets	$ 164,705	$ 215,755

NOTE 7 – ACCRUED EXPENSES


	June 30, 2016	December 31, 2015

Accrued Wages	530,120	339,329
Accrued Interest	95,325	27,592
Customer Deposit	8,000	204,763
Accrued Payable to GE - Estimate	816,297	792,868
Accrued Rent	100,190	48,190
Total Accrued Expenses	1,549,932	1,412,742

NOTE 8 – NOTES PAYABLE

Notes payable

The Company issued a short-term note payable to an individual, secured by the assets of the Company, dated September 6, 2013 in the amount of $50,000 and fixed fee amount of $3,500. As of June 30, 2016 the outstanding balance was $38,500 .

On November 11, 2013, we entered in to an accounts receivable financing agreement with American Interbanc (now Nations Interbanc). Amounts outstanding under the agreement bear interest at the rate of 2.5% per month. It is secured by the assets of the Company. In addition, it is personally guaranteed by Kambiz Mahdi, our Chief Executive Officer. As of June 30, 2016, the outstanding balance was $1,134,640 compared to $786,227 at December 31, 2015.

On November 3, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 this note and accrued interest were converted into common stock at $.08

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On December 24, 2009, the Company issued an unsecured note payable to Linwood Goddard at a 12.00% interest rate, with a 36-month amortization and monthly payments of $334.14. At March 31, 2016, the outstanding balance was $4,332. On May 13, 2016 this note and accrued interest were converted into common stock at $.08

On August 28, 2014, we issued an unsecured note for $100,000 with a fixed fee of $20,000, amortized over 7 months. On December 22, 2014, the outstanding balance of this note including remaining fees was $58,441, when the outstanding balance was rolled into a new note in the initial principal amount of $150,000, with fees in the amount of $28,500. The new note amortizes over 18 months. The outstanding balance at June 30, 2016 was $24,398

On September 11, 2015, our CE HRS subsidiary issued a promissory note in the initial principal amount $1,400,000 and assumed a pension liability of $100,000, for a total liability of $1,500,000, in connection with our acquisition of the heat recovery solutions, or HRS, assets of General Electric International, Inc., a Delaware corporation ( “ GEII ” ), including intellectual property, patents, trademarks, machinery, equipment, tooling and fixtures. The note bears interest at the rate of 2.66% per annum. The note is payable on the following schedule: (a) $200,000 in principal on September 30, 2015 and (b) thereafter, the remaining principal amount of $1,200,000, together with interest thereon, payable in equal quarterly installments of principal and interest of $157,609.02, commencing on December 31, 2016 and continuing until June 30, 2018, at which time the remaining unpaid principal amount of this note and all accrued and unpaid interest thereon shall be due and payable in full.

On March 11, 2016, we entered into a 3-year convertible note payable for $75,000, which accrues interest at the rate of 1.46% per annum. It is not convertible for 6 months and has a conversion rate of sixty five percent (65%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion.

On June 6, 2016, we entered into a 1-year convertible note payable for $87,500, which accrues interest at the rate of 12% per annum. It is not convertible for 6 months and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Operating Rental Leases

On February 21, 2012 Trident Manufacturing, Inc. entered into a 5-year lease with First Industrial Realty Trust, Inc. with a commencement date of February 21, 2012. The facility is approximately 15,040 square feet and located at 440 West Lawndale Drive, Salt Lake City UT 84115.



Year	Rent
2016	40,608
2017	13,536

In April 2015, Trident entered into a sublease agreement with Lucky Spoon, LLC. The term of the sublease commenced on April 1, 2015 and expires on the last day of Trident ’ s lease.

On August 27, 2015, we entered into a sublease agreement with Rosenson Properties, LLC, a California limited liability company, as landlord, and General Electric International, Inc., a Delaware corporation, as tenant and assignor, for the premises located at 150 Baker Street East, Costa Mesa, California. GEII had entered into a lease dated as of December 17, 2010, as amended by a First Amendment to Lease dated March 11, 2014, wherein Rosenson Properties leased the premises to GEII. The premises consist of approximately 35,704 square feet of space and the lease provides for monthly triple-net lease payments of $22,973. The lease term ended on June 30, 2016.

On May 1, 2016 we will be moving our corporate headquarters to 2990 Redhill Unit A, Costa Mesa, CA. On March 10, 2016, the Company signed a lease agreement for a 18,200 square foot CTU Industrial Building.

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Lease term is seven years and two months beginning July 1, 2016. Rental is $179,090 for the first twelve months.


Year		Lease Payment

2016		$107,454
2017		$221,352
2018		$228,000
2019		$234,840
2020		$241,884
2021		$249,132
2022		$256,608
2023		$44,052

Severance Benefits

Effective at June 30, 2016, Mr. Mahdi, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Mahdi would have been entitled to receive period of (1) year, at an annual salary of $275,000.

Effective at June 30, 2016, Mr. Bennett, was entitled to receive in the event of his termination without cause a severance benefit consisting of a single lump sum cash payment equal the salary that Mr. Bennett would have been entitled to receive through the remainder of his employment period or two (2) years, whichever is greater, at an annual salary of $140,000.

NOTE 10 – CAPITAL STOCK TRANSACTIONS

On April 21, 2005, our Board of Directors and shareholders approved the re-domicile of the Company in the State of Nevada, in connection with which we increased the number of our authorized common shares to 200,000,000 and designated a par value of $.001 per share.

On May 25, 2006, our Board of Directors and shareholders approved an amendment to our Articles of Incorporation to authorize a new series of preferred stock, designated as Series C, and consisting of 15,000 authorized shares.

On June 30, 2016, our Board of Directors and shareholders approved an increase in the number of our authorized common shares to 400,000,000 and in the number of our authorized preferred shares to 10,000,000. The amendment effecting the increase in our authorized was filed and effective on July 5, 2016.

Stock Repurchase Program

On November 1, 2011, the Company adopted a plan to repurchase up to 500,000 shares of its issued and outstanding common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended.

The plan allows the Company to purchase its issued and outstanding common shares in the open market or in negotiated transactions, from time to time, depending on market conditions and other factors as well as being in compliance with applicable securities laws. The plan does not obligate the Company to make any purchases, at any specific time or in any particular situation. The plan may be suspended or discontinued at any time at the sole discretion of the Company. Share repurchases will be funded with the Company ’ s available cash, after determining the working capital requirements of the Company. Accordingly, there is no guarantee as to the exact number of shares that will be repurchased under the plan.

The Company ’ s Board of Directors authorized the repurchase plan because it believed market conditions at the time of the plan ’ s adoption or thereafter may cause the Company ’ s common stock to be undervalued and

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repurchases of Company common stock to be in the best interests of the Company and its stockholders. The timing and number of any shares repurchased will depend on the terms and conditions of the plan and no assurance can be given that any specific amount of common stock will be repurchased.

As of June 30, 2016, we had repurchased an aggregate total of 11,500 shares of our common stock under the plan.

Common Stock Transactions

Beginning with the year 2015, we issued the following securities without registration under the Securities Act of 1933, as amended. These securities were issued on the reliance of an exemption provided by Section 4(a)(2) of the Securities Act.

On February 2, 2015, we issued 40,000 shares of common stock for services at $.08

On February 24, 2015, we issued 1,845,000 shares of common stock for cash in the amount of $116,698, of which $70,699 was received in 2014 and the balance included in “ to be issued. ”

On March 6, 2015, we issued 450,000 shares of common stock for services to related parties at $.05 per share, which was accrued for in 2014.

On March 6, 2015, we issued 50,000 shares of common stock for services at $.05 per share.

On April 1, 2015 we issued 25,000 shares of common stock for consulting services at $.05 per share.

On September 11, 2015, we issued 1,300,000 shares of common stock for compensation at $.05 per share.

On October 1, 2015, we issued 104,910,321 shares of common stock to two investors for $500,000 in cash.

On March 11, 2016 we issued 400,000 shares of our common stock @ $.05 for financing fees.

On May 5, 2016 we issued 387,866 to a previous employee @ $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.

Common Stock

Our Articles of Incorporation authorize us to issue 400,000,000 shares of common stock, par value $0.001 per share. As of June 30, 2016 there were 140,234,631 shares of common stock outstanding. All outstanding shares of common stock are, and the common stock to be issued will be, fully paid and non-assessable. Each share of our common stock has identical rights and privileges in every respect. The holders of our common stock are entitled to vote upon all matters submitted to a vote of our shareholders and are entitled to one vote for each share of common stock held. There are no cumulative voting rights.

The holders of our common stock are entitled to share equally in dividends and other distributions that our Board of Directors may declare from time to time out of funds legally available for that purpose, if any, after the satisfaction of any prior rights and preferences of any outstanding preferred stock. If we liquidate, dissolve or wind up, the holders of common stock shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities and our obligations to holders of our outstanding preferred stock.

Preferred Stock

Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, par value $0.001 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.

Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could

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decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.

We previously authorized 440 shares of Series A Convertible Preferred Stock, 20,000 shares of Series B Convertible Preferred Stock, and 15,000 shares Series C Convertible Preferred Stock. As of August 20, 2006, all series A, B, and C preferred had been converted into common stock.

Effective August 7, 2013, our Board of Directors designated a series of our preferred stock as Series D Preferred Stock, authorizing 15,000 shares. We have received an aggregate of $750,000 in financing in subscription for Series D Preferred Stock. Our Series D Preferred Stock offering terms authorized us to raise up to $1,000,000 with an over-allotment of $500,000 in multiple closings over the course of 6 months.

The following are primary terms of the Series D Preferred Stock offering. The Series D Preferred holders will be paid a special monthly divided at the rate of 17.5% per annum or at the option of the investor such special may accrue such special dividends. If the Company does not pay the special dividend within five (5) business days from the end of the calendar month for which the payment of such dividend to owed, the Company will pay the investor a penalty of 3.5%. Any unpaid or accrued special dividends will be paid upon a liquidation or redemption. For any other dividends or distributions, the Series D Preferred Stock participates with common stock on an as-converted basis. The Series D Preferred holders may elect to convert the Series D Preferred Stock, in their sole discretion, at any time after a one year (1) year holding period, by sending the Company a notice to convert. The conversion rate shall equal to the greater of $0.08 or a 20% discount to the average of the three (3) lowest closing market prices of the common stock during the ten (10) trading day period prior to conversion. The Series D Preferred Stock shall be redeemable from funds legally available for distribution at the option of the individual holders of the Series D Preferred Stock commencing any time after the one (1) year period from the offering closing at a price equal to the initial purchase price plus all accrued but unpaid dividends. Pursuant to the terms of the Series D Preferred, the Company timely notified the investors that it was not in a financial position to redeem the Series D Preferred, pursuant to which the Company and the Series D Preferred holders are to negotiate in good faith for an extension of the redemption period. The Company may elect to redeem the Series D Preferred Stock any time after the offering closing at a price equal to initial purchase price plus all accrued but unpaid dividends subject to the investors ’ right to convert by providing written notice about its intent to redeem. Each investor has the right to convert the Series D Preferred Stock at least ten (10) days prior to such redemption by the Company.

In connection with the subscriptions for the Series D Preferred, we issued series F warrants to purchase an aggregate of 375,000 shares of our common stock at $.10 per share and series G warrants to purchase an aggregate of 375,000 shares of our common stock at $.20 per share.

On August 21, 2014, a holder holding 5,000 shares of Preferred Series D Preferred agreed to lower the dividend rate to 13% on its Series D Preferred and to extend the term on the redemption period for an additional one year. In September 2015, all holders of Series D Preferred signed and delivered estoppel agreements, whereby the holders agreed, among other things, to reduce (effective as of June 30, 2015) the dividend rate on the Series D Preferred Stock to six percent per annum and to terminate the 3.5% penalty in respect of unpaid dividends accruing on or after such date.

Warrants

Series E – Common Stock warrants

On April 8, 2011, we issued 300,000 series E Warrants. Each warrant gives the holder the right to purchase one share of common stock (300,000 total shares) at $0.50 per share. The Series E Warrants expired on April 8, 2016.

Series F – Common Stock warrants

On June 25, 2013, we issued 250,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.

On September 19, 2013, we issued 125,000 series F warrants. Each warrant gives the holder the right to purchase one share of common stock at $.10.

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Series G – Common Stock warrants

On June 25, 2013, we issued 250,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.

On September 19, 2013, we issued 125,000 series G warrants. Each warrant gives the holder the right to purchase one share of common stock at $.20.

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A summary of warrant activity for the periods is as follows:


		Warrants - Common Share Equivalents	Weighted Average Exercise price	Warrants exercisable - Common Share Equivalents	Weighted Average Exercise price
Outstanding December 31, 2015		1,050,000	0.25	1,050,000	0.25
	Granted	-	-	-	-
	Expired	300,000	.50-	300,000	.50-
	Exercised	-	-	-	-
Outstanding June 30, 2016		750,000	0.15	750,000	0.15


	Warrants Outstanding			Warrants Exercisable
Range of Warrant Exercise Price	Warrants - Common Share Equivalents	Weighted Average Exercise price	Weighted Average Remaining Contractual life in years	Warrants - Common Share Equivalents	Weighted Average Exercise price
$ 0.10	250,000	$ 0.10	2.00	250,000	$ 0.10
$ 0.20	250,000	$ 0.20	2.00	250,000	$ 0.20
$ 0.10	125,000	$ 0.10	2.25	125,000	$ 0.10
$ 0.20	125,000	$ 0.20	2.25	125,000	$ 0.20
Total	750,000	$ 0.15		750,000	$ 0.15

Stock Options

On February 8, 2007 pursuant to our 2006 Qualified Incentive Option Plan, we granted to Company employees incentive stock options to purchase 406,638 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company ’ s common stock at the time of the grant. These options expire on February 8, 2017. At June 30, 2016 there were 15,122 outstanding options under this plan.

On February 8, 2008, we granted stock options to our key employees to purchase up to 750,000 shares of our common stock. These options were granted at $1.73 cents, the fair market value of the Company ’ s common stock at the time of the grant. These options expire on February 8, 2017. As of June 30, 2016 the balance of the outstanding options under this plan is 30,000.

On February 28, 2008, we granted stock options to a key employee to purchase up to 30,000 shares of our common stock. These options were granted at $.033 cents, the fair market value of the Company ’ s common stock at the time of the grant. These options expire on February 8, 2017. As of June 30, 2016, the balance of the outstanding options under this plan was 30,000.

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NOTE 11 – RELATED PARTY TRANSACTIONS

Kevin Scott, one of the Board of Directors members, owns SK Polymers. SK Polymers is a supplier to the Company. Our board of directors has approved the supply transactions between SK Polymers and the Company. On June 7, 2016 Mr. Scott resigned from our Board of directors

Kambiz Mahdi, our Chief Executive Officer, owns Billet Electronics, which is distributor of electronic components. From time to time we purchase parts from Billet Electronics. In addition, from time to time we provide assembly and value-added services to Billet Electronics. In addition, Billet was a supplier of parts and had dealings with current and former customers of our company. Our board of directors has approved the transactions between Billet Electronics and the Company.

On September 11, 2015, we issued 400,000 shares of common stock to John Bennett, our Chief Financial Officer, as additional compensation at $.05 per share.

On September 11, 2015, we issued 150,000 shares of common stock for board of director compensation to Kam Mahdi our Chief Executive officer at $.05 per share.

On September 11, 2015, we issued 150,000 shares of common stock for board of director compensation to Robert Young at $.05 per share.

On September 11, 2015, we issued 150,000 shares of common stock for board of director compensation to Shervin Talieh at $.05 per share.

On September 11, 2015, we issued 150,000 shares of common stock and accrued for 150,000 shares of common stock for board of director compensation to Kevin Scott at $.05 per share.

On September 11, 2015, we issued 150,000 shares of common stock shares of common stock for board of director compensation to Juhani Taskinen at $.05 per share.

On September 11, 2015, we issued 150,000 shares of common stock shares of common stock for board of director compensation to John Bennett our Chief Financial Officer at $.05 per share.

NOTE 12 – SUBSEQUENT EVENTS

On July 6, 2016, we entered into a nine-month convertible note payable for $77,500, which accrues interest at the rate of 10% per annum. It is not convertible for 6 months and has a conversion rate of fifty-five percent (55%) of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion.

On July 1, 2016 we entered into a consulting agreement with Uptick capital for 300,000 a term of 45 days. For these services, we will issue a total of 300,000 shares of our common stock.

Management has reviewed and evaluated subsequent events and transactions occurring after the balance sheet date through the filing of this Quarterly Report on Form 10-Q and determined that no other subsequent events occurred.

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Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operation (unaudited)

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

OVERVIEW

Going Concern

Results for the Three and six months ended June 30, 2016, Compared to the same periods in 2015.

Net Sales

For the three months ended June 30, 2016, our revenue was $177,811 compared to $816,726 for the same period in 2015. Our revenue decreased by $638,915 for the three months ended June 30, 2016, compared to the same period in 2015. Our revenue decrease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

For the six months ended June 30, 2016, our revenue was $1,407,357 compared to $,613,016 for the same period in 2015. Our revenue decreased by $205,659 for the six months ended June 30, 2016, compared to the same period in 2015. Our revenue decrease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

Major Customers

Our top 5 customers accounted for approximately 98% of our net sales for the three months ended June 30, 2016, compared to 85%, for the same period in 2015. Our top 5 customers accounted for approximately 100% of our net sales for the six months ended June 30, 2016, compared to 81%, for the same period in 2015.

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 they serve which we have no control over. The timely replacement of delayed, canceled or reduced orders with new business cannot be ensured. In addition, we cannot assume that any of our current customers will continue to utilize our services. Consequently, our results of operations may be materially adversely affected.

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Gross Profit

For the three months ended June 30, 2016 , our gross profits decreased to (13%) from 3 6 % for the same period in 20 15 , mainly due to the relocation of our operating facility and the corresponding shut down in operations and direct labor allocated to the reduced revenue .

For the six months ended June 30, 2016 , our gross profits decreased to 49% from 35 % for the same period in 20 15, the increase was mainly due to HRS division Revenue with very low cost of sales.

Our gross profits could vary from period to period and is affected by a number of factors, including product mix, production efficiencies, component availability and costs, pricing, competition, customer requirements and unanticipated restructuring or inventory charges and potential scrap of materials .

Selling, General and Administrative (SG&A) Expenses

For the three months ended June 30, 2016 , our SG&A cost was 3 32 % compared to 113 % for the same period in 201 5 . The in crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

For the six months ended June 30, 2016 , our SG&A cost was 76 % compared to 38 % for the same period in 201 5 . The in crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

Net ( l oss) from operations

For the three months ended June 30, 2016 , our net profit from operations was (3 44 % ) compared to net loss from operations of ( 1 % ) for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresp onding shut down in operations.

For the six months ended June 30, 2016 , our net profit from operations was (27%) compared to net loss from operations of ( 1 % ) for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

Net Income (loss)

For the three months ended June 30, 2016 , our net loss was ( 3 91 %) compared to net loss of ( 10 ) % for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresp onding shut down in operations.

For the six months ended June 30, 2016 , our net loss was ( 43 %) compared to net loss of ( 11 ) % for the same period in 201 5 . The de crease was mainly due to the relocation of our operating facility and the corresponding shut down in operations.

Loss on Disposal of Fixed Assets

For the three and six months ended June 30, 2016, we relocated our facility and as a result recognized a net loss of $41,459 on the abandonment of certain assets related to the previous facility.

Interest Expense

For the three months ended June 30, 2016 interest expense was $ 42 ,096 compared to $ 75,258 for the same period in 201 5 . The decrease was mainly due to the decrease in the use of our line of credit .

For the six months ended June 30, 2016 interest expense was $ 192,312 compared to $ 162,580 for the same period in 201 5 . The increase was mainly due to the increase in the line of credit usage in the first quarter of 2016.

Liquidity and Capital Resources


Clean Energy Technologies, Inc.
Condensed Summary of Cash Flows
for the six months ended June 30, (Unaudited)


	Un-audited	Un-audited
	2016	2015
Net Cash provided / (Used) In Operating Activities	$ 93,124	$ (223,563)
Cash Flows Used In Investing Activities	(13,826)	-
Cash Flows Provided / (used) by Financing Activities	(83,453)	202,754
Net (Decrease) Increase in Cash and Cash Equivalents	$ (4,155)	$ (20,809)

Capital Requirements for long-term Obligations


	2016	2017	2018
Note payable General Electric	315,218	630,436	254,346

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense s during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Future Financing

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisiti ons and exploration activities.

Off-balance Sheet Arrangement

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

Not applicable to smaller reporting companies.

Page 28 of 31

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2016, due to the material weaknesses resulting from no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report on Form 10-K as filed with the SEC on April 14, 2016, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

Changes in Internal Control over Financial Reporting

Our management has also evaluated our internal control over financial reporting, and have added four independent members to our Board of Directors, there have been no other significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

PART II--OTHER INFORMATION

Item 1.

Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A. Risk Factors.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A., “ Risk Factors ” in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2015. The information set forth in these Reports could materially affect the Company ’ s business, financial position and results of operations. There are no material changes from the risk factors set forth in Part I, Item 1A, “ Risk Factors, ” of our Annual Report on Forms 10-K for the fiscal year ended December 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 5, 2016 we issued 387,866 to a previous employee @ $.08 for $8,644 in notes payable, $11,332 in accrued interest and $11,030 for past due payroll.

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

Page 29 of 31

Item 3.

Defaults upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

None.

Item 6. Exhibits

The exhibit listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

EXHIBIT

NUMBER DESCRIPTION

3.1 Amended and Restated Articles of Incorporation (included as exhibit 3.1 to the Current Report on Form 8-K filed July 6, 2016 and incorporated herein by reference).

3.2 Amended Bylaws (included as exhibit 3.2 to the Current Report on Form 8-K filed July 6, 2016 and incorporated herein by reference).

4.1 Registration Rights Agreement, by and between the Registrant and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 4.1 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).

10.1 Asset Purchase Agreement, by and between the Registrant and General Electric International, Inc., dated as of September 11, 2015 (included as exhibit 10.1 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).

10.2 Transaction Completion and Financing Agreement, by and between the Company and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 10.2 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).

10.3 Loan, Guarantee, and Collateral Agreement, by and between the Company and ETI Partners IV LLC, dated as of September 15, 2015 (included as exhibit 10.3 to our Current Report on Form 8-K filed on September 21, 2015 and incorporated herein by reference).

10.4* Securities Purchase agreement between the company and Peak One Opportunity Fund, LP

14.1 Code of Ethics (included as exhibit 14.1 to the Form 10-KSB on April 5, 2007 and incorporated herein by reference).

31.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 30 of 31

101.INS** XBRL Instance Document

101.SCH** XBRL Taxonomy Extension Schema Document

101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB** XBRL Taxonomy Extension Label Linkbase Document

101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF** XBRL Taxonomy Extension Definition Linkbase Document

_________________

* Filed herewith

** Furnished herewith

** Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature

Title

Date

/s/ Kambiz Mahdi

Chief Executive Officer

August 22, 2016

Kambiz Mahdi

/s/ John Bennett

Chief Financial Officer

August 22, 2016

John Bennett

Page 31 of 31

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “ Agreement ” ), dated as of March 11, 2016, is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Nevada corporation, (the “ Company ” ) and PEAK ONE OPPORTUNITY FUND, L.P., a Delaware limited partnership (the “ Buyer ” ).

WITNESSETH:

WHEREAS , the Company and the Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia , by Rule 506 under Regulation D ( “ Regulation D ” ) as promulgated by the United States Securities and Exchange Commission (the “ SEC ” ) under the Securities Act of 1933, as amended (the “ 1933 Act ” ), and/or Section 4(a)(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to purchase from the Company, and the Company wishes to sell the Buyer, upon the terms and subject to the conditions of this Agreement, securities consisting of the Company ’ s Convertible Debentures due three years from the respective dates of issuance (the “ Debentures ” ), each of which are in the form of Exhibit A hereto, which will be convertible into shares of the Company ’ s common stock, par value $0.001 per share (the “ Common Stock ” ), in the aggregate principal amount of up to Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00), for an aggregate Purchase Price of up to Three Hundred Fifteen Thousand and 00/100 Dollars ($315,000.00), all upon the terms and subject to the conditions of this Agreement, the Debentures, and other related documents;

NOW THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. DEFINITIONS; AGREEMENT TO PURCHASE.

a. Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

(i) “ Affiliate ” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

(ii) “ Certificates ” means certificates representing the Conversion Shares issuable hereunder, each duly executed on behalf of the Company and issued hereunder.

(iii) “ Closing Date ” means the date on which one of the three (3) Closings are held, which are the Signing Closing Date, the Second Closing Date and the Third Closing Date.

(iv) Intentionally Omitted.

(v)

“ Commitment Fee ” shall have the meaning ascribed to such term in Section 12(a).

(vi) “ Common Stock ” shall have the meaning ascribed to such term in the Recitals.

(vii) “ Conversion Amount ” shall mean the Conversion Amount as defined in the Debentures, provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible, notwithstanding the one hundred eighty (180) day waiting period or 4.99% limitation on ownership set forth in the Debentures.

(viii) “ Conversion Price ” means the Conversion Price as defined in the Debentures.

(ix) “ Conversion Shares ” means the shares of Common Stock issuable upon conversion of the Debentures.

(x) “ DWAC Operational ” means that the Common Stock is eligible for clearing through the Depository Trust Company ( “ DTC ” ) via the DTC ’ s Deposit Withdrawal Agent Commission or “ DWAC ” system and active and in good standing for DWAC issuance by the Transfer Agent.

(xi) “ Dollars ” or “ $ ” means United States Dollars.

(xii) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(xiii) “ Investments ” means Peak One Investments, LLC, the general partner of the Buyer.

(xiv) “ Irrevocable Resolutions ” has the meaning set forth in Section 8(i).

(i) “ Market Price of the Common Stock ” means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision), as reported by Bloomberg, LP or, if not so reported, as reported on the OTCQB, OTCQX or OTC Pink or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported by Bloomberg LP.

(ii) “ Material Adverse Effect ” means a material adverse effect on the business, operations or condition (financial or otherwise) or results of operation of the Company and its Subsidiaries taken as a whole, in the reasonable commercial discretion of the Buyer, irrespective of any finding of fault, magnitude of liability (or lack of financial liability). Without limiting the generality of the foregoing, the occurrence of any of the following, in the reasonable commercial discretion of the Buyer, shall be considered a Material Adverse Effect: (i) any final money, judgment, writ or warrant of attachment, or similar process (including an arbitral determination) in excess of Fifty Thousand Dollars ($50,000) shall be entered or filed against the

Company or any of its Subsidiaries (including, in any event, products liability claims against the Company or its Subsidiaries), (ii) the suspension or withdrawal of any governmental authority or permit pertaining to a material amount of the Company ’ s or any Subsidiary ’ s products or services, (iii) the loss of any material insurance coverage (including, in any case, comprehensive general liability coverage, products liability coverage or directors and officers coverage, in each case in effect at the time of execution and delivery of this Agreement), (iv) an action by a regulatory agency or governmental body affecting the Common Stock (including, without limitation, (1) the commencement of any regulatory investigation of which the Company is aware, the suspension of trading of the Common Stock by the Financial Industry Regulation Authority ( “ FINRA ” ), the SEC, the OTC Bulletin Board ( “ OTCBB ” ) or the OTC Markets Group, Inc., the failure of the Common Stock to be DTC eligible or the placing of the Common Stock on the DTC “ chill list ” or (2) the engaging in any market manipulation or other unlawful or improper trading or other activity by any Affiliate), (v) the Company ’ s independent registered accountants shall resign under circumstances where a disagreement exists between the Company and its independent registered accountants, (vi) the Company shall fail to timely file any disclosure document as required by applicable federal or state securities laws and regulations or by the rules and regulations of any exchange, trading market or quotation system to which the Company or the Common Stock is subject, or (vii) the Chief Executive Officer of the Company or any other key full-time officer or director of the Company, shall, for any reason (including, without limitation, termination, resignation, retirement, death or disability) cease to act on behalf of the Company in the same role and to the same extent as his or her involvement as of the date of execution and delivery of this Agreement.

(iii) “ Person ” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

(iv) “ Purchase Price ” means the price that the Buyer pays for the Debentures at each respective Closing, which are the Signing Purchase Price, the Second Purchase Price and the Third Closing Price, as the case may be.

(v) “ Registrable Securities ” shall mean the Conversion Shares, the Restricted Stock issued to Investments pursuant to Section 12(a) and, to the extent applicable, any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of Conversion Shares and/or such Restricted Stock.

(vi) “ Registration Statement ” shall mean a registration statement on Form S-1 (or any successor thereto) filed or contemplated to be filed by the Company with the SEC under the Securities Act.

(vii) “ Restricted Stock ” shall mean shares of Common Stock which are not freely trading shares when issued.

(viii) “ Securities ” means the Debentures and the Shares.

(ix) “ Shares ” means the Conversion Shares.

(x)

“ Second Closing Date ” shall have the meaning ascribed to such term in Section 6(b).

(xi) “ Second Debenture ” means the second of the three (3) Debentures, in the principal amount of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00), which is issued by the Company to the Buyer on the Second Closing Date.

(xii) “ Second Purchase Price ” shall be One Hundred Twelve Thousand Five Hundred and 00/100 Dollars ($112,500.00)

(xiii) “ Signing Closing Date ” shall have the meaning ascribed to such term in Section 6(a).

(xiv) “ Signing Debenture ” means the first of the three (3) Debentures, in the principal amount of Seventy Five Thousand and 00/100 Dollars ($75,000.00), to be issued by the Company to the Buyer on the Signing Closing Date.

(xv) “ Signing Purchase Price ” shall be Sixty Seven Thousand Five Hundred and 00/100 Dollars ($67,500.00).

(xvi) “ Subsidiary ” shall have the meaning ascribed to such term in Section 3(b).

(xvii) “ Third Closing Date ” shall have the meaning ascribed to such term in Section 6(c).

(xviii) “ Third Debenture ” means the third of the three (3) Debentures, in the principal amount of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00), which is issued by the Company to the Buyer on the Third Closing Date.

(xix) “ Third Purchase Price ” shall be One Hundred Thirty Five Thousand and 00/100 Dollars ($135,000.00).

(xx) “ Transaction Documents ” means, collectively, this Agreement, the Debentures, the Transfer Agent Instruction Letter, the Irrevocable Resolutions and the other agreements, documents and instruments contemplated hereby or thereby.

(xxi) “ Transfer Agent ” shall have the meaning ascribed to such term in Section 4(a).

(xxii) “ Transfer Agent Instruction Letter ” shall have the meaning ascribed to such term in Section 5(a).

a. Purchase and Sale of Debentures .

(i)

The Buyer agrees to purchase from the Company, and the Company agrees to sell to the Buyer, the Debentures on the terms and conditions set forth below in this Agreement and the other Transaction Documents.

(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents, the Buyer will purchase the Debentures at certain closings (each, a “ Closing ” ) to be held on certain respective Closing Dates.

b. Intentionally Omitted

1. BUYER ’ S REPRESENTATIONS, WARRANTIES, ETC.

The Buyer represents and warrants to, and covenants and agrees with, the Company as follows:

a. Investment Purpose. Without limiting the Buyer ’ s right to sell the Shares pursuant to a Registration Statement, Buyer is purchasing the Debentures, and will be acquiring the Conversion Shares, for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

b. Accredited Investor Status. Buyer is (i) an “ accredited investor ” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.

c. Subsequent Offers and Sales. All subsequent offers and sales of the Securities by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration and compliance with applicable states ’ securities laws.

d. Reliance on Exemptions. Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer ’ s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

e. Information. Buyer and its advisors have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer. Buyer and its advisors have been afforded the opportunity to ask questions of the Company and have received complete

and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, Buyer has also had the opportunity to obtain and to review the Company ’ s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2015, June 30, 2015 and September 30, 2015 and the Company ’ s Current Report on Form 8-K filed with the SEC on September 21, 2015 and (collectively, the “ SEC Documents ” ).

f. Investment Risk. Buyer understands that its investment in the securities constitutes high risk investment, its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer ’ s entire investment.

g. Governmental Review. Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

h. Organization; Authorization. Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. This Agreement and the other Transaction Documents have been duly and validly authorized, executed and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors ’ rights generally.

i. Residency. The state in which any offer to sell Securities hereunder was made to or accepted by the Buyer is the state shown as the Buyer ’ s address contained herein, and Buyer is a resident of such state only.

2. COMPANY REPRESENTATIONS AND WARRANTIES, ETC.

The Company represents and warrants to the Buyer that:

a. Concerning the Debentures and the Shares. There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.

b. Organization; Subsidiaries; Reporting Company Status. Attached hereto as Schedule 3(b) is an organizational chart describing all of the Company ’ s wholly-owned and majority-owned subsidiaries (the “ Subsidiaries ” ) and other Affiliates, including the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Subsidiary, including the percentage of ownership of the Company held by it. The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted. The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction

where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. The Common Stock is listed and traded on the OTCBQ Market of the OTC Markets Group, Inc. (trading symbol: PMFI). The Company has received no notice, either oral or written, from FINRA, the SEC, or any other organization, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing. The Company is an operating company in that, among other things (A) it primarily engages, wholly or substantially, directly or indirectly through a majority owned Subsidiary or Subsidiaries, in the production or sale, or the research or development, of a product or service other than the investment of capital, (B) it is not an individual or sole proprietorship, (C) it is not an entity with no specific business plan or purpose and its business plan is not to engage in a merger or acquisition with an unidentified company or companies or other entity or person, and (D) it intends to use the proceeds from the sale of the Debentures solely for the operation of the Company ’ s business and uses other than personal, family, or household purposes.

c. Authorized Shares . Schedule 3(c) sets forth all capital stock and derivative securities of the Company that are authorized for issuance and that are issued and outstanding. All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares, assuming the prior issuance and exercise, exchange or conversion, as the case may be, of all derivative securities authorized, as indicated in Schedule 3(c) . The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. At all times, the Company shall keep available and reserved for issuance to the holders of the Debentures shares of Common Stock duly authorized for issuance against the Debentures.

d. Authorization. This Agreement, the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder), the issuance of the Conversion Shares under the Debentures and the other transactions contemplated by the Transaction Documents, have been duly, validly and irrevocably authorized by the Company, and this Agreement has been duly executed and delivered by the Company. The Company ’ s board of directors, in the exercise of its fiduciary duties, has irrevocably approved the entry into and performance of the Transaction Documents, including, without limitation the sale of the Debentures and the issuance of Conversion Shares, based upon a reasonable inquiry concerning the Company ’ s financing objectives and financial situation. Each of the Transaction Documents, when executed and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors ’ rights generally.

e. Non-contravention. The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions contemplated by this Agreement and the Debentures (including without limitation

the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any anti-dilution rights, rights of first refusal or first offer on the part of holders of the Company ’ s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) the Company ’ s listing agreement for its Common Stock (if applicable).

f. Approvals. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyer as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.

g. SEC Filings; Rule 144 Status. None of the SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The Company timely filed all requisite forms, reports and exhibits thereto with the SEC as required. The Company is not aware of any event occurring on or prior to the execution and delivery of this Agreement that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such time. The Company satisfies the requirements of Rule 144(i)(2), and the Company shall continue to satisfy all applicable requirements of Rule 144 (or any successor thereto) for so long as any Securities are outstanding and not registered pursuant to an effective registration statement filed with the SEC.

h. Absence of Certain Changes. Since September 30, 2015, when viewed from the perspective of the Company and its Subsidiaries taken as a whole, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its Subsidiaries (including, without limitation, a change or development which constitutes, or with the passage of time is reasonably likely to become, a Material Adverse Effect), except as disclosed in the SEC Documents. Since September 30, 2015, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or

distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

i. Full Disclosure. There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyer in the Transaction Documents.

j. Absence of Litigation. Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents. The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could reasonably be expected to have a Material Adverse Effect.

k. Absence of Liens. The Company ’ s assets are not encumbered by any liens or mortgages except as described in the SEC Documents and Schedule 3(k) .

l. Absence of Events of Default. No event of default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument, to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an event of default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.

m. No Undisclosed Liabilities or Events. The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary course of the Company ’ s business since September 30, 2015, and which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive

officers of the Company which proposal would (x) change the articles of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company.

n. No Integrated Offering. Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

o. Dilution. The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the Market Price of the Common Stock declines prior to the conversion of the Debentures. The Company ’ s executive officers and directors have studied and fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the Market Price of the Common Stock. The Board of Directors of the Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

p. Regulatory Permits. The Company has all such permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities ( “ Permits ” ) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted. All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the SEC Documents. Such Permits contain no restrictions that would materially impair the ability of the Company to conduct businesses in the manner consistent with its past practices. The Company has not received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit.

q. Residency. The state in which any offer to sell Securities hereunder was made or accepted by the Seller is the state shown as the Seller ’ s address contained herein, and Seller is a resident of such state only.

Hazardous Materials. The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could not reasonably be expected to have a Material Adverse Effect. For purposes of the foregoing:

“ Environmental Laws ” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “ Superfund ” or “ Superlien ” law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.

“ Hazardous Material ” means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.

s. Independent Public Accountants. The Company ’ s auditor, MartinelliMick PLLC, is an independent registered public accounting firm with respect to the Company, as required by the 1933 Act, the Exchange Act and the rules and regulations promulgated thereunder.

t. Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with management ’ s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management ’ s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Brokers. No Person (other than the Buyer and its principals, employees and agents) is entitled to receive any consideration from the Company or the Buyer arising from any finder ’ s agreement, brokerage agreement or other agreement to which the Company is a party.

3. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a. Transfer Restrictions. The parties acknowledge and agree that (1) the Debentures have not been registered under the provisions of the 1933 Act and the Shares have not been registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance on Rule 144 promulgated under the 1933 Act ( “ Rule 144 ” ) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder, (3)

at the request of the Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the “ Transfer Agent ” ) a written letter instructing and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144, subject to the Buyer ’ s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) at the Buyer ’ s option or if the Transfer Agent requires further confirmation of the availability of an exemption from registration, furnish to the Buyer an opinion of the Company ’ s counsel in favor of the Buyer (and, at the request of the Buyer, any agent of the Buyer, including but not limited to the Buyer ’ s broker or clearing firm) and the Transfer Agent, reasonably satisfactory in form, scope and substance to the Buyer and the Transfer Agent, to the effect that a contemporaneously requested transfer of shares does not require registration under the 1933 Act, pursuant to the 1933 Act, Rule 144 or other regulations promulgated under the 1933 Act and (4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to this Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder.

b. Restrictive Legend. The Buyer acknowledges and agrees that the Debentures, and, until such time as the Shares have been registered under the 1933 Act as contemplated hereby and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ” ), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

c. Piggy-Back Registration Rights. From and after the Signing Closing Date and until eighteen (18) months after the Signing Closing Date, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities, the Company shall at each such time give prompt written notice to Investments and Buyer of its intention to do so and of the registration

rights granted under this Agreement. Upon the written request of Investments and/or Buyer made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by Investments and/or Buyer and the intended method of disposition thereof), the Company shall, at its sole cost and expense, use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register by Investments and/or Buyer, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities by Investments and/or Buyer, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an “ at the market offering ” under SEC rules and regulations due to the high percentage of the Company ’ s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, the amount of Registrable Securities subject to the Registration Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an “ at the market offering ” ; and provided, further, that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to Investments and/or the Buyer and, thereupon, (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. If Buyer shall have transferred all or part of its Registrable Securities, then for purposes of this Section, the term “ Buyer ” shall reference Buyer and/or such transferee(s).

d. Securities Filings. The Company undertakes and agrees to make all necessary filings (including, without limitation, a Form D) in connection with the sale of the Securities to the Buyer required under any United States laws and regulations applicable to the Company (including without limitation state “ blue sky ” laws), or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing.

e. Reporting Status; Public Trading Market; DTC Eligibility. So long as the Buyer and/or Investments beneficially own any Securities, (i) the Company shall timely file, prior to or on the date when due, all reports that would be required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if the Company had securities registered under Section 12(b) or 12(g) of the Exchange Act; (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a “ shell company ” or indicate to the contrary to the SEC or any other Person; (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the 1933 Act for the sale of Shares by the Buyer at the earliest possible date; and (iv) the Company shall at all times while any Securities are outstanding maintain its engagement of an independent registered public

accounting firm. Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Markets, Inc. ( “ OTCM ” ) at the mid-tier ( “ OTCQB ” ) or top-tier ( “ OTCQX ” ), and will comply in all material respects with the Company ’ s reporting, filing and other obligations under the by-laws or rules of the Financial Industry Regulatory Authority ( “ FINRA ” ). If, so long as the Buyer and/or Investments beneficially own any of the Securities, the Company receives any written notice from the OTCM, FINRA, or the SEC with respect to either any alleged deficiency in the Company ’ s compliance with applicable rules and regulations (including without limitation any comments from the SEC on any of the Company ’ s documents filed (or the failure to have made any such filing) under the 1933 Act or the Exchange Act) (each, a “ Regulatory Notice ” ), then the Company shall promptly, and in any event within two (2) business days, provide copies of the Regulatory Notice to the Buyer, and shall promptly, and in any event within five (5) business days of receipt of the Regulatory Notice (a “ Regulatory Response ” ), respond in writing to the OTCM, FIRNA and/or SEC (as the case may be), setting forth the Company ’ s explanation and/or response to the issues raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCM, FIRNA and/or SEC and maintaining or regaining good standing of the Company with the OTCM, FINRA and/or SEC, as the case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCQB or OTCQX (for the avoidance of doubt, excluding the bottom-tier OTC Pink (or, “ pink sheets ” ). Further, at all times while any Securities are outstanding, the Common Stock shall be DWAC Operational, and the Common Stock shall not be subject to any DTC “ chill ” designation or similar restriction on the clearing of the Common Stock through DTC.

f. Use of Proceeds. The Company shall use the proceeds from the sale of the Debentures for working capital purposes only and will be subject to customary restrictions. Absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business, (ii) pay any dividends or redemption amount on any of the Company ’ s equity or equity equivalents, (iii) pay any amounts, whether on account of debt obligations of the Company or otherwise, except for compensation, to any officer, director or other related party of the Company or (iv) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended December, 2014 (as base compensation and excluding any discretionary amounts), other than modest increases consistent with prior practice that are approved by the Company ’ s Board of Directors.

g. Available Shares. Commencing on the date of execution and delivery of this Agreement, the Company shall have and maintain authorized and reserved for issuance, free from preemptive rights, that number of shares equal to Five Hundred percent (500%) of the number of shares of Common Stock (1) issuable based upon the conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyer pursuant to the terms and conditions of the Debenture (without giving effect to the 4.99% limitation on ownership or One Hundred Eighty (180) day delay in

convertibility, as set forth in the Debentures), provided, however that for purposes of the foregoing calculation, the full indebtedness under the Debentures shall be deemed immediately convertible and (2) issuable to the Buyer on future Closing Dates, based upon the lowest closing bid price per share of the Common Stock on the date before the most recent Closing Date (as reported by Bloomberg LP). The Company shall monitor its compliance with the foregoing requirements on an ongoing basis. If at any time the Company does not have available an amount of authorized and non-issued Shares required to be reserved pursuant to this Section, then the Company shall, without notice or demand by the Buyer, call within thirty (30) days of such occurrence and hold within sixty (60) days of such occurrence a special meeting of shareholders, for the sole purpose of increasing the number of shares authorized. Management of the Company shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized at the meeting. Members of the Company ’ s management shall also vote all of their own shares in favor of increasing the number of Common Stock authorized at the meeting. If the increase in authorized shares is approved by the stockholders at the meeting, the Company shall implement the increase in authorized shares within one (1) business day following approval at such meeting. Alternatively, to the extent permitted by applicable law, in lieu of calling and holding a meeting as described above, the Company may, within thirty (30) days of the date when the Company does not have available an amount of authorized and non-issued Shares required to be reserved as described above, procure the written consent of stockholders to increase the number of shares authorized, and provide the stockholders with notice thereof as may be required under applicable law (including without limitation Section 14(c) of the Exchange Act and Regulation 14C thereunder). Upon obtaining stockholder approval as aforesaid, the Company shall cause the appropriate increase in its authorized shares of Common Stock within one (1) business day (or as soon thereafter as permitted by applicable law). Company ’ s failure to comply with these provisions will be an Event of Default (as defined in the Debentures).

h. Reimbursement. If (i) Buyer and/or Investments becomes a party defendant in any capacity in any action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer and/or Investments is impleaded in any such action, proceeding or investigation by any Person, or (ii) the Buyer and/or Investments, other than by reason of its own gross negligence, willful misconduct or breach of law (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if the Buyer or Investments is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall promptly reimburse the Buyer and/or Investments for its or their reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Buyer and/or Investments who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Buyer, Investments and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and

personal representatives of the Company, the Buyer, Investments and any such Affiliate and any such Person. Except as otherwise set forth in the Transaction Documents, the Company also agrees that neither any Buyer, Investments nor any such Affiliate, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Transaction Documents.

i. The Company shall provide the Transfer Agent and/or the Buyer, Investments or their respective brokerage and/or clearing firm with all relevant legal opinions and other documentation requested by the Buyer or Investments in connection with the issuance of the Conversion Shares or the Restricted Stock, or the sale thereof, to confirm the share issuance(s) such that the Conversion Shares and/or Restricted Stock may be deposited with the applicable brokerage and/or clearing firm.

j. No Payments to Affiliates or Related Parties. So long as any of the Debentures remain outstanding, if the Debentures are in default, the Company shall not, absent the prior written consent of the holders of all Debentures then outstanding, make any payments to any of the Company ’ s or the Subsidiaries ’ respective affiliates or related parties, including without limitation payments or prepayments of principal or interest accrued on any indebtedness or obligation in favor of affiliates or related parties. Notwithstanding anything to the contrary contained herein, the provisions of this Section 4(j) shall not apply to payments to the Subsidiaries, or other businesses in which affiliates have an interest, made in the ordinary course of business and consistent with past practice as disclosed in the SEC Documents.

k. Notice of Material Adverse Effect. The Company shall notify the Buyer (and any subsequent holder of the Debentures), as soon as practicable and in no event later than three (3) business days of the Company ’ s knowledge of any Material Adverse Effect on the Company. For purposes of the foregoing, “ knowledge ” means the earlier of the Company ’ s actual knowledge or the Company ’ s constructive knowledge upon due inquiry.

l. Public Disclosure. Except to the extent required by applicable law, absent the Buyer ’ s prior written consent, the Company shall not reference the name of the Buyer in any press release, securities disclosure, business plan, marketing or funding proposal.

m. Nature of Transaction; Savings Clause. It is the parties ’ express understanding and agreement that the transactions contemplated by the Transaction Documents constitute an investment and not a loan. If nonetheless such transactions are deemed to be a loan (as adjudicated by a court of law having proper jurisdiction and such adjudication is not subject to appeal), the Company shall not be obligated or required to pay interest at a rate that could subject Buyer to either civil or criminal liability as a result of such rate exceeding the maximum rate that the Buyer is permitted to charge under applicable law, and the Company ’ s obligations under the Transaction Documents shall not be void or voidable on the basis of the Buyer ’ s lack of any license or registration as a lender with any governmental authority. It is expressly understood and agreed by the parties that neither the amounts payable pursuant to Section 12, any redemption premium, remedy upon an Event of Default (as defined in the Debentures) or any Acceleration Amount (as defined in the Debentures), original issue discount nor any investment returns of the Buyer on the sale of the Debentures or the sale of any Conversion

Shares (whether unrealized or realized) shall be construed as interest. If, by the terms of the Debentures, any other Transaction Document or any other instrument, Buyer is at any time required or obligated to pay interest at a rate exceeding such maximum rate, interest payable under the Debenture and/or such other Transaction Documents or other instrument shall be computed (or recomputed) at such maximum rate, and the portion of all prior interest payments (if any) exceeding such maximum shall be applied to payment of the outstanding principal of the Debentures.

4. TRANSFER AGENT INSTRUCTIONS.

a. Transfer Agent Instruction Letter. On or before the Signing Closing Date, the Company shall irrevocably instruct its Transfer Agent in writing using the letter substantially in the form of Exhibit B annexed hereto, with only such modifications as the Buyer agrees to, executed by the Company, the Buyer and the Transfer Agent (the “ Transfer Agent Instruction Letter ” ), to (i) reserve that number of shares of Common Stock as is required under Section 4(g) hereof, and (ii) issue Common Stock from time to time upon conversion of the Debentures in such amounts as specified from time to time by the Buyer to the Transfer Agent in a Notice of Conversion, in such denominations to be specified by the Buyer in connection with each conversion of the Debentures. The Transfer Agent shall not be restricted from issuing shares from only the allotment reserved hereunder for the Conversion Amount (as defined in the Debentures), but instead may, to the extent necessary to satisfy the amount of shares issuable upon conversion, issue shares above and beyond the amount reserved on account of the Conversion Amount, without any additional instructions or authorization from the Company, and the Company shall not provide the Transfer Agent with any instructions or documentation contrary to the foregoing. As of the date of this Agreement, the Transfer Agent is Colonial Stock Transfer Company, Inc. The Company shall at all times while any Debentures are outstanding engage a Transfer Agent which is a party to the Transfer Agent Instruction Letter. The Company shall not terminate the Transfer Agent or otherwise change Transfer Agents without at least fifteen (15) days prior written notice to the Buyer and with the Buyer ’ s prior written consent to such change, which the Buyer may grant or withhold in its sole discretion. The Company shall continuously monitor its compliance with the share reservation requirements and, if and to the extent necessary to increase the number of reserved shares to remain and be at least Five Hundred percent (500%) of the Conversion Amount to account for any decrease in the Market Price of the Common Stock, the Company shall immediately (and in any event within two (2) business days) notify the Transfer Agent in writing of the reservation of such additional shares, provided that in the event that the number of shares reserved for conversion of the Debentures is less than Five Hundred percent (500%) of the Conversion Amount, the Buyer may also directly instruct the Transfer Agent to increase the reserved shares as necessary to satisfy the minimum reserved share requirement, and the Transfer Agent shall act accordingly, provided, further, that the Company shall within two (2) business days provide any written confirmation, assent or documentation thereof as the Transfer Agent may request to act upon a share increase instruction delivered by the Buyer. The Company shall provide the Buyer with a copy of all written instructions to the Company ’ s Transfer Agent with respect to the reservation of shares simultaneously with the issuance of such instructions to the Transfer Agent. The Company covenants that no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the

Conversion Shares under the 1933 Act will be given by the Company to the Transfer Agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and applicable law. If the Buyer provides the Company and/or the Transfer Agent with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the de-legending or transfer of the Securities and, in the case of the Conversion Shares, instruct the Company ’ s Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.

b. Conversion. (i) The Company shall permit the Buyer to exercise the right to convert the Debentures by faxing, emailing or delivering overnight an executed and completed Notice of Conversion to the Company or the Transfer Agent. If so requested by the Buyer or the Transfer Agent, the Company shall within one (1) business day respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.

(i) The term “ Conversion Date ” means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via mail or facsimile to or otherwise delivered to the Transfer Agent and/or the Company in accordance with the provisions hereof so that it is received by the Transfer Agent and/or the Company on or before such specified date.

(i) The Company shall deliver (or will cause the Transfer Agent to deliver) the Conversion Shares issuable upon conversion (i) if the Company is then DWAC Operational, in electronic form by DWAC pursuant to the Buyer ’ s instructions, or (ii) if the Company is not then DWAC Operational, then in certificated form to the Buyer at the address specified in the Notice of Conversion (which may be the Buyer ’ s address for notices as contemplated by Section 10 hereof or a different address) via express courier, by electronic transfer or otherwise, within two (2) business days (the “ Delivery Date ” ) after (A) the business day on which the Buyer delivered the Notice of Conversion to the Company or Transfer Agent (by facsimile, email or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.

a. Failure to Timely Issue Conversion Shares or De-Legended Shares. The Company ’ s failure to issue and deliver Conversion Shares to the Buyer (either by DWAC or in certificated form, as required by Section 5(b)) on or before the Delivery Date shall be considered an Event of Default, which shall entitle the Buyer to certain remedies set forth in the Debentures and provided by applicable law . Similarly, the Company ’ s failure to issue and deliver Common Stock in unrestricted form without a restrictive legend when required under the Transaction Documents shall entitle the Buyer to damages for the diminution in value (if any) of the relevant shares between the date delivery was due versus the date ultimately delivered in unrestricted form. The Company acknowledges that its failure to timely honor a Notice of Conversion (or the occurrence of any other Event of Default) shall cause definable financial hardship on the

Buyer(s) and that the remedies set forth herein and in the Debentures are reasonable and appropriate.

b. Duties of Company; Authorization. The Company shall inform the Transfer Agent of the reservation of shares contemplated by Section 4(g) and this Section 5, and shall keep current in its payment obligations to the Transfer Agent such that the Transfer Agent will continue to process share transfers and the initial issuance of shares of Common Stock upon the conversion of Debentures. The Company hereby authorizes and agrees to authorize the Transfer Agent to correspond and otherwise communicate with the Buyer or their representatives in connection with the foregoing and other matters related to the Common Stock. Further, the Company hereby authorizes the Buyer or its representative to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs the Transfer Agent to honor any such instructions. Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyer and/or Investments may pay such amounts as are necessary to compensate the Transfer Agent for performing its duties with respect to share reservation, issuance of Conversion Shares and/or de-legending certificates representing Restricted Stock, and all amounts so paid shall be promptly reimbursed by the Company. If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer and without prior notice to or consent of the Company, be added to the principal amount due under the Debenture(s) held by the Buyer, whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.

c. Effect of Bankruptcy. The Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “ Bankruptcy Code ” ). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the Buyer ’ s conversion privilege. The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Debentures. The Company agrees, without cost or expense to the Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

1. CLOSINGS.

a. Signing Closing. Promptly upon the execution and delivery of this Agreement, the Signing Debenture, and all conditions in Sections 7 and 8 herein are met (the “ Signing Closing Date ” ), (A) the Company shall deliver to the Buyer the following: (i) the Signing Debenture; (ii) the Transfer Agent Instruction Letter; (iii) duly executed counterparts of the Transaction Documents; and (iv) an officer ’ s certificate of the Company confirming the accuracy of the Company ’ s representations and warranties contained herein, and (B) the Buyer shall deliver to the Company the following: (i) the Signing Purchase Price and (ii) duly executed counterparts of the Transaction Documents (as applicable). The Company shall immediately pay the fees due under Section 12 of this Agreement upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12.

Second Closing. At any time sixty one (61) to ninety (90) days following the Signing Closing Date, subject to the mutual agreement of the Buyer and the Company, for the “ Second Closing Date ” and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Second Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer ’ s certificate of the Company confirming, as of the Second Closing Date, the accuracy of the Company ’ s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Second Closing Date, and (B) the Buyer shall deliver to the Company the Second Purchase Price.

c. Third Closing. At any time sixty one (61) to ninety (90) days following the Second Closing Date, subject to the mutual agreement of the Buyer and the Company, for the “ Third Closing Date ” and subject to satisfaction of the conditions set forth in Sections 7 and 8, (A) the Company shall deliver to the Buyer the following: (i) the Third Debenture; (ii) an amendment to the Transfer Agent Instruction Letter instructing the Transfer Agent to reserve that number of shares of Common Stock as is required under Section 4(g) hereof, if necessary; and (iii) an officer ’ s certificate of the Company confirming, as of the Third Closing Date, the accuracy of the Company ’ s representations and warranties contained herein and updating Schedules 3(b), 3(c) and 3(k) as of the Third Closing Date, and (B) the Buyer shall deliver to the Company the Third Purchase Price.

d. Location and Time of Closings. Each Closing shall be deemed to occur on the related Closing Date at the office of the Buyer ’ s counsel and shall take place no later than 5:00 P.M., New York time, on such day or such other time as is mutually agreed upon by the Company and the Buyer.

2. CONDITIONS TO THE COMPANY ’ S OBLIGATION TO SELL.

The Company ’ s obligation to sell the Debentures to the Buyer pursuant to this Agreement on each Closing Date is conditioned upon:

a. Purchase Price. Delivery to the Company of good funds as payment in full of the respective Purchase Price for the Debentures at each Closing in accordance with this Agreement;

b. Representations and Warranties; Covenants. The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and

c. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

CONDITIONS TO THE BUYER ’ S OBLIGATION TO PURCHASE.

The Buyer ’ s obligation to purchase the Debentures at each Closing is conditioned upon:

a. Transaction Documents. The execution and delivery of this Agreement by the Company;

b. Debenture(s). Delivery by the Company to the Buyer of the Debentures to be purchased in accordance with this Agreement;

c. Section 4(a)(2) Exemption. The Debentures and the Conversion Shares shall be exempt from registration under the Securities Act of 1933 (as amended), pursuant to Section 4(a)(2) thereof;

d. DWAC Status . The Common Stock shall be DWAC Operational;

e. Representations and Warranties; Covenants. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

f. Good-faith Opinion. It should be Buyer ’ s reasonable belief that (i) no Event of Default under the terms of any outstanding indebtedness of the Company shall have occurred or would likely occur with the passage of time and (ii) no material adverse change in the financial condition or business operations of the Company shall have occurred;

g. Legal Proceedings. There shall be no litigation, criminal or civil, regulatory impairment or other legal and/or administrative proceedings challenging or seeking to limit the Company ’ s ability to issue the Securities or the Common Stock;

h. Intentionally Omitted.

i. Corporate Resolutions. Delivery by the Company to the Buyer a copy of resolutions of the Company ’ s board of directors, approving and authorizing the execution, delivery and performance of the Transaction Documents and the transactions contemplated thereby in the form attached hereto as Exhibit C (the “ Irrevocable Resolutions ” );

j. Officer ’ s Certificate. Delivery by the Company to the Buyer of a certificate of the Chief Executive Officer of the Company in the form attached hereto as Exhibit D ;

k. Search Results. Delivery by the Company to the Buyer of copies of UCC search reports, issued by the Secretary of State of the state of incorporation of the Company and each Subsidiary, dated such a date as is reasonably acceptable to Buyer, listing all effective financing statements which name the Company or Subsidiary (as applicable), under its present name and any previous names, as debtor, together with copies of such financing statements;

Certificate of Good Standing. Delivery by the Company to the Buyer of a copy of a certificate of good standing with respect to the Company, issued by the Secretary of State of the state of incorporation of the Company, dated such a date as is reasonably acceptable to Buyer, evidencing the good standing thereof;

m. Laws and Regulations; Consents and Approvals. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

n. Adverse Changes. From and after the date hereof to and including each Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC, FINRA, or any other governmental or self-regulatory organization, and trading in securities generally on OTCM shall not have been suspended or limited, nor shall minimum prices been established for securities traded on the OTCM; (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Debentures.

4. GOVERNING LAW; MISCELLANEOUS.

a. MANDATORY FORUM SELECTION. ANY DISPUTE ARISING UNDER, RELATING TO, OR IN CONNECTION WITH THE AGREEMENT OR RELATED TO ANY MATTER WHICH IS THE SUBJECT OF OR INCIDENTAL TO THE AGREEMENT (WHETHER OR NOT SUCH CLAIM IS BASED UPON BREACH OF CONTRACT OR TORT) SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN MIAMI-DADE COUNTY, FLORIDA. THIS PROVISION IS INTENDED TO BE A “ MANDATORY ” FORUM SELECTION CLAUSE AND GOVERNED BY AND INTERPRETED CONSISTENTLY WITH FLORIDA LAW.

b. Governing Law. Except in the case of the Mandatory Forum Selection clause above, this Agreement shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Florida, and for all purposes shall be construed in accordance with the laws of the State of Floridaa, without giving effect to the choice of law provisions. To the extent determined by the applicable court described above, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under any of the Transaction Documents.

c. Waivers. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

Construction. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

f. Facsimiles; E-mails. A facsimile or email transmission of this signed Agreement or a Notice of Conversion under the Debentures shall be legal and binding on all parties hereto. Such electronic signatures shall be the equivalent of original signatures.

g. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

h. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

i. Enforceability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

j. Amendment. This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.

k. Entire Agreement. This Agreement, together with the other Transaction Documents, supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

l. No Strict Construction. This Agreement shall be construed as if both Parties had equal say in its drafting, and thus shall not be construed against the drafter.

m. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

5. NOTICES.

Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:

a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile or email transmission,

b. the third (3 ^rd ) business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

the first (1 ^st ) business day after deposit with a recognized courier service (e.g. FedEx, UPS, DHL, US Postal Service) for delivery by next-day express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days ’ advance written notice similarly given to each of the other parties hereto):

6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company ’ s representations and warranties herein shall survive for so long as any Debentures are outstanding, and shall inure to the benefit of the Buyer, its successors and assigns.

7. FEES; EXPENSES.

a. Commitment Fee . The Company shall pay to Investments a non-accountable fee (the “ Commitment Fee ” ) of (i) Two Thousand Five Hundred and 00/100 Dollars ($2,500.00)

and (ii) Four Hundred Thousand (400,000) shares of Restricted Stock for Investments ’ expenses and analysis performed in connection with the analysis of the Company and the propriety of the Buyer ’ s making the contemplated investment. The Commitment Fee shall be paid on the Signing Closing Date immediately upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12(c).

b. Legal Fees . The Company shall pay the legal fees of the Buyer ’ s counsel (the “ Legal Fees ” ) in the amount of Two Thousand Five Hundred and 00/100 Dollars ($2,500.00). The foregoing legal fees shall be paid on the Signing Closing Date immediately upon receipt of the Signing Purchase Price if Buyer does not withhold such amounts from the Signing Purchase Price pursuant to Section 12(c). The Company further agrees to pay in full the reasonable legal fees of the Buyer ’ s counsel incurred after the Signing Closing Date incurred in connection with the Transaction Documents (including addressing any purported breach(es) or default(s) by the Company, enforcement of the Company ’ s obligations or the exercise of the Buyer ’ s remedies thereunder).

c. Disbursements. In furtherance of the foregoing, the Company hereby authorizes the Buyer to deduct the cash portion of the Commitment Fee and the Legal Fees from the Signing Purchase Price and transmit same to the respective payee. The Company shall pay disbursements of the Buyer ’ s legal counsel and legal fees incurred after the Signing Closing Date (within ten (10) days of invoice therefor (if applicable).

[Signature Page Follows]

IN WITNESS WHEREOF , this Agreement has been duly executed by the Buyer and the Company as of the date first set forth above.

COMPANY:

CLEAN ENERGY TECHNOLOGIES, INC.

By: ______________________________________

Name: Kambiz Mahdi

Title: Chief Executive Officer

BUYER:

PEAK ONE OPPORTUNITY FUND, L.P.

By: Peak One Investments, LLC,

General Partner

By: ___________________________________

Name: Jason Goldstein

Title: Managing Member

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kambiz Mahdi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Probe Manufacturing, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant ’ s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant ’ s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant ’ s internal control over financial reporting that occurred during the registrant ’ s most recent fiscal quarter (the registrant ’ s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant ’ s internal control over financial reporting; and

5. The registrant ’ s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant ’ s auditors and the audit committee of the registrant ’ s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant ’ s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s internal control over financial reporting.



Date: August 22, 2016	By: /s/ KAMBIZ MAHDI
	Kambiz Mahdi, Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John Bennett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Probe Manufacturing, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant ’ s internal control over financial reporting.



Date: August 22, 2016	By: /s/ JOHN BENNETT
	John Bennett, Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Probe Manufacturing, Inc. (the “ Company ” ) hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2016 (the “ Report ” ) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

EXHIBIT 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		Page
PART I. FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS	4

ITEM 2.	MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18

ITEM 4.	CONTROLS AND PROCEDURES	18


PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	20

ITEM 1A.	RISK FACTORS	20

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	20

ITEM 4.	MINE SAFETY DISCLOSURES	20

ITEM 5.	OTHER INFORMATION	20

ITEM 6.	EXHIBITS	20


COMPANY :	Clean Energy Technologies, Inc. 150 Baker Street East Costa Mesa, CA 92626 Attention: Kambiz Mahdi, Chief Executive Officer Facsimile: 949-273-4990 x 814 Email: kmahdi@ceti.io
	With copies to (which shall not constitute notice): Law Office of Andrew Coldicutt 1220 Rosecrans Street, PMB 258 San Diego, CA 92106 Attention: Andrew Coldicutt, Esq. Email: Andrew@ColdicuttLaw.com
BUYER:	Peak One Opportunity Fund, L.P. 333 South Hibiscus Drive Miami Beach, FL 33139 Attention: Jason Goldstein Email: jgoldstein@peakoneinvestments.com
	With copies to (which shall not constitute notice):
	Zabatta Group, LLP 91 Central Park West, Suite 1H New York, NY 10023 Attention: Patrick G. Zabatta, Esq. Email: pzabatta@gmail.com