SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-31631
PERMA-TUNE ELECTRONICS, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 75-2510791
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111SOUTH BIRMINGHAM STREET, WYLIE, TEXAS 75098 (Address of
principal executive offices)
(972) 442-6774
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
State the number of shares outstanding of each of the issuer's classes of
common equity. As of June 30, 2001 - 2,312,700 shares of Common Stock
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PERMA-TUNE ELECTRONICS, INC.
FORM 10-QSB
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)
Balance Sheet as of June 30, 2001 3
Statements of Operations for the three months
ended June 30, 2001 and 2000 4
Statements of Operations for the six months ended
June 30, 2001 and 2000 5
Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
Part II. OTHER INFORMATION 27
Item 1. Legal Proceedings 27
Item 2. Change in Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERMA-TUNE ELECTRONICS, INC.
Balance Sheets
June 30,
2001
-------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 2,666
Accounts receivable, trade 19,717
Inventory 32,222
Prepaid offering costs -
Deposits 160
---------
Total current assets 54,765
---------
PROPERTY, PLANT AND EQUIPMENT:
Molds and tooling 5,523
Leasehold improvements 3,127
Machinery and equipment 54,574
---------
63,224
Less accumulated depreciation 54,812
---------
8,412
---------
$ 63,177
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit $ 20,300
Accounts payable, trade 61,088
Notes payable - stockholder 40,000
Accrued liabilities 5,829
---------
Total current liabilities 127,217
---------
STOCKHOLDERS' DEFICIT:
Common stock - 10,000,000 shares of no par
stock authorized, 2,312,700 issued and
outstanding as of June 30, 2001 248,395
Additional paid-in capital 15,550
Accumulated deficit (327,985)
---------
Total stockholders' deficit (64,040)
---------
$ 63,177
=========
The accompanying notes are an integral part of the financial statements.
3
PERMA-TUNE ELECTRONICS, INC.
Statements of Operations
For the Three Months Ended
June 30,
------------------------------
2001 2000
-------------- --------------
(Unaudited) (Unaudited)
NET SALES $ 74,023 $ 73,840
COST OF GOODS SOLD 26,501 46,484
-------------- --------------
GROSS PROFIT 47,522 27,356
-------------- --------------
OPERATING EXPENSES:
General and administrative 37,631 25,371
Legal and professional 29,740 4,275
Research and development 2,951 196
Depreciation 841 -
-------------- --------------
71,163 29,842
-------------- --------------
LOSS FROM OPERATIONS (23,641) (2,486)
-------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (3,899) (1,685)
Other 5 (936)
-------------- --------------
(3,894) (2,621)
-------------- --------------
LOSS BEFORE FEDERAL INCOME TAX (27,535) (5,107)
Provision for federal income tax - -
-------------- --------------
NET LOSS $ (27,535) $ (5,107)
============== ==============
LOSS PER SHARE:
Basic $ (0.012) $ (0.002)
============== ==============
Diluted $ (0.012) $ (0.002)
============== ==============
The accompanying notes are an integral part of the financial statements.
4
PERMA-TUNE ELECTRONICS, INC.
Statements of Operations
For the Six Months Ended
June 30,
---------------------------
2001 2000
------------ ------------
(Unaudited) (Unaudited)
NET SALES $ 127,342 $ 123,247
COST OF GOODS SOLD 52,331 66,548
------------ ------------
GROSS PROFIT 75,011 56,699
------------ ------------
OPERATING EXPENSES:
General and administrative 88,027 47,695
Legal and professional 60,036 22,313
Research and development 4,510 472
Depreciation 1,682 1,074
------------ ------------
154,255 71,554
------------ ------------
LOSS FROM OPERATIONS (79,244) (14,855)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (5,313) (3,110)
Other 5,006 (936)
------------ ------------
(307) (4,046)
------------ ------------
LOSS BEFORE FEDERAL INCOME TAX (79,551) (18,901)
Provision for federal income tax - -
------------ ------------
NET LOSS $ (79,551) $ (18,901)
============ ============
LOSS PER SHARE:
Basic $ (0.034) $ (0.009)
============ ===========
Diluted $ (0.034) $ (0.009)
============ ============
The accompanying notes are an integral part of the financial statements.
5
PERMA-TUNE ELECTRONICS, INC.
Statements of Cash Flows
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
------------- ------------
2001 2000
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (79,551) $ (18,901)
---------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,682 1,074
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (16,168) (7,693)
(Increase) decrease in inventory 17,785 (724)
(Increase) decrease in prepaid expenses 3,414 -
Increase in accounts payable 39,402 (15,840)
Decrease in accrued expenses - (9,171)
---------- -----------
Total adjustments 46,115 (32,354)
---------- -----------
Net cash used in operating activities (33,436) (51,255)
---------- -----------
Cash flows used in investing activities:
Acquisition of property and equipment (244) (8,339)
---------- -----------
Cash flows from financing activities:
Repayments of long-term debt - (10,000)
Proceeds from line of credit 22,500 13,500
Repayments of line of credit (2,200) (15,500)
Proceeds from sale of stock 5,000 60,000
---------- -----------
Net cash provided by financing activities 25,300 48,000
---------- -----------
Decrease in cash (8,380) (11,594)
Cash, beginning of period 11,046 24,752
---------- -----------
Cash, end of period $ 2,666 $ 13,158
========== ===========
Cash paid during the period for:
Interest $ 5,313 $ 1,791
========== ===========
The accompanying notes are an integral part of the financial statements.
6
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
June 30, 2001
(Unaudited)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
----------
Perma-Tune Electronics, Inc. (the "Company") is a Texas corporation that
was incorporated in 1993. The Company is engaged in the manufacture and
sale of high performance automobile ignition systems for distribution
throughout the United States and Canada.
Trade accounts receivable
-------------------------
The Company provides for uncollectible receivables using an allowance for
doubtful accounts. As of June 30, 2001 the Company considers all
receivables fully collectible and, as such, no allowance is included in
trade accounts receivable.
Inventories
-----------
Inventories are valued at the lower of cost or market with cost being
determined using the first-in, first-out method and consist of the
following at:
June 30,
2001
--------------
(Unaudited)
Raw materials $ 26,353
Work in process 1,101
Finished goods 4,768
--------------
$ 32,222
==============
Property, plant and equipment
Property, plant and equipment are stated at cost and are depreciated or
amortized over the estimated useful lives and methods as summarized below:
Asset Type Estimated Life Method
-----------------------------------------------------------------------
Molds and tooling 5 years Accelerated
Leasehold improvements 5 - 7 years Accelerated
Machinery and equipment Lease term Straight-line
7
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
June 30, 2001
(Unaudited)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Property, plant and equipment - (continued)
-------------------------------------------
Maintenance and repairs are expensed when incurred. Material expenditures
which increase the life of an asset are capitalized and depreciated over
the estimated remaining useful life of the asset. The cost of assets sold,
or otherwise disposed of, and the related accumulated depreciation are
removed from the accounts and any gains or losses are reflected in current
operations.
Depreciation expense for the six months ended June 30, 2001 and 2000, was
$1,682 and $1,074, respectively.
Federal income taxes
--------------------
Deferred taxes are calculated on temporary differences resulting from
different financial and income tax reporting methods used to recognize
income and expenses. These differences result primarily from methods used
to calculate depreciation and the allowance for doubtful accounts.
Additional paid-in capital
--------------------------
The major shareholder of the Company, Lonnie Lenarduzzi, contributed
$15,550 cash to the Company in 1994.
Concentration of risk
---------------------
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in these accounts and believes it is not exposed to any significant
risk on cash.
For the six months ended June 30, 2001, three customers accounted for 11%,
12% and 19%, respectively, of net sales.
For the six months ended June 30, 2000, three customers accounted for 16%,
16% and 28%, respectively, of net sales.
8
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
June 30, 2001
(Unaudited)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Concentration of risk - continued
---------------------------------
The breakdown of these net sales is as follows:
Net sales for Net sales for
six months ended six months ended
Customer June 30, 2001 June 30, 2000
-------- ---------------- -----------------
A $ 14,427 $ 19,119
B $ 14,867 $ -
C $ 24,403 $ 34,988
D $ - $ 19,494
Net loss per share
------------------
Basic and diluted loss per share is calculated on the weighted average
number of shares of common stock outstanding during the period. The
weighted average number of shares outstanding at June 30, 2001 and 2000
were 2,294,689 and 2,192,435, respectively.
Revenue recognition and product warranty
----------------------------------------
Revenue is recognized at the time the products are shipped. The product is
warrantied for one year from original purchase, and, at management's
option, the Company will either repair or replace units that prove to be
defective. As of June 30, 2001, the Company has determined that a warranty
provision is not necessary given the lack of returned products during the
Company's history.
The Digital Fire product includes software, the Digital Fire Operating
System (DFOS), which is incidental. Therefore, the costs of producing the
software are capitalized as inventory along with the Digital Fire product
on a unit specific basis and charged to cost of goods sold when revenue
from the sale of those units is recognized.
Additionally, the Company has developed an accessory software product
termed Digital Fire Programming Software (DFPS). The Company has not yet
placed the DFPS on the market. The DFPS will be delivered on-line and is
used to customize the Digital Fire product for specific applications. The
Company will recognize revenue at the time the software is delivered. The
costs to develop the DFPS have been expensed as research and development.
9
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Statements of cash flows
------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid financial instruments purchased with an original maturity of
three months or less to be cash equivalents. At June 30, 2001, there were
no cash equivalents.
Use of estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the financial
statements at, and during the reporting periods. Actual results could
differ from these estimates.
NOTE 2 - INCOME TAXES
At June 30, 2001 and 2000, and for the years then ended, the Company has
incurred net losses and, therefore, has no tax liability. The net deferred
tax asset generated by the loss carry-forward has been fully reserved. The
cumulative net operating loss carry-forward is approximately $328,000 at
June 30, 2001 and will expire in the years 2011 through 2019.
The provision for federal income tax consists of the following for the six
months ended June 30:
2001 2000
-------------- ------------
Current (provision) benefit $ - $ -
Deferred (provision) benefit - -
-------------- ------------
$ - $ -
============== ============
Deferred income taxes consist of the following at June 30, 2001:
Current:
Deferred tax assets $ -
Deferred tax asset valuation allowance -
--------------
$ -
==============
Non-current:
Deferred tax assets $ 45,705
Deferred tax asset valuation allowance (45,705)
Deferred tax liabilities -
--------------
$ -
==============
10
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company has a $40,000 loan from a stockholder that is collateralized by
a second lien on inventory. The loan accrues interest at 10% with interest
payments to be made quarterly and is due December 31, 2001.
The Company has a license agreement with its President whereby it has
acquired all rights to patents, trademarks, technical information and trade
secrets through November 30, 2021 by payment of a yearly license fee of
$1,000.
NOTE 4 - COMMITMENTS
On June 1, 2000, the Company entered into an agreement to extend its
current lease of office and production facilities under an operating lease
through May 2005. Lease expense was $10,550 and $7,500 for each of the six
months ending June 30, 2001 and 2000, respectively.
Minimum future lease rentals are as follows:
Year Ended
December 31, Amount
------------ ------
2001 $18,300
2002 18,600
2003 18,600
2004 18,600
2005 7,750
NOTE 5 - WARRANTS
On December 8, 1997, the Company issued an offering circular for 125,000
units priced at $2 per unit. Each unit purchased entitled the investor to
one share of common stock and three stock purchase warrants. Each warrant
entitled the holder to purchase one share of stock for $2. The warrants
were to expire on December 31, 1999. However, the expiration date has been
extended to December 31, 2001.
For the six months ended June 30, 2001, no additional warrants have been
issued or exercised and at June 30, 2001, 348,000 warrants remained
outstanding
11
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
June 30, 2001
(Unaudited)
NOTE 6 - LINE OF CREDIT
On January 12, 2001 the Company entered into a $15,000 line of credit with
a bank that is collateralized by the Company's accounts receivable,
inventory and equipment. The line was renegotiated to $25,000 during the
quarter ended March 31, 2001. The line requires monthly payments of accrued
interest accrued at the bank's prime rate (6.75%) plus 3.0% and matures on
February 12, 2002. As of June 30, 2001, the outstanding balance was
$20,300.
NOTE 7 - INTERIM FINANCIAL STATEMENTS AND RELATED INFORMATION
The balance sheet at June 30, 2001, the income statements for the six
months ended June 30, 2001 and 2000, and the information included herein to
the notes for those periods, have not been audited. It is management's
opinion that all necessary and recurring adjustments have been made in
order that the above referenced financial statements are not misleading.
NOTE 8 - CONTINUED OPERATIONS
As shown in the financial statements, the Company incurred an operating
loss of approximately $80,000 for the six months ended June 30, 2001 and
has an accumulated deficit of approximately $328,000. Accordingly, there is
substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments relating to the recoverability of assets or amounts of
liabilities should the Company be unable to continue as a going concern.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. Management is committed to
reducing expenses, and continues to attempt to raise capital through the
issuance of common stock through registration with the Securities and
Exchange Commission (SEC).
12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
- -------
The following discussion and analysis should be read in conjunction with the
Company's financial statements and related footnotes for the year ended December
31, 2000 included in its Annual Report on Form 10-KSB. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
OVERVIEW
Since its inception, the Company has focused on the production, research and
development of Porsche and Ferrari high performance ignition systems. The
Company's principal source of revenue has been from the Porsche repair parts
product line. In 1997 the Company began development of new product lines to
supply many repair and performance parts for a variety of cars and trucks. The
Company cannot estimate the size of its marketplace.
Production, profit margin and operational efficiency continued to improve in the
second quarter of 2001. While the Company has taken steps to contain the cost of
legal and accounting expenses associated with fulfilling the requirements of a
fully reporting company, it still carries a high debt load for services related
to these items accrued in the last 18 months. Administrative and legal fees
associated with the preparation of quarterly filings with the SEC have been
reduced by bringing the bulk of that work in-house, rather than outsourcing it.
Also in the second quarter of 2001, the Company has reduced the raw materials it
stocks, utilizing on hand reserves, and replenishing stock in smaller quantities
on a just-in-time, as-needed basis in order to reduce capital tied up in
inventory. Website development costs have been reduced from $4156 in the second
quarter of 2000, to $210 in the second quarter of 2001.
During this period, we have been limited in our ability to raise capital from an
offering of our stock and exercise of our warrants because the Company's stock
is listed on the Pink Sheets, which is not an automated quotation system and is
characterized by an extremely low volume of activity. The Company's ability to
raise equity capital will be impeded until it is listed on the NASDAQ Over the
Counter Bulletin Board. Exercise of warrants is not attractive to shareholders
at this time because the current stock price is lower than their warrant price
of $2.00 per share.
Management believes it is well positioned to take advantage of the
infrastructure improvements it has made (implementation of fully integrated
manufacturing/data base accounting software, the dedication of an officer to
finance/SEC compliance and marketing planning, outsourcing of certain
manufacturing functions) when significant capital becomes available. In the
second quarter of 2001, cost reductions began to be realized as a result of
using the Company's integrated software, and as a result of the dedication of an
officer to finance and SEC compliance. This software enables Company personnel
to calculate and track many of the complex measurement ratios that it previously
required professional assistance to manage.
13
Since the Company has not yet applied to be listed on the NASD OTC BB and raised
money from its outstanding warrants, we have focused on our existing product
lines to provide operating capital. The Company has concentrated its efforts on
streamlining and increasing the production of its existing product lines in
order to eliminate backorders for Porsche products, and to begin shipping
Mercedes products. As of the end of the second quarter of 2001, the Company has
achieved a balance allowing it to ship with very short lead times, usually
shipping from stock on hand. The Company has put procedures in place to ensure
that manufacturing is completed just in time to fill orders, which will not only
minimize capital tied up in on-hand stock, but will increase customer
satisfaction and permit quicker collection of accounts receivable. The Company
has increased its efforts to find European and Japanese distributors of its
products.
The Company is pursuing its plans to be listed on the OTC BB, and has increased
its efforts to bring additional market makers on board to assist in boosting the
trading volume of its stock.
NEW PRODUCTS
The Company plans to make the following inventions the basis of new product
lines.
The New Perma-Tune
- ------------------
The Rev. F Perma-Tune is the result of technology the company developed to
replace the original Perma-Tune design. The product can be expanded to Mercedes,
Honda and Toyota cars and trucks. The new Perma-Tune product is both a repair
part and a performance/fuel economy enhancement for Ferrari, Porsche, Mercedes,
Honda and Toyota vehicles. The Company intends to continue trade secret
protection of the Perma-Tune product line. The Company may file a patent
application, copyright and or trade secret protection on some aspects of
Perma-Tune products for use on General Motors and Ford vehicles.
The Digital Fire
- ----------------
Digital Fire is the Company's newest product line designed for racecars only. It
competes with the makers of sophisticated engine control systems. The Company
has delayed the introduction of the Digital Fire product line until it can raise
additional capital. During this delay, the Company has continued development of
the product line with the recent addition of Palm Pilot interface software.
Management believes that the Digital Fire Palm Pilot software creates an
affordable and sophisticated engine control system that may have mass-market
appeal. This is because the customer can adapt the software for his or her own
personal needs. The Company must complete production tooling at a cost of
approximately $60,000 and complete and amass an inventory of 100 units before
marketing the Digital Fire. Marketing expenses are estimated at $80,000.
14
The Company has designed the Digital Fire product line that generates revenue in
the manufacturing of hardware and software. The Digital Fire involves two kinds
of software akin to the desktop computer. The Digital Fire Operating System
(DFOS) is like Windows to a desktop computer and the Palm Pilot software is like
a word processor. For the Digital Fire, DFOS is the software that determines if
the unit is a four cylinder, six cylinder or eight cylinder product. This
software configures the Digital Fire for what kind of car it will be used on but
not what to do. The ability to change the "to do" instructions are intended to
fine tune the engine for maximum performance given any different set of
variables at the race track. During the last step of manufacture for each unit,
a special chip containing the DFOS is inserted that determines which type of
Digital Fire the unit will be. Simply programming new DFOS can create new
features and products. This software is not retrievable from any unit and it is
proprietary. It cannot be altered once the unit is completely assembled. The
Digital Fire Programming Software (DFPS) is the software that allows the user to
program the Digital Fire. This software can be continuously upgraded and
customized like Word or any other user interface. This software resides in a
Palm Pilot personal organizer. It is very inexpensive, easy to use, and is
connected to the Internet via the desktop computer or the new Connected Palm
Pilot. The Company intends to continue developing new DFPS designed for
distribution through the Internet or compact disk. The open architecture design
of the Digital Fire may allow the Company to reduce DFPS development costs by
acquiring software developed by freelance programmers.
New Product Research and Development: the Plasma Injector
- ---------------------------------------------------------
In 1997, Laurence Livermore National Laboratory ("LLNL") approached the Company
with a request to develop a new kind of ignition system with certain technical
specifications. The eventual intended use for this ignitor was not revealed to
the Company by LLNL. At the time LLNL approached the Company, we had no prior
experience in the field of plasma injection technology development. To the best
of our knowledge, we were not competing with any other company on this project.
The Company, at its expense, conducted the research necessary to develop special
ignitors to satisfy LLNL's requirements. Prototype units were delivered to LLNL
in 1998. The Company retains the rights to the intellectual property created in
the manufacture of these ignitors for LLNL, although patent protection has not
been applied for.
In 1999, the U.S. Navy Surface Weapons Center approached the Company with a
requirement for a device with technical specifications similar to those
requested by LLNL. In response to this request, the Company developed the Plasma
Injector. To the best of our knowledge, we were not competing with any other
company on this project. To date, seven Plasma Injectors have been manufactured;
one was sold to the U.S. Navy, and six have been used by the Company in various
research projects aimed at developing commercial automotive, space and
industrial applications for the technology.
15
Plasma Injectors can be used to ignite liquid fuel rockets, turbine engines, to
ignite boilers used in the petrochemical industry, and for commercial automotive
applications. To date, at least one scientific application of the Plasma
Injector has been established with the sale of a prototype unit to Bechtel
Nevada. In June 2000, Bechtel incorporated the Plasma Injector into equipment
they use for a research program with the U.S. Department of Energy. Although the
Company is not under long-term contracts with LLNL, the U.S. Navy Surface
Weapons Research Center or Bechtel, we will continue to work with these
organizations, and there are no restrictions on the Company's use of technology
developed in conjunction with any of these projects.
In February 2000, the Company began a dialog with the Plasma Science and
Technology Center at the Massachusetts Institute of Technology to incorporate
the Plasma Injector into MIT's Plasmatron. The Plasmatron is an experimental
device that reduces auto emissions by removing the danger of using clean burning
but volatile hydrogen to power vehicles. It works by splitting hydrogen atoms
from conventional petroleum just fast enough for the engine to consume it,
thereby eliminating the need to store hydrogen fuel onboard the vehicle. As of
March 2001, that dialog has not progressed. As of June 30, 2001, there are no
further developments to report on this project.
Management intends to conduct more Plasma Injector research in combination with
its Digital Fire during the next two years. The Company has already completed
the interface circuitry between the Plasma Injector and the Digital Fire. In
order to investigate the potential market for commercial applications, the
Company will need to make other engine designers and engineers, as well as
scientists, aware of the Plasma Injector technology.
This can be done via advertising in trade publications and via Internet web
sites for an estimated cost of approximately $20,000. In addition, for
automotive applications, testing and customization will be performed to tailor
Plasma Injector systems for individual vehicles for an estimated cost of
approximately $5,000. A White Paper describing the technology and its
pollution-reducing benefits has been written, and has been provided to Texas
legislators and certain scientists engaged in the development of alternative,
clean fuels.
The Plasma Injector-to-Digital Fire interface circuitry Research and Development
program is complete, but new product development has been halted on the Honda,
Toyota, GM and Digital Fire product lines pending funding. The Company is
working on finding new commercial applications for the Plasma Injector product
line. Bechtel Nevada has purchased a Plasma Injector and has successfully used
it in their scientific experiments. It is not known at this time if there will
be subsequent sales of the product for this purpose. The dialogue with MIT
concerning the Plasma Injector has not progressed.
The Company continues to seek new applications for its Plasma Drive product, and
has sold a unit to Moller Industries of Davis, California. Moller is developing
low-pollution engines and is experimenting with the Plasma Drive for use on
these engines. These engines would be used on aircraft and automobiles, and are
intended to replace conventional piston engines.
16
The Company has also begun a dialogue with Pratt & Whitney Aerosciences Center
of Seattle, Washington about using the Plasma Drive in experiments on their
pulse detonation engine. The pulse detonation engine is being studied as a
possible replacement for the jet engines now in use by airlines and the
military.
The US Mine Safety and Health Administration has purchased a single unit for use
in their experimentation.
The results of these experiments by Moller Industries, Pratt & Whitney
Aerosciences Center and the US Mine Safety and Health Administration are not
known at this time, nor is it known if these experiments will result in future
sales by the Company.
The company is currently able to manufacture Plasma Injectors utilizing existing
manufacturing facilities without incurring additional expense. However, new
product development and the expansion of our manufacturing staff and facilities
have been halted pending funding.
MARKETING STRATEGY
Management has retained a public relations firm, Shapiro & Company, for
assistance in the planning and implementation of new product marketing strategy.
They have created a marketing plan, presentation folders and Mercedes brochures
at a cost of $17,629. The Company now has the option of putting Shapiro &
Company on retainer for $3000.00 per month to handle public relations. Until it
is financially able to put Shapiro & Company on retainer, the Company will
continue to foster word of mouth advertising and will continue to conduct sales
training missions to the Company's wholesale distributors.
The Company sells to six wholesale distributors who supply an unknown number of
distributors and retailers. The products of the Company are sold throughout the
United States. All sales to warehouse distributors are final. There are no
rights of return. The Company warrants that its products will be free from
defects in materials and workmanship for one year from the time of purchase by
the end user. Should the Company determine that there are defects within the one
year period, management has a choice to repair or replace the defective unit. In
the second quarter of 2000, the Company repaired two units and replaced two
units; in the second quarter of 2001, the Company repaired one unit and replaced
three units. In the first half of 2000, the Company repaired two units and
replaced four units. In the first half of 2001, the Company repaired one unit
and replaced four units. Costs related to handling repairs and replacements have
been insignificant and immaterial historically. Adoption of SAB-101 will not
affect our financial statements because of the Company's no right of return
(i.e., all sales are final) policy.
17
The short-term strategy is to begin shipment of the Mercedes products in fall of
2001. The Company already has some of these products in inventory and is ready
to produce more. A distribution network for these parts has already been
established. In speaking with its major distributors (Worldpac, Interamerican
Motor Corp., Performance Products and SSF Imported Auto Parts, Inc.) regarding
the Mercedes product line, the Company has learned that they are interested in
carrying the line, and that they have customers who are ready to buy it as soon
as they have received product samples and price lists from the Company. The
Company does not have written commitments for these potential sales.
The interim marketing strategy is to develop the Honda and Toyota product line
in the last quarter of 2001, and then move on to the development of the market
for Perma-Tune products for domestic makes in 2002. The product lines require
that production tooling be made, for which funding is currently unavailable.
Most of the Company's distribution network already includes Asian car parts.
There is interest in the Perma-Tune Toyota repair parts because there is
currently no aftermarket supply available. The Company knows of no aftermarket
manufacturing companies making replacement ignition modules for these
automobiles. In 1999 the Company began negotiations with Toyota Racing
Development (TRD) for distribution of the Perma-Tune product line through TRD
catalogs and TRD retail shops located inside Toyota new car dealerships. The
Company has demonstrated its applicable technology to TRD. TRD engineering has
approved the basic design. Pending contract negotiations for start up and
tooling costs and execution of non-disclosure agreements, the Company has agreed
to manufacture product for distribution under the TRD name. Since TRD has yet to
sign non-disclosure agreements with the Company, requires that the Company fund
the tooling required for manufacturing, and such funding is not available at
this time, the project has not progressed.
All Perma-Tune ignition systems designed for street vehicles are certified by
California Air Resources Board Executive Order D-210. There was no testing
required to obtain this certification because, in compliance with CARB
regulations, the Company was able to state that its products do not alter the
ignition timing of the engine. Therefore, if the vehicle meets EPA standards
with its original ignition system, it will meet EPA standards with a Perma-Tune
ignition system installed on it.
2005 PLAN
Management intends to expand its market globally. The Company plans to combine
the Digital Fire and Plasma Injector technology into a new product line to allow
car manufacturers to meet new, stricter EPA air pollution standards. Revised
guidelines for improving light truck and SUV fuel economy being formulated by
the EPA in 2001 may potentially have a positive effect on the Company's sales.
18
MANUFACTURING OVERVIEW
Management has prepared for rapid growth. The Company's manufacturing technique
is flexible because of its modular design and it can respond easily to customer
demand. Modules can be mass-produced and then assembled to meet changing
purchase orders. Production can be increased and new products introduced
readily. Currently the Company is operating at a small percentage of its
manufacturing capacity.
RESULTS OF OPERATIONS
Three months ended June 30, 2001 vs. June 30, 2000
- --------------------------------------------------
In the second quarter of 2001, the Company experienced .2% sales growth as gross
sales increased from $73,840 in the second quarter of 2000 to $74,023 for the
current period. A total of 190 units were sold in the second quarter of 2001 at
an average price of $165. A total of 156 units were sold in the second quarter
of 2000 at an average price of $168. This change in average price per unit sold
was due primarily to increased unit sales of lower-cost new products, such as
coils, repair wire harnesss, and spark plugs. In the second quarter of 2001, the
company continued to ship its current product line from stock and shipped new
product. The new product models shipped were the MB010, RV010, PR020, PL020,
HN050, DF045 and UFX79.
Gross profit in the second quarter of 2000 was $27,356 compared to $47,522 in
the second quarter of 2001. As a percentage of sales, gross profit increased in
the second quarter of 2001 to 64% from 37% in the first half of 2000. This was
due to the sale of new products with a lower cost of goods sold and resulting
higher profit margins which the Company began shipping in 2001.
General and Administrative (G & A) expenses were $37,631 and $25,371 in the
Second quarter of 2001 and 2000, respectively. As a percentage of sales, G & A
expenses increased to 51% from 34%. This increase was due to increases in salary
resulting from bringing a dedicated officer onboard to handle financial and
legal matters, a very significant increase in payroll taxes related to the
Company's first-ever unemployment claims by two former employees. Other factors
in this increase in G&A expense include the offering of health insurance
benefits to its employees, an increase in the lease payments on the Company's
building, the Company's appearance at an investor meeting to raise equity
capital in California in the second quarter and travel expenses related to R&D
activities with US MagneGas. Other income for the first half of 2001 increased
over the first half of 2000 due to the receipt of consulting fees associated
with Mr. Lenarduzzi's research and development work with US MagneGas.
Interest expenses increased from $1,685 in the second quarter of 2000 to $3,899
in the second quarter of 2001. Third-party debt levels increased proportionately
for the period. This increase is due to the Company's agreements with its
attorneys and accountants to extend payment for fees resulting from the
Company's activities related to meeting the requirements of a fully reporting
company, and in creating its initial SEC filings.
19
Research and development expenses were $196 in the second quarter of 2000 and
$2,951 in the second quarter of 2001. This increase is due to the Company's
research and preparations in anticipation of shipping Honda units in the second
quarter of 2001.
Since the Company incurred net losses for both first half 2000 and 2001, there
was no income tax liability for either quarter. As of June 30, 2001, the
Company's approximate accumulated losses were $328,000 to be offset against
future income thru year end Dec. 31, 2012. The majority of this net operating
loss carry forward, $272,000, has occurred in the last four years. This was the
direct result of increased R&D expenses for developing new products as well as
the costs associated with the responsibilities of being a fully reporting
company. These costs relating to full reporting resulted from the Company's
preparations to trade securities on the NASDAQ OTC-BB, which will fund the mass
production of all product lines.
Six months ended June 30, 2001 vs. June 30, 2000
- -------------------------------------------------
In the first six months of 2001, the Company experienced 3.3% sales growth as
gross sales increased from $123,247 in the first half of 2000 to $127,342 for
the current period. A total of 441 units were sold in the first half of 2001 at
an average price of $165. A total of 440 units were sold in the first half of
2000 at an average price of $168. This change in average price per unit sold was
due primarily to increased unit sales of lower-cost new products, such as coils,
repair wire harnesss, and spark plugs. In the first half of 2001, the company
continued to ship its current product line from stock and shipped new product.
The new product models shipped were the MB010, RV010, PR020, PL020, HN050, DF045
and UFX79.
Gross profit in the first half of 2000 was $56,699 compared to $75,011 in the
first half of 2001. As a percentage of sales, gross profit increased in the
first half of 2001 to 58.9% from 46.0% in the first half of 2000. This was due
to the sale of new products with a lower cost of goods sold and resulting higher
profit margins which the Company began shipping in 2001.
General and Administrative (G & A) expenses were $88,027 and $47,695 in the
first six months of 2001 and 2000, respectively. As a percentage of sales, G & A
expenses increased to 69.1% from 38.7%. This increase was due to increases in
salary resulting from bringing a dedicated officer onboard to handle financial
and legal matters, a very significant increase in payroll taxes related to the
Company's first-ever unemployment claims by two former employees. Other factors
in this increase in G&A expense include the offering of health insurance
benefits to its employees, an increase in the lease payments on the Company's
building, the Company's appearance at an investor meeting to raise equity
capital in California in the second quarter and travel expenses related to R&D
activities with US MagneGas. Other income for the first half of 2001 increased
over the first half of 2000 due to the receipt of consulting fees associated
with Mr. Lenarduzzi's research and development work with US MagneGas.
20
Interest expenses increased from $3110 in the first half of 2000 to $5313 in the
first half of 2001. Third-party debt levels increased proportionately for 2001
year to date. This increase is due to the Company's agreements with its
attorneys and accountants to extend payment for fees resulting from the
Company's activities related to meeting the requirements of a fully reporting
company, and in creating its initial SEC filings.
Research and development expenses were $472 in the first half of 2000 and $4,510
in the first half of 2001. This increase is due to the Company's research and
preparations in anticipation of shipping Honda units in the 2nd quarter of 2001.
Since the Company incurred net losses for both first half 2000 and 2001, there
was no income tax liability for either quarter. As of June 30, 2001, the
Company's approximate accumulated losses were $328,000 to be offset against
future income thru year end Dec. 31, 2012. The majority of this net operating
loss carry forward, $298,000, has occurred in the last four years. This was the
direct result of increased R&D expenses for developing new products as well as
the costs associated with the responsibilities of being a fully reporting
company. These costs relating to full reporting resulted from the Company's
preparations to trade securities on the NASDAQ OTC-BB, which will fund the mass
production of all product lines.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the period ended June 30, 2001, the Company has not generated positive cash
flow from its own operations due to the preliminary nature of such operations,
ongoing investment in research and development and expenditures to build the
appropriate infrastructure to support its expected growth. Consequently, the
Company has been dependent on private placements of its equity securities and
debt financing to fund its cash requirements, as well as revenues provided by
the normal operations of Perma-Tune.
On January 12, 2001 the Company entered into a $15,000 line of credit with The
American National Bank of Texas in Wylie that is collateralized by the Company's
accounts receivable, inventory and equipment. The line was renegotiated to
$25,000 on March 12, 2001, with an initial interest rate of 11.5%. Interest is
variable, based on the Prime Rate plus 3%. Accrued interest is payable monthly,
and the maturity date is March 12, 2002. For the period ended June 30, 2001, the
principal balance owed on this line of credit was $20,300, with an interest rate
of 9.75%.
On December 8, 1997, the Company issued an offering circular for 125,000 units
priced at $2.00 per unit. Each unit entitled the investor to one share of common
stock and three stock purchase warrants. Each warrant entitled the holder to
purchase one share of stock for $2.00. The warrants expire on December 31, 2001.
At March 31, 2001, there are 348,000 warrants outstanding. Proceeds from the
exercise of warrants are planned to fund production tooling and start up costs
of the Honda and Toyota products lines. The Company plans to manufacture the
required tooling estimated at $35,000 in materials and 560 man hours. There may
be other costs associated with attaining the California Air Resources Board
certification for the Honda and Toyota product lines. In the year ended December
31, 2000, the Company sold 150,000 shares in a private placement for net
proceeds of $60,000. No additional private placements were made in the first
quarter of 2001. By consent of the Board of Directors on June 12, 2001, the
Company sold 20,000 shares of restricted stock for $5,000 ($.25 per share) to
Kiowa Oil Company. The market price on June 12, 2001 was $1.25 per share.
21
As of June 30, 2001, the Company's cash reserves totaled $2,666 and total
current assets were $54,765. The Company is continuing production and sales
efforts as well as further research and development and has yet to break-even in
terms of both cash flow and profitability. For the remainder of 2001, the
Company has no long-term commitments but expects to incur additional costs for
research and development . It also expects to expand its sales and marketing
effort. These efforts could significantly increase demand for the Company's
products beyond the Company's current production capacity. While the Company
believes it can increase its production capacity to meet sales demand,
significant additional capital could be required to meet expansion requirements.
Inventory at June 30, 2001 was $32,222. Inventory at June 30, 2000 was $45,275.
The inventory turnover ratios were 3.2/yr. and 3.4/yr. for the periods ending
June 30, 2001 and 2000, respectively. This slight increase was due to an
increase in production activity to fulfill second quarter 2001 purchase orders.
Accounts receivable ratios were 28 days and 30 days for the periods ending June
30, 2001 and 2000, respectively. Working capital ratios were .43 and 1.58 for
the periods ending June 30, 2001 and 2000, respectively. This change was due to
a continuing increase in accounts payable for legal and accounting services
resulting from the Company's preparation and filing of SEC forms, and accounting
fees associated with the preparation of financials required of the Company since
it became fully reporting. The Company has agreements with its accountants and
attorneys to pay these balances as funding becomes available via accounts
receivable generated from the normal operations of the Company.
The Company presently has an outstanding loan payable on demand to Terry Taylor,
a stockholder. Principal balance as of June 30, 2001 is $40,000. The loan bears
an interest rate of 10%. Interest is payable quarterly. The loan is secured by
inventory.
The Company is taking steps to raise equity capital. The Company's ability to
raise additional capital will be impeded until it is listed on the NASD Over the
Counter Bulletin Board. There can be no assurance that any new capital would be
available to the Company or that adequate funds for the Company's operations,
whether from the Company's revenues, financial markets, or other arrangements
will be available when needed or on terms satisfactory to the Company. The
Company has no commitments from officers, directors or affiliates to provide
funding. The failure of the Company to obtain adequate additional financing may
require the Company to delay, curtail or scale back some or all of its research
and development programs, sales and marketing efforts, and manufacturing
operations. Any additional financing may involve dilution to the Company's
then-existing shareholders.
Without additional capital funding, the Company believes it can operate at its
current level of liquidity for twelve to twenty-four months. However, it hopes
to obtain short-term funding until operations are ramped up, creating the
profitability that will improve its liquidity position.
22
RECENT DEVELOPMENTS
- -------------------
In the second quarter of 2001, the Company continued taking advantage of the
infrastructure improvements made during 2000 (implementation of fully integrated
manufacturing/accounting software, availability of a dedicated officer for
finance, marketing and SEC compliance tasks and outsourcing of certain
manufacturing functions).
The Company has compiled a database of potential new wholesale distributors and
end users to promote its existing product line sales through low-cost, direct
mail marketing and e-mail. The new Company web site has been posted on the
Internet and is being continually fine-tuned and updated. In the second quarter
of 2001, the Company has continued to focus on sales of its core product line to
fund operations by seeking new distributors for its products in Europe and
Japan.
The Company's newly updated Internet site has been instrumental in making new
connections with two European parts distributors. On May 25, 2001, the Company
made an initial sale of ten units to Mittlemotors in Bochem, Germany, with their
commitment to purchase a minimum of 100 units per year, all sales final. Also in
the second quarter, the Company made a tentative agreement with similar terms
with a parts distributor in France, Jean Buser Porsche in Paris.
Domestically, the Company added San Diego Motorsports (and its sister company,
Black Forest Racing) as new distributors in the second quarter. San Diego
Motorsports and Black Forest Racing specialize in high-performance racing parts
and accessories, and cater to professional race teams and Porsche enthusiasts.
At their own expense, they are marketing the Company's products via print ads,
and a featured page on their extensive website.
The Company has continued building finished product for the shelf of its
existing product line, is shipping all orders from stock, and has improved
accounts receivable turn-around time.
The Mercedes Benz Kit 1 is now in stock. The Company has selected Kingsborne to
subcontract the manufacturing of the supplemental Mercedes products for Kits 2
and 3. Initial reaction of the Company's wholesale distributors to the Mercedes
product release in December of 2000 has been conservative due to the product's
cost. Wholesale prices for the Perma-Tune Mercedes Benz Kits are: $380 for Kit
#1, $310 for Kit #2 and $643 for Kit #3. While these prices are comparable to
other new replacement parts kits offered by our wholesalers, their concern is
that customers are currently purchasing rebuilt replacement parts at prices
lower than that of new replacement parts.
The feedback the Company is receiving on initial sales of the Mercedes product
line has been very favorable in terms of product quality and market interest.
However, this product line is perceived as "too expensive" vs. rebuilt Mercedes
ignition systems (although the Perma-Tune is new equipment). Therefore, the
Company is considering a possible redesign of the product aimed at reducing its
price. Wholesalers indicate that if enough of their customers inquire about the
23
product, they will stock the products. The Company's research indicates that
there are no aftermarket products that compete with the Company's offerings
available, and that consumers will buy the Company's Mercedes Kits if they are
readily available to them. After speaking with the Company's major distributors
(Worldpac, IMC, Performance Products and SSF), the Company has learned that
these distributors are interested in carrying the product line, and that they
are aware of customers of theirs who will buy the products. The distributors are
awaiting receipt of production samples of the spark plug wire harness component
of the kits (they have already received prototype samples of the wire sets) and
price lists before they proceed to stock the product line. In the second quarter
of 2001, the Company finalized design specifications with Kingsborne for
manufacturing wire sets, and expects production to begin in the third quarter of
2001. The Company does not have written commitments from these distributors to
purchase the products. Since funding for large-scale advertising and marketing
is not available at this time, the Company is promoting the products via its
website and direct mailings of postcards.
The Company therefore has decided to take a grass roots approach to marketing
the Mercedes product line to create demand for the product. We have mailed new
product brochures to all of our existing wholesale distributors as well as every
Mercedes repair shop in our area to pique interest, and we are beginning to
receive interested inquiries in response. Interest has been further generated by
postings on the Mercedes lists-server of the Internet inviting interested people
to visit our website, and our ad in the local Mercedes Benz Club newsletter. In
the second quarter, the Company began enclosing a Mercedes product line brochure
with every ignition unit it sells.The Company has continued to search for more
commercial applications for its Plasma Injector technology. The United States
Mine Safety and Health Administration has expressed interest in Perma-Tune
technology for use in their experiments to increase the safety of mining
workers. In the second quarter of 2001, the Company sold one unit to the US Mine
Safety and Health Administration. Results of their experimentation are unknown,
and the Company does not know if this sale will result in additional sales.
The U.S. Navy Surface Weapons Center has reported successful results from
experiments using the Plasma Injector but has released no information on the
possibility of more sales to them or regarding commercial applications of their
technology using the Plasma Injector.
The White Paper circulated by the Company (a scientific description of how the
Company's products work, written September 12, 2000 for distribution to the
Texas state legislature and selected research scientists) has resulted in a new
application of the Plasma Injector for use with alternative fuels. Dr. Ruggero
Santilli of US MagneGas has read the Perma-Tune White Paper and believes that
the theory set forth in the paper is consistent with his research in plasma
theory. US MagneGas manufactures equipment that creates a clean burning fuel
from crude oil or liquid petroleum wastes using their own plasma arc technology
(a term employed by US MagneGas to describe the patented process by which their
equipment creates a plasma state in the production of MagneGas). Dr. Santilli
theorized that since MagneGas was created in a plasma field, a plasma field may
be needed to burn MagneGas in an automobile engine.
24
Plasma is commonly referred to as "the fourth state of matter", after solid,
liquid and gas. Plasma is a high temperature, ionized gas composed of electrons
and positive ions in such relative numbers that the gaseous medium is
essentially neutral. The plasma field is produced by a Perma-Tune Plasma
Injector by subjecting the fuel-air mixture to a sudden blast of high-Voltage
energy (32,000 Volts with a rise time of 2 nanoseconds) which strips valence
electrons from the fuel-air molecules.
Subsequently, US MagneGas flew Lonnie Lenarduzzi to their laboratory in Largo,
Florida to conduct experimentation using MagneGas to power a bi-fuel automobile.
Mr. Lenarduzzi installed a Digital Fire and four Plasma Injectors on a Honda
automobile, achieving remarkable success. Better performance was achieved in the
experiment with Perma-Tune Plasma Drives than had ever before been achieved
using MagneGas in an automobile with any other ignition system. The exhaust gas
from the test vehicle running on MagneGas was analyzed and found to contain no
carbon monoxide, elevated oxygen levels and even less hydrocarbons than were
measured in the surrounding atmosphere before the test. These tests were
performed using a digital read-out, four-gas analyzer. This piece of equipment
does not have the capability to produce hard-copy reports.
Installation of a Digital Fire and Plasma Injectors on older vehicles consists
of mounting a crankshaft encoder on the engine and installing one Digital Fire
to control the Plasma Injectors (one per cylinder). For new vehicles, if
desired, the existing controller can be used instead of a Digital Fire to
control the Plasma Injectors (again, one per cylinder). If the vehicle is to be
powered by MagneGas, it would have to be fitted with a gas storage cylinder and
fuel delivery system identical to those used on natural-gas powered vehicles
currently in use today.
The test results showing elevated oxygen levels and less hydrocarbons are a
result of two factors. 1) Perma-Tune's Plasma Injector technology more
completely burns the fuel-air mixture in the vehicle due to the ionization
achieved via a plasma field (described above) and the initiation of combustion
with an explosion rather than the spark which is used in conventional ignition
systems. 2) Chemical reactions produced by burning MagneGas, details of which
are the intellectual property of US MagneGas, to which the Company does not have
access.
The experiment demonstrated that existing vehicles can be modified to operate on
both gasoline and MagneGas with the addition of the Plasma Injector and Digital
Fire to achieve improved performance.
The Company sold eight Plasma Injectors and two Digital Fire systems to US
MagneGas, one set for the Honda and another set to use in experiments on a
four-cylinder generator. Revenues from the Company's work with US MagneGas as of
3/31/01 total $16,289.66. Both companies have agreed to continue working
together to fully develop commercial application for these technologies. US
MagneGas is studying the possibility of other uses for the Plasma Injector in
gas ionization processing equipment that they manufacture.
US MagneGas has reviewed this disclosure and has agreed that it is correct.
25
As of the second quarter of 2001, the Company is waiting for US MagneGas to make
decisions on plans to create commercial applications resulting from its
successful experimentation using MagneGas with the Company's products. It is not
known at this time if future sales will result from these experiments.
In preparation for the planned fourth quarter 2001 release of its new Honda
products, the Company has conducted limited R&D activities at a cost of $2951 in
the second quarter, 2001.
A dynamometer test was conducted by a prospective Honda client at their own
expense to compare the Perma-Tune model HN010 against the Honda's stock ignition
system at Redline Performance in the Ft. Worth, Texas area. No other variables
were changed in this test. The customer's mechanics conducted the dyno test;
Perma-Tune personnel were not involved in the testing in any way. The purpose of
the test was to evaluate the ease of installation, and the possibility of
achieving increased performance using the Perma-Tune model HN010.
The mechanics gave the unit high marks for ease of installation, and showed by
their dyno testing that a 10.2% increase in torque and a 16.9% increase in
horsepower were produced by replacing the stock Honda ignition with the
Perma-Tune model HN010. Exhaust gas analysis equipment was not available at this
testing facility to quantify the reduction of tailpipe emissions or the increase
in fuel economy produced by the installation of the model HN010. The Company has
received copies of the dyno test results, and has verified with Redline
Performance that these test result printouts accurately represent their
findings.
In July 2001, the Company's amended Registration Statement on Form 10-SB was
cleared of comments by the Securities and Exchange Commission, enabling the
Company to apply for quotation on the NASD-regulated Over-the-Counter Bulletin
Board. An application is pending for the Company to be approved for listing.
Forward looking statements
- --------------------------
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty. Although we believe
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements contained in the report will
prove to be accurate.
26
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities and Use of Proceeds
On June 12, 2001, the Company sold 20,000 shares of restricted common stock for
$5,000 ($.25 per share) to Kiowa Oil Company. The market price on June 12, 2001
was $1.25 per share. The Company relied upon the exemption from registration
provided by Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERMA-TUNE ELECTRONICS, INC.
By: /s/ Linda Decker
-------------------------
Linda Decker
Chief Financial Officer
Date: August 17, 2001
28