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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB12G/A
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
PERMA-TUNE ELECTRONICS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
TEXAS 75-2510791
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
111 SOUTH BIRMINGHAM STREET, WYLIE, TEXAS 75098
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (972) 442-6774
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
TITLE OF EACH CLASS TO BE REGISTERED: NONE
NAME OF EACH EXCHANGE ON WHICH EACH CLASS
IS TO BE REGISTERED: NONE
SECURITIES TO BE REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE
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FORM 10-SB
TABLE OF CONTENTS
ALTERNATIVE 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3. DESCRIPTION OF PROPERTY
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
ITEM 6. EXECUTIVE COMPENSATION
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8. DESCRIPTION OF SECURITIES
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2. LEGAL PROCEEDINGS
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
PART F/S
ITEM 1. FINANCIAL STATEMENTS
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PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
SIGNATURES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Registration Statement are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of Perma-Tune
Electronics, Inc., a Texas corporation (the "Company") to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The forward-looking statements made
in this Registration Statement are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based
in part, on assumptions involving the growth and expansion of its business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward- looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements made in this
Registration Statement will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements made in this
Registration Statement, inclusion of such information should not be regarded as
a representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
In addition, this Registration Statement includes forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). These statements are based on management's beliefs and
assumptions, and on information currently available to management.
Forward-looking statements include statements in which words such as "expect",
"anticipate", "intend", "plan", "believe", "estimate", "consider", or similar
expressions are used.
In summary, forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The Company's future results
and stockholder values may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict. In
addition, the Company does not have any intention or obligation to update
forward-looking statements after the effectiveness of this Registration
Statement, even if new information, future events or other circumstances have
made them incorrect or misleading. For these statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in
Section 21E of the Exchange Act.
BUSINESS OF ISSUER
Perma-Tune Electronics, Inc., designs, manufactures and distributes ignition
control modules which replace original ignition control modules for both high
performance and standard automobiles. Perma-
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Tune's products are designed to provide better performance and lower hydrocarbon
emissions than original equipment ignition systems.
The ignition control module in an internal combustion engine creates the energy
to form the spark which begins the chain reaction of combustion. In conventional
automobiles, the ignition control module feeds energy to the ignition coil to
amplify that energy. The energy is then distributed by a distributor to the
spark plugs which produce the spark to ignite the fuel-air mixture in the
combustion chamber.
BUSINESS DEVELOPMENT
The Perma-Tune ignition system was originally designed in 1968 by Dr. Theodore
Sturm and Dr. Ferdinand Porsche for the Porsche 911 automobile. The original
system was manufactured for Dr. Sturm by Aero Design Products of Newport Beach,
California and supplied to the Porsche assembly line in Germany. The original
unit design was patented by Dr. Sturm in the United States in 1973. In 1989
Lonnie Lenarduzzi, the president and a principal shareholder of the Company,
purchased the Perma-Tune design and patent from Aero Design Products. He then
formed Perma-Tune, Inc., a California corporation, to manufacture the system,
moving the company's operations to Anaheim, California. In 1993 the assets of
the California corporation were transferred to a newly formed Texas corporation,
Perma-Tune Electronics, Inc., and the Company was moved to Wylie, Texas. The
original patent has expired.
The Company manufactures three levels of equipment: the basic Perma-Tune, the
"Coilless" Perma-Tune and the "Digital Fire" Perma-Tune. The basic Perma-Tune
unit can be adapted to any internal combustion engine that utilizes a spark
plug. The unit is designed to be installed with relative ease. The basic unit
replaces the automobile's ignition control module utilizing the automobile's
existing coil. The Company presently manufactures basic units which have been
designed for nine automobile models including those of Porsche and Mercedes
Benz. The Company is developing additional units for four Toyota models, two
Honda models and two Mercedes Benz models.
The "Coilless" Perma-Tune replaces both the automobile's original ignition
control module and its coil, and is housed in one unit. The "Coilless"
Perma-Tune, while similar to the original model, is more sophisticated, yet
less complex. The "Coilless" model is lighter, takes up less space than the
basic unit and is easily installed. Because of its simplicity, the Company
believes that the "Coilless" model is more reliable than original equipment
ignition control modules with coils. Each of the Company's conventional
ignition systems can be transformed into a Coilless version. The basic
product line was designed to be flexible so that with one or more assembly
processes a unit can fit a Mercedes or a Honda. Therefore, with a minimal
investment in parts and a half hour of manpower, an additional few hundred
dollars can be added to the Company's profit on a unit.
The Company's "Digital Fire" model is designed for "off road" or racing cars.
It uses miniaturized solid state electronics, replacing bulky hardware with
firmware that can be updated utilizing new software that can be downloaded
from the Internet. Futhermore, new miniaturized digital encoder technology
replaces bulky, old analog sensors making installation simple. The "Digital
Fire" replaces the original ignition control module, coil, computer and
distributor (if a mechanical distributor is present). The Company currently
manufactures three models of the "Digital Fire" for four and six cylinder
engines. Each unit is adaptable
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with existing software (single plug for four and six cylinder engines, and dual
plug for some six cylinder engines). The Company is currently developing
adaptable software for eight cylinder engines.
The Digital Fire has two kinds of software: one is specific for the kind of car
in which it is used; and the other tells the unit what to do (i.e., how to fine
tune the vehicle for maximum performance given a specific set of variables).
The "Digital Fire" equipment is hardwired into the automobile and is
monitored and controlled by an external computer. The equipment is
reprogramable using any computer system without the need for special
software. It may also be reprogrammed using a "PDA" (personal digital
assistant, such as the Palm Pilot professional model manufactured by 3Com
Industries). The "Digital Fire" appeals to the weekend auto enthusiast or
semi-professional who seeks to improve the engine performance of his racing
or other "off road" vehicle.
The wholesale prices for the major Perma-Tune models range from $136 to $998 as
follows:
<TABLE>
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MODEL PRICE
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911 and 911E units $136
911SC units $188
Coilless units $302
Digital Fire units $998
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The Perma-Tune unit is readily mass-produced using molds to make customized
connectors for plug-in installation. The Perma-Tune system reduces hydrocarbon
emissions by 20 to 80 percent, while delivering performance increases of 10 to
60 percent in horsepower and torque compared to original equipment ignition
control modules. Tests to determine these performance increases and reduction of
hydrocarbons were performed at three independent dynamometer facilities (Norwood
Autocraft in Dallas, Texas and Team Dynojet in Garland, Texas and Area 51). Each
report represents the compilation of approximately 25 test runs. These tests
were performed on three different engines using identical dynamometers. The
tests compared the Perma-Tune system with the most popular competitors' ignition
system on identical V-8 engines. The models used were the Perma-Tune Coilless
Model and Autotronics' MSD 6AL Model. Company personnel did not participate in
any way in the independent testing. Bob Norwood, a race engine designer known in
Ferrari racing circles, was one of the drivers doing actual testing. Toyota
Motor Company conducted independent testing of the Perma-Tune system under
control of Toyota Racing and Development. Company personnel did not participate
in any way in the independent testing. This report is the result of 12 test runs
comparing the Toyota original equipment and the Perma-Tune Digital Fire
Ignition.
Other sources of performance data include state emission tests and results taken
before and after Perma- Tune installations. This data was provided by customers
of the Company and has not been independently verified.
The Company is managed by Mr. Lenarduzzi and his wife Linda Decker. He is
president and chief executive officer of the Company. He has had 18 years of
experience in designing and manufacturing
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Perma-Tune products. Ms. Decker is a director, secretary and a principal
shareholder of the company. Her background includes publicity, marketing and
product line management expertise.
The Company believes that large, unexploited domestic and foreign markets
exist for its products. The Company is presently negotiating with major
automobile manufacturers who have expressed an interest in including
Perma-Tune products as original equipment in their automobiles.
In 1999 the Company produced an average of 100 units per month. As of April
2000, production is 200 units per month. The Company conservatively projects
production of at least 450 units per month by the end of 2001. The Company's
existing facilities are capable of producing a maximum of 4,000 units per
month by adding additional assembly stations and operating three shifts per
day for five days per week.
ADDITIONAL BUSINESS DEVELOPMENTS
The Company's expansion of market share and growth will depend on the success
of three separate factors: educational and marketing efforts with
wholesalers; possible endorsement by federal regulatory bodies for the
pollution-reducing attributes of its product on federal highways; and
increased concern by consumers for performance, fuel economy and reduced
pollution.
COMPETITION WITH THE DIGITAL FIRE MODEL
Although the Digital Fire unit is presently available for four and six cylinder
engines, the Company believes that the major market is for four cylinder
racecars. Only Porsche still has a six cylinder engine model. The Digital Fire
operates independent of a distributor ignition system. The basic Digital Fire
can be upgraded to control fuel injection, throttle body servo (drive by wire)
and electro-hydraulic valve functions solely by the addition of software. Since
changes to the manufacturing process of the Digital Fire unit are not required
to provide these upgrades, the units can be mass produced, stored and then
configured with new software in response to specific purchase orders.
The Company's products are affordable and directed to racing hobbyists with
disposable income who drive four cylinder vehicles. The Company believes that
this is the fastest growing segment of the auto racing industry. The
following comparison only utilizes the stand alone, distributorless ignition
aspect of the Digital Fire.
Motec, a major competitor of the Company, is an Australian manufacturer
marketing specifically to the high end professional auto racing world. While
the Motec model M4 enables the race team to alter engine parameters for
optimum performance to satisfy any set of variables at the race track, it
requires highly skilled mechanics to install the hard-wired system. Any
modification or electronic update to the M4 requires hardware replacements.
The Motec product retails for $4,100 to $5,000 compared to the Digital Fire,
which has a retail sales price of $1,500.
Electromotive, another competitor, has the same hardwire installation and update
requirements as Motec. The price of its HPVI product is comparable to the
Digital Fire but it has only three programming settings making the product less
versatile. Although the HPV 3A model compares to Motec in its level of
complexity, the Company believes that it is a more difficult program to use than
that of the Digital Fire. It is also more expensive than the Digital Fire.
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The Company believes that the Digital Fire permits the affordable upgrade to a
"high tech" engine while being easy to install. The wholesale price is $998 and
the retail price is $1,500 for a complete unit. No fabrication is required,
eliminating the costs associated with competing products. Installation of the
Digital Fire is done with hand tools and can be accomplished by an automotive
hobbyist. Competitive systems require precision fabrication and installation of
components by trained mechanics. Once the Digital Fire is installed, it can be
upgraded by adding software, hardware or both to the existing system.
Competitors' products require the replacement of existing systems to update or
reconfigure their systems.
Easy programming is the Digital Fire's most important feature. While competitive
products require knowledge of complex software and a sophisticated computer to
program their systems, the Digital Fire can be programmed with a Palm Pilot. The
Digital Fire may be programmed by persons with average computer skills. Upgrades
and add-ons, which customize the Digital Fire, can be effected with a desk top
computer, lap top computer or Palm Pilot. The Digital Fire can be connected via
the Internet to retailers of Perma-Tune products for upgrade and diagnostic
purposes. With the Palm Pilot model Palm VII Connected Organizer, users will
also be able to sample new Digital Fire programs and receive engine analysis
services while the vehicle is being driven on the race track. The Company
believes that it is the first company to utilize the potential of the Palm Pilot
in the automotive after market industry.
By contrast, competing products use proprietary programming technology that
requires the user to purchase expensive software to program their systems.
The Digital Fire uses the industry standard RS232 communication protocol so
that users can produce additional software that can interface with the
Digital Fire. While the software used to program the Digital Fire is "open
architecture", the operating system can only be modified by the Company. This
strategy encourages innovation and adaptation of the Company's system by its
users while allowing the Company to resell the user- developed software under
its own name, thus avoiding expenses associated with software development.
The right to such user-developed software would be exclusive to the Company.
The Company believes that software will become its most lucrative product
line.
Both the MSD product line made by Autotronic Controls and the Jacobs product
line produce distributor- type ignition systems that compete with the Perma-Tune
Coilless and conventional ignitions, but not with the Digital Fire line. Whereas
the Perma-Tune replaces the existing ignition system, the competitors' models
work with the existing vehicle ignition systems. These models are more costly
and their performance has proven inferior to the Perma-Tune in independent
dynamometer tests.
Jacobs is the only other ignition manufacturer that produces two models
similar to the Perma-Tune Coilless units. The Company believes that both
models are inferior in performance to the Perma-Tune Coilless unit.
INTELLECTUAL PROPERTY
The Company utilizes proprietary technology that includes processes for
manufacturing ignition system components, concepts that relate to combustion
ignition systems and for separate products. The Company presently utilizes trade
secret law to protect this intellectual property and it is in the process of
preparing at least one patent application. The original patent for the
Perma-Tune expired in 1990.
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With respect to some of its technology, the Company has chosen not to seek
patent protection but rather will maintain such technology as trade secrets.
This decision is based upon the Company's desire not to make the necessary
public disclosure of its technology that would be required when a patent is
granted. Patent protection only exists for seventeen years in the United States
and a United States patent does not protect against use by persons in foreign
countries. Foreign patents only protect against duplication in countries where
patents are obtained and do not protect against pirating in other countries.
Some of the Company's innovations are of a nature that they may not be
protectable with trade secrets alone, but will require patent protection. The
Company believes that some of its technology will be better protected through
the patent process and it intends to seek patents for that technology. At least
one such Perma-Tune innovation is currently being prepared for patent
application. After it has been filed the Company will have the option of either
having a patent issue or allowing the application to be abandoned and
maintaining the invention as a trade secret.
The Company plans to make five to ten patent applications before the end of
the year 2000. It takes on the average one and one-half to two years for
patent issuance after an application is filed. A patent protects against
infringement by manufacture, use or sale of the patented technology or item.
Foreign applications must be made within one year of the U.S. patent
application filing date. The Company has been advised that foreign protection
is available for much of Perma-Tune's technology. To date the Company has not
sought foreign patents that would serve to protect its technology solely
within the country granting its patent. A U.S. patent protects against
importation of infringing products into the U.S. market.
SALES STRATEGY
As of the date of this registration statement, the Company's marketing has
consisted of advertising by its wholesale distributors via catalogs, printed
advertisements, promotional events and the Internet.
The Company believes that new software modifications available in the automotive
after-market will create additional sales. The Company also believes that it is
easier to sell an upgrade for an existing system than to sell a completely new
system in order to achieve the same goal.
The Company intends to further develop its distribution channels by providing
personal technical training for salespeople in connection with the
introduction of new products. The Company plans to hire a public relations
firm to assist in increasing public awareness of Perma-Tune and its products.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This Form 10-SB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward looking statements include statements regarding
the Perma-Tune and Digital Fire product lines and the Company's strategy. Actual
events or results could differ materially from those discussed in the forward
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looking statements as a result of various factors including, without limitation,
the factors set forth below and elsewhere herein.
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included herein.
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.
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. The Company is waiting until it has sufficient inventory before
introducing this product line.
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.
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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 the Company conducted a research project on behalf of the Laurence
Livermore National Laboratory and the US Navy to develop a special ignition
system for reasons not revealed to the Company. The Company provided prototype
units in 1998 and retained all rights to the intellectual property created in
their manufacture. In 1999 the Company continued its research on the same
project under a purchase order from the US Navy Surface Weapons Research Center
and created the Plasma Injector. The Company has manufactured seven Plasma
Injectors. One was sold to the Navy and the other six are being evaluated for
possible use in automotive, space and industrial applications. Management
intends to conduct more Plasma Injector research in combination with the Digital
Fire during 2000 to create new product lines.
In February 2000 the Company began a dialogue 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.
In June 2000 the Company began a dialogue with Bechtel Nevada to incorporate the
Plasma Injector in their equipment for use in a research program for the U. S.
Department of Energy.
MARKETING STRATEGY
Management intends to seek the professional assistance of a public relations
firm in the planning and implementation of new product marketing strategy. The
Company will continue to foster word of mouth
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advertising and will continue to conduct sales training activities for the
Company's distributors.
The short-term strategy is to begin shipment of products for Mercedes Benz
automobiles. The Company has some of these products in inventory and is
prepared to produce more. A distribution network for these parts has already
been established. The Company has potential orders pending distribution of
product samples and price lists.
The interim marketing strategy is to develop products for Honda and Toyota
autos in the last quarter of 2000, and then develop the market for Perma-Tune
products for domestic automobiles in 2001. Most of the Company's distribution
network already includes Asian car parts. The Company believes there is
interest in Perma-Tune repair parts for Toyotas because there is currently no
aftermarket supply available.
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, the Company has
agreed to manufacture product for distribution under the TRD name.
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.
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.
COMPARISON OF OPERATING RESULTS
In 1999, the Company experienced 20.1% sales growth as gross sales increased
from $204,368 in 1998 to $245,500. A total of 885 units were sold in 1998 at an
average price of $231. A total of 1,219 units were sold in 1999 at an average
price of $201. This decrease in average price per unit sold was due primarily to
an increase in sales for the two most popular products which have a lower than
average sales price.
Gross profit in 1999 was $115,507. Gross profit in 1998 was $93,860. As a
percentage of sales, gross profit increased in 1999 to 47% from 46% in 1998. The
Company plans to sub contract labor-intensive operations to increase its gross
profit margin and to allow for rapid growth. The Company will ultimately retain
control over production of the Perma-Tune product line by manufacturing the key
components itself.
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General and administrative (G & A) expenses were $134,094 and $156,551 in 1999
and 1998, respectively. As a percentage of sales, G & A expenses decreased to
54.6% from 76.6%. The figures for both 1999 and 1998 are unusually high by
percentage. The major components of this atypical result are extra salaries and
wages (with related payroll taxes) for Company personnel to carry out research
and development work and an increase in accounting and legal costs. All of these
expenses increased as a percentage of gross sales to enable management to
attempt a public offering.
Interest expense decreased from $16,390 in 1998 to $5,990 in 1999. This was the
direct result of a decrease in its debt level. Debt that incurred interest
charges, decreased from $100,000 at December 31, 1998 to $54,500 at December 31,
1999.
Since the company incurred net losses for both 1998 and 1999, there was no
income tax liability for either year. The company has a net operating loss
carry-forward available in the amount of $164,210 to be offset against future
income through the year ending 12/31/10. The majority of this net operating loss
carry-forward, $134,412, has occurred in the last three years. This was the
direct result of increased R & D costs for developing new products as well as
the costs associated with the public offering that will fund the mass production
of all product lines.
Y2K issues for the company's computer operations were limited to upgrading its
accounting software, this has been completed. None of the company's product
utilizes date sensitive programming.
LIQUIDITY AND CAPITAL RESOURCES
Operating capital was primarily provided from 1) the revenues provided by the
operations of Perma-Tune Electronics, 2) shareholder loan and 3) sale of
additional common stock.
STOCK OFFERING
Management made a stock offering under Rule 504 of Regulation D of the
Securities and Exchange Commission (SEC) to begin mass production of its
products by raising the maximum amount of money under this rule, $1 million.
Management issued 122,700 shares in the Rule 504 offering and will consider a
future offering when appropriate.
During 1998 and 1999 the NASD made rule changes that made it advisable for the
Company to file a Form 10-SB. Preparation of the Form has caused the Company to
be delayed in raising money from the public stock offering. The fiscal years
1998 and 1999 are to be audited in accordance with GAAP and SEC rules in
preparation of a form 10-SB. Management expects the audit to be completed in the
first quarter of 2000 and the form 10-SB to be filed with the SEC during the
third quarter of 2000.
Inventory at 12/31/99 was $38,783. Inventory at 12/31/98 was $23,563. This
increase was purposeful and intended to increase the company's goods available
for sale as a response to increasing unit sales volume.
The Company currently had a $25,000 line of credit with an outstanding balance
at December 31, 1999 of $4,500. The balance was paid and the credit line closed
prior to June 30, 2000.
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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.
ITEM 3. DESCRIPTION OF PROPERTY
The issuer leases 3,200 square feet of space for manufacturing and
administrative activities in Wylie, Texas, a suburb of Dallas, at $1,250 per
month. The lease expires on May 31, 2003.
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth information as of March 31, 2000, with respect to
the beneficial ownership of the common stock by (i) each director and officer of
the Company, (ii) all directors and officers as a group and (iii) each person
known by the Company to own beneficially 5% or more of the common stock:
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NAME AND ADDRESS OF SHARES OWNED % OF CLASS
BENEFICIAL OWNER BENEFICIALLY(1) OWNED
---------------- --------------- ----------
<S> <C> <C>
Lonnie Lenarduzzi 1,566,600(2) 72.9%
111 South Birmingham St.
Wylie, Texas 75098
Linda Decker 1,566,600(2) 72.9%
111 South Birmingham St.
Wylie, Texas 75098
Larrie Lenarduzzi 6,000(3) *
6236 Tourelle Drive
Highland Heights, Ohio 44143
Wayne Robertson 78,764 3.68%
2652 No. McDermott Road
Kuna, Indiana 83634
Harold Smith 78,764 3.68%
5401 Calumet Drive
Plano, Texas 75023
Newport Capital Consultants 225,000 10.5%
78740 Runaway Bay
Bermuda Dunes, California 92201
</TABLE>
14
<PAGE>
All Officers and Directors
as a Group (5 persons) 1,730,128 80.7%
-------------
*Less than 1%
(1) The number of shares of common stock owned are those "beneficially
owned" as determined under the rules of the Securities and Exchange Commission,
including any shares of common stock as to which a person has sole or shared
voting or investment power and any shares of common stock which the person has
the right to acquire within 60 days through the exercise of any option, warrant
or right. As of March 31, 2000, there were 2,142,700 shares of common stock
outstanding. As of such date there were no outstanding warrants to purchase
shares of common stock, exercisable until December 31, 2000 at $2.00 per share.
(2) Lonnie Lenarduzzi and Linda Decker hold these shares as tenants in
common. They are husband and wife.
(3) Includes 4,500 shares issuable upon exercise of warrants.
CHANGES IN CONTROL
The Company does not anticipate any changes in control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND OFFICERS
The Directors and Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION SERVED AS A DIRECTOR SINCE:
---- --- -------- ---------------------------
<S> <C> <C>
Lonnie Lenarduzzi 45 President, Chief Executive Officer 1989
and Director
Linda Decker 43 Secretary, Chief Marketing Officer 1989
and Director
Larrie Lenarduzzi 42 Director 1989
Wayne Robertson 47 Director 1989
Harold "Red" Smith 67 Director 1989
</TABLE>
15
<PAGE>
LONNIE LENARDUZZI, President, Chief Executive Officer and Director received an
associate degree from the Pittsburgh Institute of Aeronautics (PIA) and worked
in the machine tool industry where he specialized in robotic manufacturing
systems for the Mazak Machine Tool Company. This experience allows him to
function as a designer of new products for the Company. As manufacturing
engineer for Aero Design Products, Inc. (1982-1989) he was responsible for the
original production of Perma-Tune. His first innovative design was the
development of a solid state ignition system for the aircraft engine based on
the Perma-Tune design.
When Aero Design Products, Inc. was liquidated in 1989, Mr. Lenarduzzi purchased
the Perma-Tune product line. In 1990 he gained certification from Northrop for
manufacturing excellence in producing their military ignition system and he
invented the Coilless ignition system.
Since moving the Company to Wylie, Texas, Mr. Lenarduzzi has continued to invent
and design automotive products for the Company.
LINDA DECKER, Corporate Secretary and Director had a 15 year career with IBM
Corp. in marketing and product line management before starting the Company.
Since 1989, she has co-owned the Company and has used her marketing managing
expertise for the Company publicity and marketing.
LARRIE LENARDUZZI, Director, is a manufacturing engineer and has been the sales
manager in charge of The Micro Finishing product line for Masco Machine Inc., in
Cleveland, Ohio. Larrie has an Aerospace Engineering Technology degree from Kent
State (1984). He also has an Associate Degree (1981) from the Pittsburgh
Institute of Aeronautics. He collaborates with Lonnie on manufacturing
techniques. Larrie is the brother of Lonnie Lenarduzzi.
WAYNE ROBERTSON, Director, has been a technician in charge of manufacturing
silicone wafers used in computers for the past four and one-half years and is
employed by Micron Technologies, Inc. in Boise, Idaho. From 1985 to 1989 he was
employed as a manufacturing supervisor at Aero Design Products, Inc. Previously,
Wayne worked as an electronics technician on locomotive engines for MK Rail of
Boise, Idaho. Wayne assists the Company by installing prototype Perma-Tune units
on test vehicles and in evaluating engine dynamometer test results.
HAROLD "RED" SMITH, Director, is an aeronautical engineer with a Bachelor of
Science degree from Southwestern Methodist University and a Master of Science
degree from the University of Colorado. He is an entrepreneur who owns and
operates four companies: R&D Aeronautical (located in Wylie, Texas) manufactures
unmanned military aircraft to sell to the United States Air Force and NATO
countries; Air Command International (located in Caddo Mills, Texas)
manufactures manned gyroplanes in Kit and FAA certified form; Southwest Soaring
Inc. (located in Caddo Mills, Texas) is a glider school; and RS Systems Inc. dba
Joans Hallmark. (located in Plano, Texas) has seven Hallmark franchises located
in the north Dallas area.
All Directors of the Company will hold office until the next annual meeting of
the shareholders, and until their successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors and hold office at
the pleasure of the Board.
16
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Compensation paid to Officers and Directors is set forth in the Summary
Compensation Table below. The Company may reimburse its Officers and Directors
for any and all out-of-pocket expenses incurred relating to the business of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND
POSITION FISCAL YEAR SALARY
-------- ----------- ------
<S> <C> <C>
Lonnie Lenarduzzi President, Chief Executive Officer and 1998 $48,623
Director 1999 $48,765
Linda Decker Secretary, Chief Marketing Officer and 1998 $ -0-
Director 1999 $ 2,025
</TABLE>
For the fiscal years ending December 31, 2000 it is anticipated that the
compensation of Mr. Lenarduzzi and Ms. Decker will remain unchanged.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lonnie Lenarduzzi has entered into a Licensing Agreement to license to the
Company all technology developed by him for $1,000 per year. The licenses have a
term of 25 years.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has authorized 10,000,000 shares of common stock, no par value, of
which 2,142,700 shares were issued and outstanding as of March 31, 2000. All
presently outstanding shares of the Company's common stock are validly issued,
fully paid and non-assessable. The holders of common stock do not and will not
have any preemptive or other subscription rights to subscribe for or purchase
any additional securities issued by the Company, nor do they have any redemption
or conversion rights.
The holders of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefore. It
is highly unlikely that dividends will be paid by the Company in the foreseeable
future.
The holders of common stock are entitled to receive on liquidation of the
Company a pro rata distribution of the assets of the Company subject to rights
of creditors and holders of any preferred stock then outstanding.
17
<PAGE>
WARRANTS
The Company issued warrants to purchase an aggregate of 368,100 shares of common
stock in connection with its 504 Offering. (See Part II, Item 4. Recent Sales of
Unregistered Securities). Each warrant entitles the holder to purchase one share
of common stock for $2.00 until December 31, 2000. Holders of warrants have no
rights as shareholders until the warrants are exercised. As of June 30, 2000
20,000 warrants to purchase shares had been exercised and 348,100 warrants
remain outstanding.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
There is no "public trading market" for the Company's common stock as that term
is defined in Regulation S-B of the Securities and Exchange Commission. "Bid"
and "asked" offers for the common stock are listed in the Pink Sheets published
by the National Quotation Bureau, Inc. The trading symbol for the common stock
is PTUE. On May 30, 2000 the common stock sold for $1.25 per share.
The Company has never paid a dividend on its common stock and does not
anticipate the payment of dividends in the foreseeable future.
The Company had outstanding, as of March 31, 2000, warrants to purchase 368,100
shares of common stock, exercisable at $2.00 per share until December 31, 2000.
In May 2000 warrants to purchase 20,000 shares were exercised.
All but approximately 130,000 of the Company's outstanding shares are restricted
securities, which have been held for in excess of one year and could be sold
pursuant to Rule 144 under the Act. Rule 144 permits the sale or restricted
securities which have been held for in excess of one year provided that the
issuer of the securities has made available public information as provided by
the Rule.
Of the total of 2,142,700 shares of common stock outstanding 1,566,600 are held
by Lonnie Lenarduzzi and Linda Decker as tenants in common. Because they are
affiliates of the Company, any sales under Rule 144 would be limited to 1% of
the outstanding shares of common stock or the average weekly reported volume of
trading in the shares, whichever is greater.
There were 65 holders of record of the common stock as of June 23, 2000.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the Company's two most recent fiscal years and any later interim period
no principal independent accountant for the Company resigned, declined to stand
for reelection or was dismissed.
18
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company issued or sold securities which were
not registered under the Securities Act of 1933, as amended, as follows:
On November 8, 1997, the Company commencing an offering (the "504 Offering") of
125,000 units (the "Units"), each Unit consisting of one share of common stock
and warrants (the "Warrants") to purchase three shares of common stock for $2.00
per share until December 31, 1999. The Units were offered at $2.00 each. The 504
Offering was made in reliance upon the exemption from registration provided by
Rule 504 of Regulation D under the Securities Act of 1933, as amended (the
"Act"). The 504 Offering was terminated on April 6, 1999 with the sale of an
aggregate of 122,700 Units. As of March 31, 2000, none of such Warrants had been
exercised. The Company will issue the shares underlying the Warrants (the
"Warrant Shares") in reliance upon the exemption from registration under the Act
afforded by Section 4(2) of the Act. The Company will place a legend on the
certificates representing the Warrant Shares indicating that they are restricted
from sale or transfer unless registered under the Act and the Company will give
instructions to its transfer agent restricting their transfer. Warrants to
purchase 20,000 Warrant Shares were exercised in May 2000.
No underwriters or agents were involved in any of the sales and no underwriting
discounts or commissions were paid by the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 2.02-1 of the Texas Business Corporation Act the
Company may indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, (other
than an action by or in the right of the Company) by reason of the fact that he
is or was a director, officer, employee, fiduciary or agent of the Company or is
or was serving at the request of the Company as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorney fees), judgments, fines,
and amounts paid in settlement actually and reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal action or
proceeding, had reasonable cause to believe his conduct was unlawful.
The Company may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of the Company or
is or was serving at the request of the Company as a director, officer,
employee, fiduciary or agent or another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not
19
<PAGE>
opposed to the best interests of the Company; but no indemnification shall be
made in respect of any claim, issue, or matter as to which such person has been
adjudged to be liable for negligence, misconduct in the performance of his duty
to the Company unless and only to the extent that the court in which such action
or suit was brought determines upon application that, despite the adjudication
of liability, but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnification for such expenses which such
court deems proper.
Otherwise, indemnification is limited to reasonable expenses and shall not be
made if the person is found liable for willful or intentional misconduct in the
performance of his duty to the Company.
To the extent that a director, officer, fiduciary or agent of a Company has been
successful on the merits in defense of any action, suit, or proceeding referred
to herein or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses (including attorneys fees) actually and reasonably
incurred by him in connection therewith.
Any indemnification under this provision (unless ordered by a court) shall be
made by the Company only as authorized in the specific case upon a determination
that indemnification of the director officer, employee, fiduciary or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth herein. Such determination shall be made by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding, or, if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs.
Expenses (including attorney's fees) incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Company in advance of the final
disposition of such action, suit or proceeding as authorized herein, upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount, unless it shall ultimately be determined that he is
entitled to be indemnified by the Company as authorized herein.
The board of directors may exercise the Company's power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as a
such, whether or not the Company would have the power to indemnify him against
such liability.
The indemnification provided herein is not exclusive of any other rights to
which those seeking indemnification may be entitled under the Articles of
Incorporation, the Bylaws, agreements, vote of the shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs and personal representatives of such a person.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification
20
<PAGE>
is against public policy as expressed in the Act and is therefore unenforceable.
PART F/S
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2.1 Articles of Incorporation
2.2 Amendment to Articles of Incorporation
2.3 By-Laws
2.4 Warrant to Purchase Common Stock
23.1 Consent of Travis, Wolff & Company, L.L.P.
</TABLE>
ITEM 3. DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2.1 Articles of Incorporation
2.2 Amendment to Articles of Incorporation
2.3 By-Laws
2.4 Warrant to Purchase Common Stock
23.1 Consent of Travis, Wolff & Company, L.L.P.
</TABLE>
21
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Perma-Tune Electronics, Inc.
DATED: October 11,, 2000 By: /s/ Lonnie Lenarduzzi
--------------------------------
Lonnie Lenarduzzi, President
22
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Table of Contents
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Perma-Tune Electronics, Inc.
Wylie, Texas
We have audited the accompanying balance sheets of Perma-Tune Electronics, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Perma-Tune Electronics, Inc. as
of December 31, 1999 and 1998, and the results of its operations, changes in
stockholders' equity (deficit) and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ TRAVIS, WOLFF & COMPANY, L.L.P.
-----------------------------------
Travis, Wolff & Company, L.L.P.
Dallas, Texas
January 21, 2000, except for
Note 7, as to which the date
is April 5, 2000
F-2
<PAGE>
PERMA-TUNE ELECTRONICS, INC
Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31, December 31,
2000 1999 1998
----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 13,158 $ 24,752 $ 71,831
Accounts receivable, trade 19,971 12,278 20,175
Inventory 39,507 38,783 23,563
Prepaid offering costs 66,218 43,905 --
Deposits 160 160 160
----------- ----------- -----------
Total current assets 139,014 119,878 115,729
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Molds and tooling 5,535 4,250 4,250
Leasehold improvements 3,294 690 690
Machinery and equipment 54,574 50,124 50,124
----------- ----------- -----------
63,403 55,064 55,064
Less accumulated depreciation 49,904 48,830 45,638
----------- ----------- -----------
13,499 6,234 9,426
----------- ----------- -----------
$ 152,513 $ 126,112 $ 125,155
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit $ -- $ 4,500 $ --
Note payable - stockholder 40,000 50,000 100,000
Accounts payable, trade 2,468 18,308 22,992
Accrued liabilities 4,409 12,693 3,908
----------- ----------- -----------
Total current liabilities 46,877 85,501 126,900
----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - 10,000,000 shares of no par stock
authorized, 2,142,700 issued and outstanding 243,395 183,395 113,400
Additional paid-in capital 15,550 15,550 15,550
Retained deficit (153,309) (158,334) (130,695)
----------- ----------- -----------
Total stockholders' equity (deficit) 105,636 40,611 (1,745)
----------- ----------- -----------
$ 152,513 $ 126,112 $ 125,155
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PERMA-TUNE ELECTRONICS, INC
Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Periods Ended
------------------------------------------------------------
June 30, June 30, December 31, December 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 123,247 $ 105,009 $ 245,500 $ 204,368
COST OF GOODS SOLD 67,020 54,947 129,993 110,508
------------ ------------ ------------ ------------
GROSS PROFIT 56,227 50,062 115,507 93,860
OPERATING EXPENSES:
General and administrative 45,194 68,374 134,094 156,551
Depreciation 1,075 1,596 3,192 1,544
------------ ------------ ------------ ------------
46,269 69,970 137,286 158,095
------------ ------------ ------------ ------------
PROFIT (LOSS) FROM OPERATIONS 9,958 (19,908) (21,779) (64,235)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (3,110) (3,263) (5,990) (16,390)
Other (936) -- 130 --
------------ ------------ ------------ ------------
(4,046) (3,263) (5,860) (16,390)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE FEDERAL INCOME TAX 5,912 (23,171) (27,639) (80,625)
Provision for federal income tax 887 -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 5,025 $ (23,171) $ (27,639) $ (80,625)
============ ============ ============ ============
INCOME (LOSS) PER SHARE:
Basic $ 0.002 $ (0.011) $ (0.013) $ (0.039)
============ ============ ============ ============
Diluted $ 0.002 $ (0.011) $ (0.013) $ (0.039)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Statements of Stockholders' Equity (Deficit)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
--------------------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 10,000 $ 20,000 $ -- $ (50,070) $ (30,070)
200-for-1 stock split 1,990,000 -- -- -- --
Shares sold 46,700 93,400 -- -- 93,400
Contribution of additional capital -- -- 15,550 -- 15,550
Net loss -- -- -- (80,625) (80,625)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 2,046,700 113,400 15,550 (130,695) (1,745)
Shares sold 76,000 31,995 -- -- 31,995
Warrants exercised for stock 20,000 38,000 -- -- 38,000
Net loss -- -- -- (27,639) (27,639)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 2,142,700 $ 183,395 $ 15,550 $ (158,334) $ 40,611
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Periods Ended
------------------------------------------------------------
June 30, June 30, December 31, December 31,
2000 1999 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,025 $ (23,171) $ (27,639) $ (80,625)
------------ ------------ ------------ ------------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 1,075 1,596 3,192 1,544
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (7,693) 4,781 7,897 (4,844)
Increase in inventory (724) (7,151) (15,220) (10,367)
Increase in prepaid offering costs (22,313) -- (43,905) --
Increase (decrease) in accounts payable (15,840) (17,193) (4,684) 3,178
Increase (decrease) in accrued expenses (8,284) 3,528 8,785 968
------------ ------------ ------------ ------------
Total adjustments (53,779) (14,439) (43,935) (9,521)
------------ ------------ ------------ ------------
Net cash used in operating activities (48,754) (37,610) (71,574) (90,146)
------------ ------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment (8,340) -- -- (4,032)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- -- 100,000
Repayments of long-term debt (10,000) (35,500) (50,000) (8,755)
Net proceeds (repayments) from line of credit (4,500) -- 4,500 (23,935)
Proceeds from sale of stock 60,000 69,995 69,995 93,400
------------ ------------ ------------ ------------
Net cash provided by financing activities 45,500 34,495 24,495 160,710
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (11,594) (3,115) (47,079) 66,532
Cash, beginning of period 24,752 71,831 71,831 5,299
------------ ------------ ------------ ------------
Cash, end of period $ 13,158 $ 68,716 $ 24,752 $ 71,831
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,791 $ 4,151 $ 7,239 $ 13,889
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
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 December 31, 1999 and 1998, 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 December
31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials $27,500 $22,280
Work in process 2,679 1,283
Finished goods 8,604 --
------- -------
$38,783 $23,563
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
Asset Type Estimated Life Method
------------------------------ ------------------------- -------------------------
<S> <C> <C>
Molds and tooling 5 years Accelerated
Leasehold improvements 5 - 7 years Accelerated
Machinery and equipment Lease term Straight-line
</TABLE>
F-7
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
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 years ended December 31, 1999 and 1998, was $3,192
and $1,544, 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.
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 year ended December 31, 1999, four customers accounted for 18%, 13%, 12%
and 10%, respectively, of net sales. These four customers also accounted for
approximately $1,800 (14%) of trade accounts receivable.
For the year ended December 31, 1998, four customers accounted for 21%, 13%, 12%
and 10%, respectively, of net sales. These four customers also accounted for
approximately $12,050 (60%) of trade accounts receivable.
F-8
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
EARNINGS (LOSS) PER SHARE
Earnings per share is calculated by dividing the income (loss) available to
common stock (the numerator) by the weighted average number of shares of common
stock outstanding during the period (the denominator). The weighted average
number of shares outstanding at June 30, 2000, and 1999 were 2,218,114 and
2,088,811, respectively. The weighted average number of shares outstanding at
December 31, 1999, and 1998 were 2,115,862 and 2,020,109, respectively.
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 December 31, 1999 and 1998, there were no
cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
PREPAID OFFERING COSTS
Legal and professional fees associated with the cost of registering company
stock have been classified as prepaid and will be offset against equity raised
through the offering process in the first half of 2000.
NOTE 2 - INCOME TAXES
At December 31, 1999 and 1998, 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 $164,200 and
$140,600 at December 31, 1999 and 1998, respectively, and will expire in the
years 2011 through 2019.
F-9
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE 2 - INCOME TAXES - (CONTINUED)
The provision for federal income tax consists of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Current (provision) benefit $ -- $ --
Deferred (provision) benefit -- --
---------------- ----------------
$ -- $ --
================ ================
</TABLE>
Deferred income taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Current:
Deferred tax assets $ -- $ --
Deferred tax asset valuation allowance -- --
---------------- ----------------
$ -- $ --
================ ================
Non-current:
Deferred tax assets $ 24,630 $ 21,090
Deferred tax asset valuation allowance (24,630) (21,090)
Deferred tax liabilities -- --
---------------- ----------------
$ -- $ --
================ ================
</TABLE>
NOTE 3 - LINE OF CREDIT
The Company has a $25,000 line of credit with a bank that is collateralized by
the Company's accounts receivable, inventory and equipment. The line requires
monthly payments of accrued interest with the principal due April 5, 2000. At
December 31, 1999, the outstanding principal balance was $4,500 and interest was
accrued at 11%. The line is guaranteed by the president and another stockholder.
F-10
<PAGE>
PERMA-TUNE ELECTRONICS, INC.
Notes to Financial Statements
December 31, 1999 and 1998
--------------------------------------------------------------------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has a 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. The balance of $50,000 at December 31, 1999 is classified as a
current liability because the note is payable by December 31, 2000 unless the
terms are renegotiated.
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 5 - COMMITMENTS
The Company leases its office and production facilities under a non-cancelable
operating lease through May 2000. Lease expense was $15,000 for each of the
years ending December 31, 1999 and 1998.
NOTE 6 - 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, 2000.
At December 31, 1999, there are 348,000 warrants outstanding.
NOTE 7 - SUBSEQUENT EVENT
On April 3, 2000, the Company sold an additional 150,000 shares of common stock.
NOTE 8 - INTERIM FINANCIAL STATEMENTS AND RELATED INFORMATION
The balance sheet at June 30, 2000, the income statements for the six months
ended June 30, 2000 and 1999, 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.
F-11
