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 September 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)

                 111 SOUTH  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 September 30, 2001 - 2,292,700 shares of Common Stock

                    Documents Incorporated by Reference: NONE

          Transitional Small Business Disclosure Format: Yes [ ] No [X]







<PAGE>


                          PERMA-TUNE ELECTRONICS, INC.
                                   FORM 10-QSB
                                      Index

                                                                        Page
                                                                       Number
                                                                       ------
PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

       Balance Sheet as of September 30, 2001                             3

       Statements of Operations for the three months
       ended September 30, 2001 and 2000 and the nine
       months ended September 30, 2001 and 2000                           4

       Statements of Cash Flows for the nine months
       ended September 30, 2001 and 2000                                  5

       Notes to Financial Statements                                      6

Item 2. Management's Discussion and Analysis of Financial Condition      12
        and Results of Operations

Part II.   OTHER INFORMATION                                             25

Item 1.    Legal Proceedings                                             25

Item 2.    Change in Securities and Use of Proceeds                      25

Item 3.    Defaults Upon Senior Securities                               25

Item 4.    Submission of Matters to a Vote of Security Holders           25

Item 5.    Other Information                                             25

Item 6.    Exhibits and Reports on Form 8-K                              25

SIGNATURES                                                               26


                                       2





<PAGE>
PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements


                           PERMA-TUNE ELECTRONICS, INC
                                  Balance Sheet

                                                                  September 30,
                                                                       2001
                                                                  -------------
 ASSETS                                                            (Unaudited)
 Current assets:
     Accounts receivable, trade                                 $       18,212
     Inventory                                                          53,705
     Deposits                                                              160
                                                                  -------------
       Total current assets                                             72,077
                                                                  -------------

 Property, plant and equipment:
     Molds and tooling                                                   5,523
     Leasehold improvements                                              3,127
     Machinery and equipment                                            54,574
                                                                  -------------
                                                                        63,224
     Less accumulated depreciation                                     (55,653)
                                                                  -------------
                                                                         7,571
                                                                  -------------
                                                                $       79,648
                                                                  =============

 LIABILITIES AND STOCKHOLDERS' DEFICIT
 Current liabilities:
     Line of credit                                             $       20,800
 Overdraft payable                                                       6,970
     Accounts payable, trade                                            56,978
     Notes payable - stockholder                                        40,000
     Accrued liabilities                                                 7,558
                                                                  -------------
       Total current liabilities                                       132,306
                                                                  -------------

 Stockholders' deficit:
     Common stock - 10,000,000 shares of no par stock
        authorized, 2,312,700 issued and outstanding                   248,395
     Additional paid-in capital                                         15,550
     Accumulated deficit                                              (316,603)
                                                                  -------------
       Total stockholders' deficit                                     (52,658)
                                                                  -------------

                                                                $       79,648
                                                                  =============

    The accompanying notes are an integral part of the financial statements.

                                       3

<PAGE>

<TABLE>
<CAPTION>
                          PERMA-TUNE ELECTRONICS, INC.
                            Statements of Operations

                                         For the Three Months Ended       For the Nine Months Ended
                                                September 30,                     September 30,
                                       ----------------------------      ---------------------------
                                            2001            2000              2001          2000
                                       ------------   -------------      ------------   ------------
                                       (Unaudited)     (Unaudited)       (Unaudited)    (Unaudited)
 <S>                                 <C>             <C>                <C>             <C>
 Net sales                           $       80,293  $       75,262     $     207,635   $    198,509

 Cost of goods sold                          18,868          39,360            71,200        105,908
                                       ------------   -------------      ------------   ------------

 Gross profit                                61,425          35,902           136,435         92,601
                                       ------------   -------------      ------------   ------------

 Operating expenses:
 General and administrative                  28,293          23,689           116,319         71,384
 Legal and professional                      17,965          10,689            78,001         33,002
 Research and development                       633           1,128             5,143          1,600
 Depreciation                                   841           2,151             2,523          3,225
                                       ------------   -------------      ------------   ------------
                                             47,732          37,657           201,986        109,211
                                       ------------   -------------      ------------   ------------


 Income (loss) from operations               13,693          (1,755)          (65,551)       (16,610)
                                       ------------   -------------      ------------   ------------
 Other income (expense):
 Interest expense                            (2,314)         (1,002)           (7,627)        (4,112)
 Other                                            3           1,094             5,009            158
                                       ------------   -------------      ------------   ------------
                                             (2,311)             92            (2,618)        (3,954)
                                       ------------   -------------      ------------   ------------
 Income (loss) before federal
    income tax                               11,382          (1,663)          (68,169)       (20,564)

 Provision for federal income tax                -              -                  -              -
                                       ------------   -------------      ------------   ------------

 Net income (loss)                   $       11,382  $       (1,663)    $     (68,169)  $    (20,564)
                                       ============   =============      ============   ============

 Net income (loss) per share:
 Basic                               $         .004  $        (.001)    $       (.029)  $      (.010)
                                       ============   =============      ============   ============
 Diluted                             $         .004  $        (.001)    $       (.029)  $      (.010)
                                       ============   =============      ============   ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       4

<PAGE>
<TABLE>
<CAPTION>
                          PERMA-TUNE ELECTRONICS, INC.
                            Statements of Cash Flows

                                                        For the Nine         For the Nine
                                                        Months Ended         Months Ended
                                                        September 30,        September 30,
                                                      ----------------     ----------------
                                                           2001                 2000
                                                      ----------------     ----------------
                                                        (Unaudited)          (Unaudited)
<S>                                                 <C>                  <C>
 Cash flows from operating activities:
 Net loss                                           $         (68,169)   $         (20,564)
                                                      ----------------     ----------------
 Adjustments to reconcile net loss to net cash
  used in operating activities:
 Depreciation                                                   2,523                3,225
 Changes in operating assets and liabilities:
 Increase in trade accounts receivable                        (14,663)             (16,051)
 Increase in inventory                                         (3,698)                (915)
 Decrease in prepaid expenses                                   3,414                    -
 Increase (decrease) in accounts payable                       35,292               (9,803)
 Increase (decrease) in accrued expenses                        1,729               (5,132)
                                                      ----------------     ----------------
 Total adjustments                                             24,597              (28,676)
                                                      ----------------     ----------------

 Net cash used in operating activities                        (43,572)             (49,240)
                                                      ----------------     ----------------
 Cash flows used in investing activities:
 Acquisition of property and equipment                           (244)              (8,903)
                                                      ----------------     ----------------
 Cash flows from financing activities:
 Overdraft payable                                              6,970                    -
 Repayments of long-term debt                                       -              (10,000)
 Proceeds from line of credit                                  28,500               13,500
 Repayments of line of credit                                  (7,700)             (15,500)
 Proceeds from sale of stock                                    5,000               60,000
                                                      ----------------     ----------------

 Net cash provided by financing activities                     32,770               48,000
                                                      ----------------     ----------------
 Decrease in cash                                             (11,046)             (10,143)

 Cash, beginning of period                                     11,046               24,752
                                                      ----------------     ----------------

 Cash, end of period                                $               -    $          14,609
                                                      ================     ================
 Cash paid during the period for:
Interest                                            $           7,627    $           4,112
                                                      ================     ================
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       5

<PAGE>


                          PERMA-TUNE ELECTRONICS, INC.
                          Notes to Financial Statements
                               September 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, Canada and Europe.

Trade accounts receivable
-------------------------
The Company  provides  for  uncollectible  receivables  using an  allowance  for
doubtful  accounts.  As  of  September  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:


                                             September 30,
                                                  2001
                                          ----------------
                                              (Unaudited)

     Raw materials                      $         46,957
     Work in process                               3,310
     Finished goods                                3,438
                                          ----------------
                                        $         53,705
                                          ================

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


                                       6

<PAGE>


                          PERMA-TUNE ELECTRONICS, INC.
                          Notes to Financial Statements
                               September 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 nine months ended September 30, 2001 and 2000, was
$2,523 and $3,225, 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 nine months ended September 30, 2001, three customers accounted for 10%,
10%, and 20%, respectively, of net sales.

For the nine months ended September 30, 2000, four customers  accounted for 12%,
10%, 35% and 14%, respectively, of net sales.


                                       7


<PAGE>

                          PERMA-TUNE ELECTRONICS, INC.
                          Notes to Financial Statements
                               September 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
                                nine months ended        nine months ended
       Customer                 September 30, 2001       September 30, 2000
       --------                 ------------------       ------------------
         A                     $      21,390            $        24,708
         B                     $      21,705            $        19,421
         C                     $      40,785            $        70,372
         D                     $          -             $        26,914


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 September 30, 2001 and 2000 were 2,300,759 and
2,241,788, 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
September 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.

                                       8


<PAGE>

                          PERMA-TUNE ELECTRONICS, INC.
                          Notes to Financial Statements
                               September 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  September  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 September  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  $316,000  at
September 30, 2001 and will expire in the years 2011 through 2019.

The  provision  for federal  income tax consists of the  following  for the nine
months ended September 30:

                                                   2001              2000
                                                --------------    ------------
     Current (provision) benefit               $        -        $        -
     Deferred (provision) benefit                       -                 -
                                                --------------    ------------
                                               $        -        $        -
                                                ==============    ============


Deferred income taxes consist of the following at September 30, 2001:

     Current:
       Deferred tax assets                            $        -
       Deferred tax asset valuation allowance                  -
                                                       --------------
                                                      $        -
                                                       ==============

                                       9

<PAGE>

                          PERMA-TUNE ELECTRONICS, INC.
                          Notes to Financial Statements
                               September 30, 2001
                                   (Unaudited)

NOTE 2 - INCOME TAXES - (Continued)

     Non-current:
       Deferred tax assets                            $   45,705
       Deferred tax asset valuation allowance            (45,705)
       Deferred tax liabilities                                -
                                                       --------------
                                                      $        -
                                                       ==============


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 $15,200 and $11,250 for each of the nine months ending
September 30, 2001 and 2000, respectively.

Minimum future lease rentals are as follows:

                      Year ended
                     September 30,           Amount
                     ------------            ------
                        2002                 18,600
                        2003                 18,600
                        2004                 18,600
                        2005                 12,400


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

                                       10

<PAGE>

                          PERMA-TUNE ELECTRONICS, INC.
                          Notes to Financial Statements
                               September 30, 2001
                                   (Unaudited)

NOTE 5 - WARRANTS - (Continued)

For the nine months ended  September 30, 2001, no additional  warrants have been
issued or  exercised  and at  September  30,  2001,  348,000  warrants  remained
outstanding.


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 at the bank's
prime rate (6.00%)  plus 3.0% and matures on February 12, 2002.  As of September
30, 2001, the outstanding balance was $20,800.


NOTE 7 - INTERIM FINANCIAL STATEMENTS AND RELATED INFORMATION

The balance  sheet at September  30, 2001,  the income  statements  for the nine
months ended September 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  $68,000 for the nine months ended  September  30, 2001 and has an
accumulated deficit of approximately $316,000. 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
Exchange Commission (SEC).








                                       11
<PAGE>


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.

Production, profit margin and operational efficiency again improved in the third
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 24  months.  Bringing  the bulk of that  work
in-house,  rather than outsourcing it has reduced  administrative and legal fees
associated with the preparation of quarterly filings with the SEC.


On August 14, 2001, the Company  changed its trading symbol from PTUE to PTUN in
anticipation  of being  listed on the NASDAQ  OTC-BB.  On August 30,  2001,  the
Company  was cleared to trade on the NASDAQ  Over the  Counter  Bulletin  Board.
However,  due to the September  11, 2001 attacks on the World Trade Center,  the
Company has made the decision that spending on publicity and  advertising of the
change to the NASDAQ  OTC-BB  would be less than  effective  at this  time.  The
Company's  share  prices have  remained  relatively  stable in the $.90 to $1.25
range.  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
third quarter of 2001, cost  reductions  continued 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.

                                       12
<PAGE>

Since the Company has not yet 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 the third quarter, The Company began
shipping to two new European  distributors of its products:  one in France,  and
one in Germany.  Another  German  distributor  placed a large order in the third
quarter, requesting shipment in the fourth quarter of 2001.

The Company 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.

The Company has designed the Digital Fire product line to generate  revenue both
in the  manufacturing  of hardware  and the sale of  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 the application  software,  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


                                       13
<PAGE>

change the "to do"  instructions is intended to fine tune the engine for maximum
performance  given any different set of variables at the  racetrack.  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 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,  Lawrence 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 igniter 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
igniters 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 igniters 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.

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.

                                       14
<PAGE>

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
September  2001,  that  dialog  has not  progressed,  and 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.  As of  September  30, 2001,
Moller has not completed testing of the plasma system.

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. As of September 30, 2001, Pratt & Whitney has not placed an order, and
is still studying the proposal.

The US Mine Safety and Health Administration has purchased a single unit for use
in their  experimentation.  As of September  30, 2001,  reports from USMSHA have
been favorable.

                                       15
<PAGE>

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 considering limited  experimentation  using
plasma drives on late model Porsche cars.

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,  will  continue to conduct  sales
training  missions to the  Company's  wholesale  distributors,  has continued to
improve and expand its website,  and has initiated a low-cost  postcard  mailing
campaign to alert distributors to new product offerings.

The Company sells to eight wholesale  distributors  who supply an unknown number
of distributors  and retailers.  The products of the Company are sold throughout
the United  States and are now being sold in Germany  and  France.  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 third quarter of
2000,  the Company  repaired no units and  replaced  three  units;  in the third
quarter of 2001,  the Company  repaired no units and replaced  one unit.  In the
first nine months of 2000,  the Company  repaired two units and  replaced  seven
units.  In the first nine  months of 2001,  the  Company  repaired  one unit and
replaced five 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.

The Company's short-term marketing strategy is to begin shipment of the Mercedes
products,  as well as spark plugs,  spark plug wire sets,  wiring harness repair
parts (Porsche models),  pre-amps and coils 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,  and as of
September 30, 2001, the Company has begun shipping these  products.  The Company
is working to expand distribution of these new offerings.

                                       16
<PAGE>


The interim  marketing  strategy is to develop the Honda and Toyota product line
in the first quarter of 2002, 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.


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.  By outsourcing the production of certain components of
the  Company's  products,  the Company  will be able to reassign  employees  who
currently  manufacture  those  components  in-house,  to  assembly  and  testing
activities,  increasing production with minimal expansion of payroll and payroll
tax expenses.


                                       17
<PAGE>

RESULTS OF OPERATIONS

In the first nine months of 2001, the Company  experienced  4.4% sales growth as
gross sales increased from $198,509 in the first nine months of 2000 to $207,635
for the current period. A total of 1228 units were sold in the first nine months
of 2001 at an  average  price of $165.  A total of 1206  units  were sold in the
first nine months of 2000 at an average  price of $165. In the first nine months
of 2001, the company  continued to ship its current  product line from stock and
began shipping several new products.

Gross  profit in the first nine months of 2000 was $92,601  compared to $136,435
in the first  nine  months of 2001.  As a  percentage  of  sales,  gross  profit
increased  in the first  nine  months of 2001 to 66% from 47% in the first  nine
months of 2000.  This was due to the sale of new  products  with a lower cost of
goods sold and resulting  higher profit margin which the Company began  shipping
in 2001.

The Company's  efforts to reduce  expenses and increase sales have resulted in a
net income from operations in the third quarter of 2001 of $13,693, reducing its
accumulated  deficit.  The Company  continues  its vigorous  yet  cost-effective
efforts to  maintain  this  reduction  in deficit  and move the  Company  into a
profitable position.


General and  Administrative  (G & A) expenses  were  $116,319 and $71,384 in the
first nine months of 2001 and 2000, respectively.  As a percentage of sales, G &
A  expenses  increased  to 55% from 36%.  This  increase  was due to  continuing
increases in legal and accounting  fees associated with fulfilling the Company's
responsibilities  as a fully  reporting  company,  such as quarterly  reviews of
financials by the Company's CPA firm, and legal review of SEC filings. Other G&A
increases are related 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 nine  months of 2001  increased  over the first nine months of 2000 due to
the receipt of consulting  fees associated  with Mr.  Lenarduzzi's  research and
development work with US MagneGas in the second quarter of 2001.

Interest expenses increased from $4112 in the first nine months of 2000 to $7627
in  the  first  nine  months  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.

                                       18
<PAGE>

Research and  development  expenses  were $1600 in the first nine months of 2000
and  $5143 in the  first  nine  months  of  2001.  This  increase  is due to the
Company's  research  and  preparations  to  add  certain  spark  plug  wire  set
configurations to the product line.

Since the Company incurred net losses for both the first nine months of 2000 and
2001, there was no income tax liability for either quarter.  As of September 30,
2001, the Company's  approximate  accumulated  losses were $315,603 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.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

For the period ended  September 30, 2001, the Company has posted a net income of
$13,693.Cost  reductions and shipments to two new European  distributors  in the
3rd quarter of 2001 have  contributed to this  turnaround,  as have sales of the
Company's newer products, which have higher profit margins.

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  September  30,
2001,  the  principal  balance owed on this line of credit was $20,800,  with an
interest rate of 9%.

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.
In the fourth  quarter,  the Company  intends to extend the  expiration  date on
these warrants to 12/31/03.

At September 30, 2001,  there were 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. No additional private placements were made in the 3rd quarter
of 2001.

                                       19
<PAGE>


As of September  30, 2001,  the  Company's  cash  reserves  totaled $0 and total
current  assets were  $72,077.  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 September 30, 2001 was $53,705. Inventory at September 30, 2000 was
$39,698.  The  inventory  turnover  ratios  were 1.33 and .99 for the nine month
periods ending September 30, 2001 and 2000,  respectively.  This slight increase
was due to an  increase  in  production  activity  to  fulfill  second and third
quarter 2001 purchase  orders.  Accounts  receivable  ratios were 24 days and 30
days for the periods ending September 30, 2001 and 2000,  respectively.  Working
capital ratios were .54 and 5.15 for the periods  ending  September 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 September 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.  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.


                                       20
<PAGE>

RECENT DEVELOPMENTS
-------------------
In the third  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 third 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 Mittelmotor 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.  These two
distributors  accepted  their first  shipments  in the third  quarter.  A second
German parts  distributor,  Trend Produkte,  placed a large initial order in the
3rd quarter, requesting shipment in the 4th quarter.

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 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


                                       21
<PAGE>

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 or re-pricing of the product aimed at
eliminating this impediment to sales.

Wholesalers  indicate  that if  enough  of their  customers  inquire  about  the
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
have now received production samples of the spark plug wire harness component of
the kits..

In the second quarter of 2001, the Company finalized design  specifications with
Kingsborne for manufacturing  wire sets, and expects  production to begin in the
first quarter of 2002. 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 has  continued  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 have been favorable,  but the Company does not
know if this sale will result in additional sales.

                                       22
<PAGE>

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.

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.  A Perma-Tune Plasma Injector produces the plasma field by
subjecting the fuel-air mixture to a sudden blast of high-Voltage energy (32,000
Volts with a rise time of 2 nanoseconds)  that 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.

                                       23
<PAGE>

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.

As of the third 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.
USMagneGas' parent company,  EarthFirst  Technologies,  reorganized its board of
directors in the third quarter, with additional personnel changes at USMagneGas,
and this has delayed decision-making  regarding future commercial application of
these automotive applications. It is not known at this time if future sales will
result from these experiments.

In preparation for the release of its new Honda products, 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 April 2001, the Company filed an amended Registration  Statement on Form 10SB
and responded to comments from the Securities and Exchange  Commission's  staff.
In May, 2001 the Company  received further comments from the SEC on this amended
filing.  As of June 30,  2001,  the Company  had  completed  responses  to these
comments and was preparing a presentation  to send to the SEC. On July 11, 2001,
the Company  received  correspondence  from the SEC indicating that all comments
had been cleared.  On August 14, 2001,  the Company  changed its trading  symbol
from PTUE to PTUN in preparation for listing on the NASDAQ OTC-BB. On August 30,
2001,  the  Company  received  clearance  to trade on the NASDAQ  OTC-BB.  These
changes were reported on Form 8-K.

                                       24
<PAGE>

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.


Part II.   OTHER INFORMATION

Item 1.    Legal Proceedings

     None

Item 2.    Change in Securities and Use of Proceeds

     None

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

         September 4, 2001,  the Company  reported  changing its trading  symbol
from PTUE to PTUN,  and the  quotation of its common  stock on NASDAQ  OTC-BB on
Form 8-K.

                                       25
<PAGE>





                                   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:  November 13, 2001










                                       26