PINX:STTX Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2012
 
Commission File No. 33-164856
 
POWAY MUFFLER AND BRAKE, INC.
(exact name of registrant as specified in its charter)
 
Colorado
 
94-3364776
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
13933 Poway Road, Poway, CA  92064
(Address of principal executive offices)    (zip code)
 
Registrant’s telephone number, including area code -- (858) 748-2994

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x    No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
o  
Accelerated filer
o
 
Non-accelerated filer
o
(Do not check if smaller reporting company)
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o    No x
 
As of May 21, 2012,  Poway Muffler and Brake, Inc. had 1,460,000 shares of common stock outstanding.
 
 

 
 
Table of Contents
 
 
  Page
3
3
  3
  4
  5
  6
Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
Quantitative and Qualitative Disclosures About Market Risk 15
Controls and Procedures 15
     
16
16
16
16
16
16
16
17
     
17
 
 
 
 
 
 
 
 
 
 





PART I
FINANCIAL INFORMATION
 
Item 1.  Financial Statements
 

POWAY MUFFLER & BRAKE, INC.
 
Balance Sheet
 
as at March 31, 2012 (unaudited) and December 31, 2011
 
             
   
March 31,
   
December 31,
 
   
2012
   
2011
 
    (Unaudited)        
             
ASSETS
 
 
       
Current Assets
           
Cash and Cash Equivalents
  $ 5,018     $ 14,440  
Accounts Receivable
    16,097       9,855  
Inventory
    7,559       7,389  
Prepaid Rent
    1,857       1,857  
Prepaid Sales Tax
    -       -  
Total Current Assets
    30,531       33,541  
                 
Property and Equipment
    113,855       113,000  
 Accumulated Depreciation
    (95,264 )     (94,696 )
Total Property and Equipment
    18,591       18,304  
                 
Total Assets
  $ 49,122     $ 51,845  
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT
               
Current Liabilities
               
Accounts Payable
    7,492       15,887  
Sales Tax Payable
    2,285          
Current portion, long term debt
    4,461       4,661  
Total Current Liabilities
    14,238       20,548  
                 
Long Term Liabilities
               
Obligations under capital lease
    10,914       11,829  
                 
Other Liabilities
               
Stockholder's Loan
    79,687       79,687  
Due to affiliated company
    82,550       81,031  
        Total Other Liabilities     162,237       160,718  
                 
Total Liabilities
    187,389       193,095  
                 
Stockholders' Deficit
               
Common Stock, $0.01 par value; authorized:
               
750,000,000 shares; issued and outstanding:
               
1,460,000 shares as at March 31, 2012
               
1,460,000 shares as at December 31, 2011
    1,460       1,460  
Additional Paid-In Capital
    192,842       192,842  
Deficit
    (72,050 )     (75,033 )
Deficit accumulated in the development stage
    (260,519 )     (260,519 )
   
 
         
Total Stockholders' Deficit
    (138,267 )     (141,250 )
                 
Total Liabilities and Shareholders' Deficit
  $ 49,122     $ 51,845  

 



POWAY MUFFLER & BRAKE, INC.
 
Statement of Operations
 
For the three months ended March 31, 2012 and 2011
 
(Unaudited)
 
             
             
   
March 31,
 
   
2012
   
2011
 
             
Sales
  $ 90,071     $ 72,008  
                 
Cost of Sales
    62,188       59,941  
                 
Gross Profit
    27,883       12,067  
                 
General and Administrative Expenses
               
Professional Fees
    6,951       7,745  
Occupancy Costs
    8,056       9,408  
Other  General and Administrative Expenses
    9,893       4,688  
                 
General and Administrative Expenses
    24,900       21,841  
                 
Net Income before taxes
    2,983       (9,774 )
                 
Taxes
    -       -  
                 
Net Income after Taxes
  $ 2,983     $ (9,774 )
                 
                 
Net Income per common share, basic and diluted
    (0.01 )     0.00  
                 
Weighted average shares outstanding, basic and diluted
    1,460,000       1,460,000  
 
 
 

 



POWAY MUFFLER & BRAKE, INC.
 
Statement of Cash Flows
 
For the three months ended March 31, 2012 and 2011
 
(Unaudited)
 
             
             
   
March 31,
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net Income from operations
  $ 2,983     $ (9,774 )
Adjustments to reconcile net loss to net cash used by operating activities:
               
Depreciation
    568       377  
Change in operating assets and liabilities:
               
Accounts Receivable
    (6,242 )     (1,829 )
Prepaid Sales Tax
    -       (563 )
Accounts Payable
    (5,823 )     159  
Sales Tax Payable
    (288 )     1,772  
Inventory
    (170 )     50  
Current Portion, Long Term Debt
    -       (1,800 )
Net cash provided by (used by) operating  activities
    (8,972 )     (11,608 )
                 
Cash flows from investing activities:
               
Capitalized leases
    (854 )     461  
Net cash provided by (used by) investing activities
    (854 )     461  
                 
Cash flows from financing activities:
               
(Repayment) of capital leases
    (1,115 )        
Proceeds (repayment) of stockholders' loan
            2,500  
Proceeds of loan from affiliated company
    1,519       12,099  
Net cash provided by (used by) financing activities
    404       14,599  
                 
Net increase (decrease) in cash
    (9,422 )     3,452  
                 
Cash, beginning of the period
    14,440       195  
                 
Cash, end of the period
  $ 5,018     $ 3,647  
                 
                 
Supplemental cash flow disclosure:
               
Interest paid
  $ 428     $ 138  
Taxes paid
  $ -     $ -  




POWAY BRAKE AND MUFFLER, INC.

NOTES TO THE FINANCIAL STATEMENTS
For the three Months Ended March 31, 2012
(Unaudited)

NOTE 1 – BASIS OF PREPARATION
 
These interim financial statements as of and for the three  months ended March 31, 2012 reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.
 
These interim financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s fiscal year end December 31, 2011 report. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of results for the entire year ending December 31, 2012.
 
NOTE 2 – ORGANIZATION AND DESCRIPTION OF BUSINESS
 
The financial statements presented are those of Poway Muffler and Brake, Inc., doing business as PMB Automotive Repair, (the “Company”). The Company was incorporated as Ross Investments Inc. in Colorado on January 6, 1989. The Company was capitalized in 2000 and made preparations to enter business, but no revenue was subsequently earned. The Company was dormant in 2007 and 2008 until a merger with Poway Brake and Muffler, Inc. was effected on December 15, 2008. Poway Muffler and Brake, Inc. was a closely held private company operating a brake and muffler business in Poway, California. Ross Investments was the acquirer and surviving company. The President of Ross Investments, Bruce Penrod, resigned and was replaced by Alan Ligi, President of Poway Muffler and Brake. Ross Investments thereupon changed its name to Poway Brake and Muffler, Inc.
 
The original Poway Muffler and Brake Inc. was incorporated in California on August 15, 2003 to enter the muffler and brake business. The Company purchased an existing business, Poway Muffler and Brake at 13933 Poway Road, Poway, California on August 30, 2003. Alan J. Ligi assumed the offices of President, Secretary and Treasurer, and a Director. On December 15, 2008 a merger was effected with Ross Investments Inc., a Colorado shell corporation. The original Poway Muffler and Brake stock was cancelled. Ross Investments was the acquirer and the surviving corporation. Ross Investments Inc. then changed its name to Poway Brake and Muffler Inc.
 
Current Business of the Company

The Company operates a muffler and brake shop in a 2,060 square foot stand-alone leased building having three bays, an outside bay and a loft for inventory.  Apart from serving the public, the Company serves others in the automobile trade with whom they have formed business relationships:  truck fleets, auto dealerships, auto repair shops.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with
 
 
 
 
respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s financial position and results of operations.

Fair Value of Financial Instruments

The Financial Accounting Standards Board issued   ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements and Disclosures” for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements.  FASB ASC 820-10 defines fair value as the price  that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.  FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:

 
-
Level 1:  Quoted prices in active markets for identical assets or liabilities

 
-
Level 2:  Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;  quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

 
-
Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses.  The carrying amounts of such financial instruments as of March 31, 2012 were determined according to the following inputs:
 
     
Observable Inputs
         
 
Observable
 
Other Than
 
Unobservable
     
 
Inputs
 
Level 1 Prices
 
Inputs, significant
 
Total
 
 
Level 1
 
Level 2
 
Level 3
     
                 
Accounts Receivable
      16,097         16,097  
Accounts Payable
      7,492         7,492  
Stockholders' Loan
      79,687         79,687  
        109,176  
 
    109,176  

Income Taxes

The Company accounts for income taxes using the liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
 
 

 
The Company applied the provisions of ASC 740-10-50, “Accounting For Uncertainty In Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of March 31, 2012 and December 31, 2011, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

The Company generated a deferred tax credit through net operating loss carryforward of approximately $332,569  However, a valuation allowance of 100% has been established.

Interest and penalties on tax deficiencies recognized in accordance with ASC accounting standards are classified as income taxes in accordance with ASC Topic 740-10-50-19.
 
Development Stage

The Company was in the development stage from inception, January 6, 1989 through December 31, 2008.

Going Concern
 
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company for the three months ended March 31, 2012 recorded net income of $2,983. Cumulative losses of $332,569 since incorporation January 6, 1989 indicate that the Company may have difficulty in continuing as a going concern.
 
Management has embarked on a sales campaign aimed at other businesses in the automobile trade. However the ability of the Company to continue as a going concern is dependent on the successful stimulation of sales in order to fund operating losses and become profitable. If the Company is unable to make it profitable, the Company could be forced to cease development of operations. Management cannot provide any assurances that the Company will be successful in its operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
Accounts Receivable

The company’s accounts receivable are trade receivables from local businesses and individuals in the auto repair business.  The Company expects to collect the receivables in the next accounting period.  An allowance for doubtful accounts has been established at zero, based on collection experience since 2003.

Inventory

   
March 31,
2012
   
December 31,
2011
 
                 
Finished Goods
  $ 7,559     $ 7,559  
Inventoried Costs
    0       0  
Work in Progress
    0       0  
Raw Materials
    0       0  
Supplies
    0       0  
    $ 7,559     $ 7,559  
 
 
 
8

 
 
 
Inventories are stated at the lower of cost or market value.  Cost includes only the wholesale cost of mufflers.  Market value represents net realizable value.  Inventories consist of mufflers of various types available to be installed.  A periodic inventory system is maintained by 100% count.  Inventory in previous years was replaced as installed in order to maintain the optimum stock on hand available for immediate installation.  The inventory was thus kept at the same level year to year. In 2010 the Company’s muffler dealer developed a capability for short order, allowing inventory stocks to be run down.
 
Property and Equipment
 
Fixtures and equipment are stated at cost less accumulated depreciation at cost and depreciated using straight line methods over the estimated useful lives of the related assets ranging from 7 to 10 years.  Maintenance and repairs are expensed currently. Fixtures and equipment including leasehold improvements totaled $113,855 as at March 31, 2012 ($94,696 at December 31, 2011) which, after application of depreciation, netted to $18,591 at March 31, 2012 and to $18,304 at December 31, 2011. The cost of normal maintenance and repairs is charged to operations as incurred.  Major overhaul that extends the useful life of existing assets is capitalized.  When equipment is retired or disposed, the costs and related accumulated depreciation are eliminated and the resulting profit or loss is recognized in income.
 
The Company purchased a Ricoh copier in the quarter ended March 31, 2012.

   
March 31,
2012
   
December 31,
2011
 
                 
Equipment
  $ 113,505     $ 112,650  
Furniture & Fixtures
    350       350  
      113,855       113,000  
Accumulated depreciation
    (95,264 )     (94,696 )
    $ 17,699     $ 18,304  
                 
Depreciation
  $ 568     $ 1,508  

Long-lived assets

The Company accounts for long-lived assets under the FASB (Financial Accounting Standards Board) ASC (Accounting Standard Codification) 340-10 Other Assets and Deferred Costs,  (SFAS 142 and 144): “Accounting for Goodwill and Other Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived Assets”) . In accordance with ASC 340-10, long-lived assets, goodwill and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset will not be recoverable. For purposes of evaluating the recoverability of long-lived assets, goodwill and intangible assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets.
 
 
 

 
Basic and Diluted Earnings Per Share

Net loss per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the period presented.  ASC 260 requires presentation of basic earnings per share and diluted earnings per share.  Basic income (loss) per share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share (“Diluted EPS”) is similarly calculated. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. As at March 31, 20`12, there were no potentially dilutive securities.
 
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three months ended March 31, 2012 and 2011:

   
March 31,
 
   
2012
   
2011
 
             
Basic and diluted net loss per share
           
Numerator
           
Net Income (Loss)
  $ 2,983     $ (9,774 )
Denominator
               
Basic and diluted weighted average
Number of shares outstanding
    1,460,000       1,460,000  
                 
Basic and Diluted Net Loss Per Share
  $ 0.00     $ (0.01 )
 
Revenue Recognition

The Company's revenue recognition policies are in compliance with ASC 605-13 (Staff accounting bulletin (SAB) 104). Sales revenue is recognized at the date of completion of services to customers when a formal arrangement exists, the price is fixed or determinable, the delivery of services is completed, no other significant obligations of the Company exist and collectability is reasonably assured.

NOTE 4 – STOCKHOLDER’S LOAN
 
   
March 31,
2012
   
December 31,
2011
 
             
 
  $ 79,687       72,187  

The loan from a stockholder is not subject to interest, has no terms of repayment, is non callable and has no maturity.

NOTE 5 – RECENT ACCOUNTING PRONOUNCEMENTS
 
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The amendments in this update are to be applied prospectively. The amendments are effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company does not expect this guidance to have a significant impact on its consolidated financial position, results of operations or cash flows.
 
 
 
 
In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income." This update was amended in December 2011 by ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." This update defers only those changes in update 2011-05 that relate to the presentation of reclassification adjustments. All other requirements in update 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. ASU No. 2011-05 and 2011-12 are effective for fiscal years (including interim periods) beginning after December 15, 2011. The Company does not expect this guidance to have a significant impact on its consolidated financial position, results of operations or cash flows.
 
In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities." The amendments in this update require enhanced disclosures around financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The amendments are effective during interim and annual periods beginning on or after January 1, 2013. The Company does not expect this guidance to have any impact on its consolidated financial position, results of operations or cash flows.
 
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it.  The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

There were no contingent liabilities as at March 31, 2012.

The Company signed a property lease on September 30, 2008 for a three year period plus an option to renew for five years at a re-negotiated rent, with a common area fee of $628 per month.  The lease was renewed for a five year period at $2,060 per month.

Future minimum lease payments required under the lease including common area fees are as follows, for fiscal years ending December 31.  Common area costs increase marginally in March of each year.

2012
  $ 32,256  
2013
    32,256  
2014
    32,256  
2015
    24,192  
    $ 120,960  
 
NOTE 7 – CAPITAL STRUCTURE

There was no stock issued in the three months ended March 31, 2012.

As at March 31, 2012 and December 31, 2011, the Company was authorized to issue 750,000,000 shares of $0.001 par value common stock, of which 1,460,000 shares were issued and outstanding at March 31, 2012 and December 31, 2011.
 
 
 
 
NOTE 8 – LEGAL PROCEEDINGS

There were no legal proceedings against the Company with respect to matters arising in the ordinary course of business. Neither the Company nor any of its officers or directors is involved in any other litigation either as plaintiffs or defendants, and have no knowledge of any threatened or pending litigation against them or any of the officers or directors.

NOTE 9 – SUBSEQUENT EVENTS

Events subsequent to March 31, 2012 have been evaluated through May 17, 2012, the date these statements were available to be issued, to determine whether they should be disclosed.  Management found no subsequent events to be disclosed.
 
 
 
 
 
 
 
 
 
 
 
 
 



 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
BUSINESS OVERVIEW
 
The Company was incorporated in January 1989 as Ross Investments, Inc. under the laws of the State of Colorado.  From the date of Incorporation through December, 2008, the Company was a development stage company engaged in the business is software design and development for trading rare coins on the internet.  Prior to completing development of the software, other companies came to market with similar software, making our software virtually unmarketable.  In 2008, the Company's sole officer and director began to seek other companies for potential merger.
 
On December 15, 2008, the Company completed a merger with Poway Muffler and Brake, Inc., a California corporation (“PMB-CA”). Pursuant to the Share Exchange Agreement, each of the outstanding shares of PMB-CA common stock was converted into one share of the Company’s common stock.  All 100,000 shares of PMB-CA’s total outstanding common stock were held by Allan Ligi, PMB-CA’s sole shareholder.  Accordingly, upon closing of the Merger, Mr. Ligi’s shares of PMB-CA were converted into 100,000 shares of the Company’s common stock.  In addition, upon the closing of the Merger, the Company amended its Articles of Incorporation to change its name from Ross Investments, Inc. to Poway Muffler and Brake, Inc.  PMB-CA was established in 1994 as a retail automotive repair and maintenance service business.
 
RESULTS OF OPERATIONS
 
Gross revenue for the three months ending March 31, 2012 was $27,883, and operating expenses were $24,900.  Net income before taxes for the three months ending March 31, 2012 were $2,983.
 
The Company for the three months ended March 31, 2012 recorded net income of $2,983.   Cumulative losses of $332,569 since inception January 6, 1989 indicate that the Company may have difficulty in continuing as a going concern.
 
PLAN OF OPERATIONS
 
Short Term Goals (next 12 months)
 
Due to economic conditions, we our ability to implement our short term and long term goals has been impaired.  Therefore, our short term and long term goals have remain unchanged.  The company has, however, become engaged in the search for and evaluation of prospective business opportunities and, if justified, potentially to acquire and/or merge with one or more businesses or business opportunities.

 
 
 
Over the next 12 months, the Company’s growth plans include continuing efforts to further expand the catalytic converter replacement program , the fleet servicing program and auto body shop associations.    Our plan of operation for the next twelve months will be focused on two major areas:  Marketing and Research and Development.
 
Marketing
 
Our plan is to continue our service operations while expanding our new programs.  To do this, Mr. Ligi intends to designate 15 hours per week on marketing the Company’s fleet servicing and auto body programs to applicable business owners within the surrounding communities.
 
In addition, the Company intends to launch the marketing of its catalytic converter replacement program.  Marketing activities shall include actively marketing local car dealerships and numerous other automotive repair facilities that do not service exhaust systems.
 
One other marketing-related initiative calls for the Company to target driving schools as well as local area high schools driving programs to offer educational services to new drivers in training. PMB plans to provide this community service to educate new drivers on how to check their oil, and do routine vehicle inspection. Providing this service, PMB establishes its reputation early as a Company that both cares about its customers and more importantly, can be trusted when it comes to maintaining a safe and reliable vehicle.
 
Research and Development
 
We will continuously educate ourselves on automobile-related trends and consumer preferences, such as focus on environmentally-friendly alternatives, which may lead to additional replacement part programs like our catalytic converter replacement program.
 
Long Term Goals (five years)
 
Expansion
 
PMB consists of one Company owned store, with plans to expand to six such locations over the next 36 - 60 months.   The company believes that there are significant expansion opportunities in new as well as existing market areas which will result from a combination of opening new stores and acquiring existing store locations. The Company believes that the increasingly complex nature of automotive repair and the need for state-of-the-art equipment may bring opportunities for acquisitions of existing businesses.  The Company has not, however, conducted research to determine the demand for our services in any specific location.
 
We anticipate opening our first expanded location (Store No. 2) in or about month 36. We will then monitor available locations and opportunities within a 5 mile radius but not closer than 1 mile for our third location to be opened in approximately month 42. Following that same pattern we intend to expand again in month 48, then again in month 54, and finally our sixth location in month 60.
 
 
 
 
The Company anticipates that the capital required to open a new store will be approximately $120,000 per location, which includes approximately $30,000 for equipment, and $30,000 for inventory, $30,000 for working capital and $30,000 for securing a 3 bay garage location. Therefore, over the next 36-60 months, the total anticipated cost for expansion is $720,000. In instances where PMB acquires an existing business, it may pay additional amounts for intangible assets such as customer lists, covenants not-to-compete, trade names and goodwill. At this time, the Company anticipates leasing the land and/or buildings. At this time, the Company has not identified any potential locations. Our ability to establish new retail facilities will depend on whether we can identify suitable sites and negotiate acceptable lease or purchase and sale terms. However, we may not be able to do so, and identifying suitable sites and negotiating acceptable terms may be more expensive, or take longer, than we expect. Moreover, once we establish a new retail facility, numerous factors will contribute to its performance, such as a suitable location, qualified personnel and an effective marketing strategy. There can be no assurance that our retail facility expansion strategy will be accretive to our earnings within a reasonable period of time. In addition, our limited financial resources pose a significant challenge to our expansion goals.
 
Source of Funds
 
The Company plans to use funds generated from operations to accomplish its expansion goals.  However, given our current earnings, we may not yet have capital reserves necessary to move forward.  In such a case, the Company may decide to raise capital through the sale of stock.  As noted above in the section entitled "Risk Factors", finding potential investors may be difficult due to the high percentage of our stock being registered pursuant to this Registration Statement.  The issuance of common stock may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.  Due to these facts, we may be unable to seek outside funding, and our expansion goals will not be met.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable.
 
Item 4.  Controls and Procedures

The Certifying Officer has also indicated that there were no changes in internal controls over financial reporting during the Company’s last fiscal quarter, and no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.
 
Our management, including the Certifying Officer, does not expect that our disclosure controls or our internal controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been
 
 
 
 
 
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
 
PART II
OTHER INFORMATION
 
Item 1.  Legal Proceedings

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company, threatened against or affecting our company, our common stock, our officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A.  Risk Factors                                           

Not applicable because we are a smaller reporting company.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
We did not issue any securities without registration pursuant to the Securities Act of 1933 during the three months ended March 31, 2012.
 
Item 3.  Defaults upon Senior Securities
 
None.
 
Item 4.  (Removed and Reserved)
 
 
Item 5.  Other Information
 
None.
 
 
 
 
Item 6.  Exhibits
 
 
 
 
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.
 
  POWAY MUFFLER AND BRAKE, INC.  
       
Date:   May 21, 2012
By:
/s/ Allan Ligi  
    Allan Ligi,  President, Secretary and  
    Treasurer (Principal Executive Officer  
    and Principal Financial Officer)  
 
 
 
 
 
 
 
 
 
 
17

 

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PINX:STTX Quarterly Report 10-Q Filing - 3/31/2012
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