UNITED STATES 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 March 31, 2006
---------------
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
0-18113
-------------------
Commission File No.
LGA HOLDINGS, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
Utah 87-0405405
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3380 North El Paso Street, Suite G, Colorado Springs, Colorado 80907
---------------------------------------------------------------------
(Address of principal executive offices)
(719) 630-3800
---------------------------
(Issuer's telephone number)
NO CHANGE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) 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 [].
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [] Accelerated filer [] Non-accelerated filer [X].
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [] No [X].
As of March 31, 2006, the Company had 8,377,960 shares of common stock issued
and outstanding.
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Index to Financial Statements
(Unaudited)
Page
----
Condensed Balance Sheet at March 31, 2006 ............................. F-1
Condensed Statements of Operations, for the nine months
ended March 31, 2006 and 2005 and for the three
months ended March 31, 2006 and 2005 ............................. F-2
Condensed Statement of Changes in Shareholders' Equity for
the period from July 1, 2005 through March 31, 2006 ........... F-3
Condensed Statements of Cash Flows, for the nine months ended
March 31, 2006 and 2005 ....................................... F-4
Notes to Condensed Financial Statements ............................... F-5
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Balance Sheet
(Unaudited)
March 31, 2006
Assets
Current assets:
Cash .......................................................... $ 5,272
Accounts and notes receivable ................................ 17,244
Inventory, at lower of cost or market (Note 4) ................ 79,046
Prepaid expenses .............................................. 14,734
---------
Total current assets ........................... 116,296
Property and Equipment ........................................ 213,654
Accumulated depreciation ...................................... (100,202)
Intangible assets ............................................. 94,062
Accumulated amortization ...................................... (18,913)
Other assets .................................................. 6,003
---------
Total assets ................................... $ 310,900
=========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable .............................................. $ 95,979
Unearned revenue .............................................. 70,000
Accrued payroll ............................................... 107,103
Other current liabilities ..................................... 24,030
---------
Total current liabilities ...................... 297,112
---------
Shareholders' equity:
Common stock .................................................. 8,378
Additional paid-in capital .................................... 800,633
Retained loss ................................................. (795,223)
---------
Total shareholders' equity ..................... 13,788
---------
Total liabilities and shareholders' equity ..... $ 310,900
=========
See accompanying notes to condensed financial statements
F-1
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
-------------------------- ---------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Sales and revenue ...................... $ 236,985 $ 174,969 $ 68,900 $ 51,734
----------- ----------- ----------- -----------
Costs of revenue .................... 114,727 78,617 29,061 22,903
Selling, general and administrative . 255,244 294,940 111,685 65,474
Stock based compensation (Note 5) ... -- 309,756 -- 309,756
Research and development ............ 3,861 15,195 118 4,096
----------- ----------- ----------- -----------
Total operating expenses . 373,832 698,508 140,864 402,229
----------- ----------- ----------- -----------
Operating loss ........... (136,847) (523,539) (71,964) (350,495)
Other income (expense):
Other income (expense) .............. 671 17,133 (346) 774
Interest expense .................... (5,911) (2,813) (1,829) (4)
----------- ----------- ----------- -----------
Loss before income taxes ... (142,087) (509,219) (74,139) (349,725)
----------- ----------- ----------- -----------
Income tax provision (Note 3) .......... -- -- -- --
----------- ----------- ----------- -----------
Net loss ................... $ (142,087) $ (509,219) $ (74,139) $ (349,725)
=========== =========== =========== ===========
Basic and diluted loss per share ....... $ (0.02) $ (0.07) $ (0.01) $ (0.04)
=========== =========== =========== ===========
Number of weighted average common shares
outstanding ......................... 8,182,357 7,086,635 8,377,960 8,044,079
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
F-2
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Statement of Changes in Shareholders' Equity
(Unaudited)
Common Stock Additional
----------------------- Paid-in Retained
Shares Par Value Capital Deficit Total
---------- ---------- ---------- ---------- ----------
Balance at
July 1, 2005 ...................... 8,119,074 $ 8,119 $ 620,966 $ (653,136) $ (24,051)
Common stock options exercised (Note 2) 258,886 259 179,667 -- 179,926
Net loss .............................. -- -- -- (142,087) (142,087)
---------- ---------- ---------- ---------- ----------
Balance at
March 31, 2006 .................... 8,377,960 $ 8,378 $ 800,633 $ (795,223) $ 13,788
========== ========== ========== ========== ==========
See accompanying notes to condensed financial statements
F-3
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
----------------------
2006 2005
--------- ---------
Net cash used in
operating activities ........................ $(115,804) $(400,640)
--------- ---------
Cash flows from investing activities:
Purchase of equipment and other assets ...... (84,732) (31,185)
--------- ---------
Net cash used in
investing activities ........................ (84,732) (31,185)
--------- ---------
Cash flows from financing activities:
Payment for long-term debt .................. -- (10,142)
Sale of common stock (Note 2) .............. 179,926 312,550
--------- ---------
Net cash provided by
financing activities ........................ 179,926 302,408
--------- ---------
Net change in cash ............ (20,610) (129,417)
Cash, beginning of period ................... 25,882 180,619
--------- ---------
Cash, end of period ......................... $ 5,272 $ 51,202
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes .............................. $ -- $ --
========= =========
Interest .................................. $ 5,911 $ --
========= =========
See accompanying notes to condensed financial statements
F-4
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Notes to Condensed Financial Statements
(Unaudited)
Note 1: Basis of presentation
The condensed financial statements presented herein have been prepared by our
Company in accordance with the accounting policies in its Form 10-KSB with
financial statements dated June 30, 2005, and should be read in conjunction with
the notes thereto.
In our opinion, all adjustments (consisting only of normal recurring
adjustments) which are necessary to provide a fair presentation of operating
results for the interim period presented have been made. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the year.
Financial data presented herein are unaudited.
Note 2: Stock Options - Related Party
During the nine months ended March 31, 2006, a director exercised common stock
options to purchase 258,886 shares of restricted common stock for $179,926 in
cash or $0.695 per share.
A summary of changes in the number of stock options outstanding during the nine
months ended March 31, 2006 is as follows:
Weighted
Number Average
of Shares Exercise
Exercisable Price
---------- ---------
Outstanding at July 1, 2005 . 3,276,008 $ 0.68
Granted ..................... -- --
Exercised ................... (258,886) 0.70
Forfeited ................... (679,575) 0.70
---------- ---------
Outstanding at March 31, 2006 2,337,547 $ 0.68
========== =========
Options exercisable at
March 31, 2006 ........... 2,337,547 $ 0.68
Summarized information about stock options outstanding as of March 31, 2006 is
as follows:
Outstanding Exercisable
---------------------------- --------------
Number of Remaining Life Number of
Exercise Price at: Options (in years) Options
---------------------------------------------------------------------
$ 0.40 200,000 9.3 200,000
$ 0.60 150,000 9.1 150,000
$ 0.70 1,987,547 4.7 1,987,547
------------ -------------
2,337,547 2,337,547
============ =============
F-5
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Notes to Condensed Financial Statements
(Unaudited)
Note 3: Income taxes
We record income taxes in accordance with SFAS No. 109, "Accounting for Income
Taxes". We have incurred net operating losses during all periods presented
resulting in a deferred tax asset, which was fully allowed for; therefore, the
net benefit and expense resulted in $-0- income taxes.
Note 4: Inventory
Inventory consists of raw materials and finished inventory, which have been
accounted for at lower of cost or market. We have made no provision for
inventory obsolescence, as our management has deemed this unnecessary.
Materials ...................... $69,488
Assembled products.............. 9,558
--------
$ 79,046
========
Note 5: Stock options
During the nine months ended March 31, 2005, we granted five consultants options
to purchase a total of 768,000 shares of the Company's common stock. The options
carry exercise price ranging from $0.40 to $0.70 per share and are vested at the
date of grant. We determined the fair value of the options ranging from $0.35 to
$0.46 per share and recorded stock based compensation of $309,756 in accordance
with SFAS 123.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate................. 3.60%
Dividend yield ........................ 0.00%
Volatility factor....................... 103.120%
Weighted average expected life ......... Ranging from
1,740 to
3,650 days
F-6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements made herein are forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and estimates; actual results may differ
materially due to certain risks and uncertainties. For example, the ability of
LGA to achieve expected results may be affected by external factors such as
competitive price pressures, conditions in the economy and industry growth, and
internal factors, such as future financing of the acquired operations and the
ability to control expenses.
Results of Operations
---------------------
Nine Months Ended
March 31,
---------------------
06 05
------- --------
Revenue 236,985 174,969
Cost of Revenue 114,727 78,617
SGA 255,244 294,940
R & D 3,861 15,195
Other Income(expense) 671 17,133
Interest Expense (5,911) (2,813)
Stock based compensation
Note 5 -0- (309,756)
Net Loss (142,087) (509,219)
Nine Months Ended March 31, 2006, Compared with Nine Months Ended March 31, 2005
--------------------------------------------------------------------------------
During the first nine months of Fiscal 2006, the Company's revenue grew 35% to
$236,985 compared to $174,969 in revenue for the similar period of Fiscal 2005.
During the current period the Company's sales resulted primarily from inquiries
generated by our web site.
License revenue accounted for 26% of overall revenue in 2005 and 19% in 2006.
Cost of revenue for the nine months ended March 31, 2006, as a percentage of
revenue increased slightly from 44% to 48% while sales, general and
administrative expenses had a marked decrease as a percentage of revenue. This
favorable decrease in SGA was due to cost controls and a reduction in costs
related to the Company's public status.
Gross margin on product sales decreased to 52% for the current period from 55%
during last years comparable period. This was primarily due to the additional
cost of 2,500 square feet of added production space acquired in January, 2006.
SG&A expenses decreased to $255,244 for the nine months ended March 31, 2006,
compared to $294,920 for the comparable period of 2005.
Net loss for the nine months ended March 31, 2006, was ($142,087) or ($0.02) per
share as compared to ($509,219) or ($0.07) per share for the nine months ending
March 31, 2005. $309,756, or 61% of the fiscal 2005 period Net Loss was
attributable to the accounting treatment of stock option grants during that
period.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased from $-0- at December 31, 2005 to $5,272
at March 31, 2006. During the first nine months of fiscal 2006, the Company used
$115,804 of cash to fund its operating activities and $84,732 for the purchase
of tooling and patent related expenditures. For the comparable period in fiscal
2005, the Company used $400,640 in cash to fund operations and $31,185 for
inventory, tooling and patent related expenditures. Tooling and Patent related
expenditures were $24,971 and $71,709 for 2005 and 2006, respectively. The
dramatic reduction in the use of cash to fund operations is the result of the
company selling all its remaining inventory of GearWagon and GearSpace 34
product during the nine month period ending March, 2006, along with generally
higher sales levels for the Company's Silent Hitch Pin, TwinTube-UBI
(U-Build-It) and GearDeck products, when compared to the 2005 period.
LGA Capital Requirements
------------------------
During the March, 2006 quarter, the Company sold its remaining inventory of
GearSpace 34 and GearWagon product. The Company intends to continue selling
product based on these designs, and is in the process of re-engineering the
designs to utilize more efficient plastic forming techniques that simplify the
production of the products, strengthen the products and significantly reduce the
product's manufacturing cost. During the March, 2006 quarter, GearSpace 34
(GS-34) was successfully re-tooled and the Company expects close to a 50%
reduction in the manufactured cost of a GS-34 system. The Company has a backlog
of orders for GS-34 carriers that it will begin filling during the second half
of May, 2006. GS-34 is one of LGA's marquee products. The Company intends to
reduce GS-34's MSRP from $1,350 to $999.95. As such, the Company expects GS-34
unit sales to increase moving forward.
The Company is in the process of re-engineering the GearWagon AT (GW-AT)trailer.
The Company has an order backlog for this product. The Company expects to begin
shipping GW-AT's during the September, 2006 quarter. In addition, GW-AT will be
available in four different configurations, depending on the customers needs, at
MSRP prices significantly below GW-AT's legacy pricing. The manufacturing cost
of GW-AT will be significantly reduced, relative to former design.
The reductions in manufacturing costs will allow LGA to more successfully
utilize distribution, dealer and retail channels in the selling processes for
GW-AT and GS-34. The Company believes the improved product cost basis and
resulting improved margin available to resellers, will significantly improve the
sales volumes of the GW-AT and GS-34 products moving forward.
LGA and a division of Cummins Power Generation, Onan Corporation, have been in a
joint development effort since January of 2005. The result of this effort,
introduced in April, 2006, is Onan's new JuiceBox product that can be viewed at
this URL:
http://www.funroads.com/articles/juicebox.jhtml
JuiceBox utilizes LGA's Silent Hitch Pin, TwinTube, GearDeck, HardPoint and
LandingGear intellectual property (IP) in a novel solution to generator
portability. Onan is the dominant supplier of generators to the RV industry. LGA
has licensed Onan to manufacture JuiceBox product, based on LGA's IP. Because of
the JuiceBox product and the increased market visibility LGA's IP is receiving,
LGA is experiencing increased interest in the IP contained in JuiceBox from
consumers, distributors, dealers and from other manufacturing OEM's interested
in utilizing this IP in conjunction with their product lines.
LGA has numerous patent applications pending with the U.S. Patent and Trade
Office (USPTO) for various LGA inventions. During the March, 2006 quarter, the
USPTO published two of the Company's pending applications, that can be viewed at
the following URL links:
http://appft1.uspto.gov/netacgi/nph-
Parser?Sect1=PTO1&Sect2=HITOFF&d=PG01&p=1&u=%2Fnetahtml%2FPTO%2Fsrchnum.
html&r=1&f=G&l=50&s1=%2220060081630%22.PGNR.&OS=DN/20060081630&RS=DN/20060081630
http://appft1.uspto.gov/netacgi/nph-
Parser?Sect1=PTO1&Sect2=HITOFF&d=PG01&p=1&u=%2Fnetahtml%2FPTO%2Fsrchnum.
html&r=1&f=G&l=50&s1=%2220060027618%22.PGNR.&OS=DN/20060027618&RS=DN/20060027618
The Company is working on numerous product licensing opportunities, that if
completed, have the potential to generate significant growth capital for our
business. However, no assurance can be given as to whether these discussions
will result in a completed transaction, nor can the Company give any assurances
as to the timing or financial magnitude of these transactions.
Due to the timing of anticipated inventory additions, tooling costs and
operating expenses, the Company is seeking to raise capital from either
financing or licensing sources to fund the Company's growth through the end of
the 2006 fiscal year and beyond.
The Company is experiencing a growing level of product interest from consumers,
dealers and OEM's. It will take time and capital to convert this interest into
product sales and/or licensing revenue. Therefore, even though the Company
anticipates higher sales revenue going forward, it is not able to forecast when
its sales volume will be sufficient to support the Company's operating expenses.
Therefore, for the next two quarters LGA will pursue raising additional growth
capital from either finance or licensing related sources. There can be no
assurance given as to whether LGA will be successful at generating the
additional growth capital it will need from either of these sources.
During the nine months ended March 31, 2006, a director exercised common stock
options to purchase 258,886 shares of restricted common stock for $179,926 in
cash or $0.695 per share. This Company director is also the managing partner of
the acquiring investment partnership.
While a portion of the current liabilities, approximately $89,032, is owed to
present officers and/or directors, there can be no assurances that these
officers/directors will not seek payment in the near term.
Inflation has not had a significant impact on the Company's operations.
Item 3. Controls and Procedures.
Based on the evaluation of the Company's controls and procedures required by
Rule 13a-15 or Rule 15d-15 under the Exchange Act, the Company's Chief Executive
Officer and Treasurer believe that the Company's controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the United States
securities laws is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms were adequate as of the
end of the period covered by this Form 10-QSB. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the securities laws is accumulated and
communicated to the issuer's management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Unregistered Sales of Securities and Use of Proceeds.
During the nine month period ending March, 2006, 258,886 shares of
Common Stock were sold pursuant to exercise of purchase options for
total proceeds of $179,926 in cash or $0.695 per share. No sales
commissions were paid relative to the sale. The securities were sold
pursuant to Section 4(2) and /or 4(6) of the Securities Act of 1933
and/or Regulation D." The acquiring entity is an investment
partnership managed by a director of the Company.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submissions of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
(i) Exhibits
Exhibit
No. Description
------- -----------------------------------------------------------------------
31 Certification required under Section 302 of Sarbanes- Oxley Act of 2002
32 Certification required under Section 906 of Sarbanes- Oxley Act of 2002
(ii) Reports on Form 8-K
None
9
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.
Dated: May 15, 2006 LGA Holdings, Inc
/s/ Marty Williams
----------------------------------
Chairman of the Board of Directors
Marty Williams
10