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 September 30, 2005
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[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
0-18113
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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
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(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)
Check whether the Issuer (1) 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.
(1) Yes X No (2) Yes X No
--- --- --- ---
As of September 30, 2005, the Company had 8,162,222 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (Check one) Yes No X
--- ---
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Index to Financial Statements
(Unaudited)
Page
----
Balance Sheet at September 30, 2005 .................................. F-1
Statements of Operations, for the three months ended
September 30, 2005 and 2004 ..................................... F-2
Statement of Shareholders' Deficit for the period from
July 1, 2005 through September 30, 2005 ......................... F-3
Statements of Cash Flows, for the three months ended
September 30, 2005 and 2004 ..................................... F-4
Notes to financial statements ........................................ F-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 7
Item 3 Controls Procedures.......................................... 9
PART II OTHER INFORMATION
Item 1. Litigation................................................... 9
Item 2. Changes in Securities........................................ 9
Item 3. Defaults Upon Senior Securities.............................. 9
Item 4. Submission of Matters to a Vote of Security Holders.......... 9
Item 5. Other Information............................................ 9
Item 6. Exhibits and Reports on Form 8-K............................. 9
SIGNATURES............................................................ 10
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Consolidated Balance Sheet
(Unaudited) September 30, 2005
Assets
Current assets:
Cash .................................................. $ 19,706
Accounts and notes receivable ........................ 19,687
Inventory, at lower of cost or market (Note 3) ....... 99,718
Prepaid expenses ...................................... 2,234
---------
Total current assets ................... 141,345
Property and Equipment ................................ 141,293
Accumulated depreciation .............................. (98,262)
Intangible assets ..................................... 86,029
Accumulated amortization .............................. (17,370)
Other assets .......................................... 2,604
---------
Total assets ........................... $ 255,639
=========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable ...................................... $ 67,019
Unearned revenue ...................................... 100,000
Accrued payroll ....................................... 95,415
Other current liabilities ............................. 3,722
---------
Total current liabilities .............. 266,156
---------
Shareholders' deficit:
Common stock .......................................... 8,162
Additional paid-in capital ............................ 650,911
Retained loss ......................................... (669,590)
---------
Total shareholders' deficit ............ (10,517)
---------
$ 255,639
=========
See accompanying notes to condensed consolidated financial statements
F-1
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,
--------------------------
2005 2004
----------- -----------
Sales and revenue ........................ $ 123,037 $ 77,250
----------- -----------
Costs of revenue ..................... 53,730 38,417
Selling, general and administrative .. 84,102 135,413
----------- -----------
Total operating expenses 137,832 173,830
----------- -----------
Operating loss ......... (14,795) (96,580)
Other income (expense):
Other income ......................... 761 24,333
Interest expense ..................... (2,420) (1,285)
----------- -----------
Loss before income taxes .. (16,454) (73,532)
----------- -----------
Income tax provision (Note 2) ............ -- --
----------- -----------
Net loss .................. $ (16,454) $ (73,532)
=========== ===========
Basic and diluted loss per share ......... $ (0.00) $ (0.01)
=========== ===========
Number of weighted average common shares
outstanding .......................... 8,140,648 6,779,079
=========== ===========
See accompanying notes to condensed consolidated financial statements
F-2
LGA HOLDINGS, INC.
(Formerly Tenet Information Services, Inc.)
Condensed Consolidated Statement of Shareholders' Deficit
(Unaudited)
Common Stock Additional
--------------------- Paid-in Retained
Shares Par Value Capital Deficit Total
--------- --------- --------- --------- ---------
Balance at
June 30, 2005 ....................... 8,119,074 $ 8,119 $ 620,966 $(653,136) $ (24,051)
Common stock options exercised (Note 4) 43,148 43 29,945 -- 29,988
Net loss .............................. -- -- -- (16,454) (16,454)
--------- --------- --------- --------- ---------
Balance at
September 30, 2005 ................ 8,162,222 $ 8,162 $ 650,911 $(669,590) $ (10,517)
========= ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements
F-3
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
-----------------------
2005 2004
--------- ---------
Net cash used in operating activities ........... $ (36,164) $(120,389)
--------- ---------
Cash flows from investing activities:
Purchase of equipment and other assets ...... -- (21,677)
--------- ---------
Net cash used in
investing activities ........ -- (21,677)
--------- ---------
Cash flows from financing activities:
Payment for long-term debt .................. -- (10,142)
Sale of common stock (Note 4) ............... 29,988 --
--------- ---------
Net cash provided by (used in)
financing activities ........ 29,988 (10,142)
--------- ---------
Net change in cash ............ (6,176) (152,208)
Cash, beginning of period ................... 25,882 180,619
--------- ---------
Cash, end of period ......................... $ 19,706 $ 28,411
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes .............................. $ -- $ --
========= =========
Interest .................................. $ -- $ --
========= =========
See accompanying notes to condensed consolidated financial statements
F-4
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Notes to Condensed Consolidated 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: 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 3: 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.
Raw materials $ 22,650
Finished goods 77,068
--------
$ 99,718
========
Note 4: Stock Options
During the quarter ended September 30, 2005, an investor exercised common stock
options to purchase 43,148 shares of restricted common stock for $29,988 cash at
$0.7 per share.
A summary of changes in the number of stock options outstanding during the three
months ended September 30, 2005 is as follows:
F-5
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Weighted
Number Average
of Shares Exercise
Exercisable Price
------------ ----------
Outstanding at July 1, 2005 ................. 3,276,008 $ 0.68
Granted ..................................... -- --
Exercised ................................... 43,148 0.70
Canceled .................................... -- --
------------ ----------
Outstanding at September 30, 2005 ........... 3,232,860 $ 0.68
============ ==========
Options exercisable at
September 30, 2005 ....................... 3,232,860 $ 0.68
Summarized information about stock options outstanding as of September 30, 2005
is as follows:
Outstanding Exercisable
------------------------------------------- Number
Exercise Price at: Number of Options Remaining Life (in years) of Options
------------------------------------------------------------------------------
$ 0.40 200,000 9.3 200,000
$ 0.60 150,000 9.1 150,000
$ 0.70 2,882,860 4.7 2,882,860
------------ -------------------
3,232,860 3,232,860
============ ===================
F-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
1Q 05 1Q 04
-------- -------
Revenue 123,037 77,250
Cost of Revenue 53,730 38,417
SGA 84,102 135,413
Net Loss (16,454) (73,532)
September Quarter 2005 Compared with September Quarter 2004
During the first Quarter of Fiscal 2006, the Company had revenues of $123,037,
which represented an increase of $45,787 or 59% over the comparable quarter's
revenue of $77,250.
Cost of revenue increased $15,313 or 40% from $38,417 in 2004 to $53,730 in
2005.
Gross margin on product sales increased to 56% for the current quarter from 50%
during last year's first Quarter. The increase in gross margin reflects a higher
percentage of direct to customer sales, relative to total sales, for the current
quarter.
SG&A expenses decreased to $84,102 for the current Quarter, compared to $135,413
for last year's comparable Quarter. The $51,311 decrease in SG&A expenses for
the current Quarter, is attributable to the non-recurring costs associated with
the Tenet Information Services combination completed during the prior year's
September quarter, and efforts by the Company to control expenses.
Net loss for the current quarter was ($16,454) or ($0.00) per share as compared
to ($73,532) or ($0.01) per share for the Quarter ending Sept. 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position decreased from $25,880 at June 30, 2005 to $19,706
at September 30, 2005. During the first Quarter of fiscal 2005, the Company used
$36,164 of cash to fund its operating activities.
LGA Capital Requirements
The Company reported a working capital deficit of $124,811 as of September 30,
2005, and a working capital deficit of $141,518 as of June 30, 2005. The June
2005 and September 2005, working capital deficits include the recording of
$100,000 and $115,000, respectively, of liabilities for unearned royalty income.
The Company is seeking additional operating capital from either financing
activities or from product licensing revenue. The Company is currently engaged
in re-tooling two of its legacy products, the GearSpace 34 carrier and the
GearWagon AT trailer in order to reduce the manufacturing cost and retail price
points of these products. The remaining 2005 inventory of these products is low
and both products, based on current sales experience, will be on backorder
before the new counterparts are available for sale starting in the March quarter
of 2006. The Company's sales revenue will be negatively affected when this
occurs.
7
The Company is working on numerous product licensing opportunities, that if
completed, have the potential to generate significant operating 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.
Subsequent to the end of the September, 2005 quarter, the Company received a
request to submit an exclusive product licensing proposal for its GearDeck 17
system and related intellectual property to the dominant supplier of electrical
generators to the North American RV industry. This opportunity relates to a
product development effort begun one year ago with the manufacturer for several
new categories of generator STO (Storage, Transportation and Organization)
designs. This GearDeck 17 derivative system, which this manufacturer displayed
at the 2005 RVIA trade show, is expected to begin selling during 2006.
The Company is experiencing a growing level of interest from consumers, dealers
and OEM's for the Company's various products and intellectual property. 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.
The Company will need additional operating capital in order to continue growing.
This growth capital can come from either investor equity or revenue derived from
intellectual property licenses. The Company is pursuing opportunities in both of
these areas. There can be no assurance given as to whether we will be successful
at generating the additional operating capital we will need from either of these
sources.
While a portion of the current liabilities, approximately $95,415, 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.
8
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.
None
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: December 16, 2005 LGA Holdings, Inc
/s/ Marty Williams
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Chairman of the Board of Directors
Marty Williams
10