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 December 31, 2005
-------------------
[] 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
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(Address of principal executive offices)
(719) 630-3800
---------------------------
(Issuer's telephone number)
NO CHANGE
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(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 December 31, 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
----
Condensed Balance Sheet at December 31, 2005....................... F-1
Condensed Statements of Operations, for the six months ended
December 31, 2005 and 2004 and for the three months ended
December 31, 2005 and 2004 ................................... F-2
Condensed Statement of Changes in Shareholders' Deficit for
the period from July 1, 2005 through December 31, 2005........ F-3
Condensed Statements of Cash Flows, for the six months ended
December 31, 2005 and 2004.................................... F-4
Notes to Condensed 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 Balance Sheet
(Unaudited) December 31, 2005
Assets
Current assets:
Accounts and notes receivable ................................. $ 26,644
Inventory, at lower of cost or market (Note 4) ................. 91,185
Prepaid expenses ............................................... 2,234
---------
Total current assets ............................ 120,063
Property and Equipment ......................................... 141,293
Accumulated depreciation ....................................... (99,232)
Intangible assets .............................................. 90,762
Accumulated amortization ....................................... (18,142)
Other assets ................................................... 2,604
---------
Total assets .................................... $ 237,348
=========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable ............................................... $ 56,611
Unearned revenue ............................................... 85,000
Accrued payroll ................................................ 119,415
Other current liabilities ...................................... 38,333
---------
Total current liabilities ....................... 299,359
---------
Shareholders' deficit:
Common stock (Note 2) .......................................... 8,162
Additional paid-in capital ..................................... 650,911
Retained loss .................................................. (721,084)
---------
Total shareholders' deficit ..................... (62,011)
---------
$ 237,348
=========
See accompanying notes to condensed financial statements
F-1
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
December 31, December 31,
-------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales and revenue ....................... $ 168,085 $ 123,235 $ 45,048 $ 45,985
----------- ----------- ----------- -----------
Costs of revenue ..................... 85,666 55,714 31,936 17,297
Selling, general and administrative .. 141,730 229,466 61,251 94,053
Research and development ............. 3,743 11,099 120 11,099
----------- ----------- ----------- -----------
Total operating expenses .. 231,139 296,279 93,307 122,449
----------- ----------- ----------- -----------
Operating loss ............ (63,054) (173,044) (48,259) (76,464)
Other income (expense):
Other income (expense) ............... 1,289 16,359 528 (7,974)
Interest expense ..................... (6,183) (2,809) (3,763) (1,524)
----------- ----------- ----------- -----------
Loss before income taxes .... (67,948) (159,494) (51,494) (85,962)
----------- ----------- ----------- -----------
Income tax provision (Note 3) ........... -- -- -- --
----------- ----------- ----------- -----------
Net loss .................... $ (67,948) $ (159,494) $ (51,494) $ (85,962)
=========== =========== =========== ===========
Basic and diluted income (loss) per share $ (0.01) $ (0.02) $ (0.01) $ (0.01)
=========== =========== =========== ===========
Number of weighted average common shares
outstanding .......................... 8,144,963 6,862,412 8,162,222 7,070,746
=========== =========== =========== ===========
See accompanying notes to condensed financial statements
F-2
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Statement of Shareholders' Deficit
(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) 43,148 43 29,945 -- 29,988
Net loss .............................. -- -- -- (67,948) (67,948)
---------- ---------- ---------- ---------- ----------
Balance at
December 31, 2005 ................. 8,162,222 $ 8,162 $ 650,911 $ (721,084) $ (62,011)
========== ========== ========== ========== ==========
See accompanying notes to condensed financial statements
F-3
LGA HOLDINGS, INC.
(Formerly Tenet Information Systems, Inc.)
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
----------------------
2005 2004
--------- ---------
Net cash used in
operating activities .......................... $ (55,870) $(247,477)
--------- ---------
Cash flows from investing activities:
Purchase of equipment and other assets ........ -- (30,395)
--------- ---------
Net cash used in
investing activities .......................... -- (30,395)
--------- ---------
Cash flows from financing activities:
Payment for long-term debt .................... -- (10,142)
Sale of common stock .......................... 29,988 250,000
--------- ---------
Net cash provided by
financing activities .......................... 29,988 239,858
--------- ---------
Net change in cash .............. (25,882) (38,014)
Cash, beginning of period ..................... 25,882 180,619
--------- ---------
Cash, end of period ........................... $ -- $ 142,605
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes ................................ $ -- $ --
========= =========
Interest .................................... $ 6,183 $ 2,809
========= =========
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 six months ended December 31, 2005, a director 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 six
months ended December 31, 2005 is as follows:
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 December 31, 2005 3,232,860 $ 0.68
========== =========
Options exercisable at
December 31, 2005 ........... 3,232,860 $ 0.68
========== =========
Summarized information about stock options outstanding as of December 31, 2005
is as follows:
Outstanding Exercisable
------------------------------------- ---------------
Exercise Price at: Number of Remaining Life Number of
Options (in Years) 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-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.
Raw materials ........... $23,621
Finished goods .......... 67,564
-------
$91,185
=======
Note 5: Subsequent Event
Subsequent to the end of the December 31, 2005 quarter, an existing LGA
shareholder exercised options for 215,738 shares of restricted common stock
equal to $149,937.91 or $0.695 per share.
Subsequent to the end of the December 31, 2005 quarter, the Company's entire
remaining GearWagonAT and GearSpace34 inventory was sold out, depleted. The
Company is retooling these two products, starting with GearSpace34, in order to
reduce overall product cost, simplify assembly and add new product features. The
Company expects the new GearSpace34 to begin shipping near the end of the
current quarter, and the new GearWagonAT to begin shipping during the June, 2006
quarter. The Company will experience lower revenue from product sales during
this transition.
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. They include statements regarding the
timing and expected benefits of the acquisition of LGA by Tenet. 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 Six Months Ended
December 31,
-------------------
05 04
------- -------
Revenue 168,085 123,235
Cost of Revenue 85,666 55,714
SGA 141,730 229,466
R & D 3,743 11,099
Other Income(expense) 1,289 16,359
Interest Expense (6,183) (2,809)
Net Loss (67,948) (159,494)
Six Months Ended December 31, 2005, Compared with Six Months Ended December 31,
2004
During the first six months of Fiscal 2006, the Company's revenue grew 36% to
$168,085, compared to $123,235 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 and customer referrals.
Cost of revenue for the six months ended December 31, 2005, increased $29,952 or
54% from $55,714 during the 2004 period, to $85,666 for the 2005 period.
Gross margin on product sales decreased to 49% for the current period from 55%
during the prior years comparable period.
SG&A expenses decreased to $141,730 for the six months ended December 31, 2005,
compared to $229,466 for the comparable period of 2004. The decrease in SG&A
expenses for the current six month period, is primarily attributable to the one
time costs associated with the Tenet Information Services combination completed
during the prior year period.
Net loss for the six months ended December 31, 2005, was ($67,948) or ($0.01)
per share as compared to ($159,494) or ($0.02) per share for the six months
ending December 31, 2004.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position decreased from $142,605 at December 31, 2004 to $-0-
at December 31, 2005. During the first half of fiscal 2006, the Company used
$55,870 of cash to fund its operating activities.
LGA Capital Requirements
During the six months ended December 31, 2005, an LGA shareholder exercised
common stock options to purchase 43,148 shares of restricted common stock for
$29,988 or $0.695 per share. The Company is seeking to raise additional
operating capital from either financing activities or from product licensing
revenue to fund the Company's operations and continued growth. Subsequent to the
end of the December 31, 2005 quarter, an existing LGA shareholder exercised
215,738 options for 215,738 shares of restricted common stock equal to
$149,937.91 or $0.695 per share.
Subsequent to the end of the December 31, 2005 quarter, the Company's remaining
GearWagonAT and GearSpace34 inventory was sold to customers and thus, depleted.
The Company is re-tooling these two products, starting with GearSpace34, in
order to reduce overall product cost, simplify assembly and add new product
features. The Company expects the new GearSpace34 to begin shipping near the end
of the current quarter, and the new GearWagonAT to begin shipping during the
June, 2006 quarter. The Company will experience lower revenue from product sales
during this transition.
The Company is working on several 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.
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 the sales trends of the last two years continuing, it is not able to
forecast when its sales volume will be sufficient to support the Company's
operating expenses.
LGA is pursuing additional growth capital from finance and/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.
While a portion of the current liabilities, approximately $99,867, 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: February 13, 2006 LGA Holdings, Inc
/s/ Marty Williams
----------------------------------
Chairman of the Board of Directors
Marty Williams
10