LGA
HOLDINGS, 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, 2006, 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.
Interim
financial data presented herein are unaudited. The unaudited interim
financial
information presented herein has been prepared by the Company in accordance
with
the policies in its audited financial statements for the period ended
June 30,
2006 and should be read in conjunction with the notes thereto.
The
accompanying statements of operations and cash flows reflect the three-month
period ended September 30, 2006. The comparative figures for the three-month
period ended September 30, 2005 have been included in the accompanying
statements of operations and cash flows for comparison on an unaudited
basis.
Recent
Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No.
123 (revised 2004), "Share-Based Payment" ("Statement 123(R)") to provide
investors and other users of financial statements with more complete
and neutral
financial information by requiring that the compensation cost relating
to
share-based payment transactions be recognized in financial statements.
The cost
will be measured based on the fair value of the equity or liability instrument
used. Statement 123 (R) covers a wide range of share based compensation
arrangements including share options, restricted share plans, performance
based
awards, share appreciation rights, and employee share purchase plans.
Statement
123(R) replaces SFAS No. 123 and supersedes APB25. The Company applied
Statement
123(R) beginning July 1, 2006. The adoption of Statement 123(R) did not
have a
significant impact on the Company's overall results of operations or
financial
position as it has no stock based payments as of September 30, 2006 or
for any
of the periods then ended.
In
July
2006, the FASB finalized and issued Interpretation No. 48 (“FIN 48”), entitled
“Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109,” which defines the threshold for recognizing the benefits of
tax return positions as well as guidance regarding the measurement of
the
resulting tax benefits. FIN 48 requires a company to recognize for financial
statement purposes the impact of a tax position if that position is “more likely
than not” to prevail (defined as a likelihood of more than fifty percent of
being sustained upon audit, based on the technical merits of the tax
position).
FIN 48 will be effective as of the beginning of the Company’s fiscal year ending
December 31, 2008, with the cumulative effect of the change in accounting
principle recorded as an adjustment to retained earnings. The Company
is
currently evaluating the impact of adopting FIN 48 on its financial statements.
LGA
HOLDINGS, INC.
Notes
to Condensed Financial Statements
(Unaudited)
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157 (“SFAS 157”) entitled “Fair Value Measurements”, to define fair value,
establish a framework for measuring fair value and expand disclosures
about fair
value measurements. This statement provides guidance related to the definition
of fair value, the methods used to measure fair value and disclosures
about fair
value measurements. SFAS 157 is effective for financial statements issued
for
fiscal years beginning after November 15, 2007, and interim periods within
those
fiscal years. The Company is currently evaluating the impact of adopting
SFAS
157 on its financial statements.
Note
2: Related Party
Reclassification
of Notes Payable
As
of
September 30, 2006, our Board of Directors approved the reclassification
of
$87,867 from notes payable to officers to accrued payroll. Accrued interest
related to the notes payable in the amount of $6,478 as of June 30, 3006
was
forgiven by the officers and recorded as contributed capital and is shown
in the
accompanying condensed financial statements.
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 provision for inventory obsolescence,
as our management has deemed this necessary.
Raw
materials
|
|
$
|
135,722
|
|
Finished
goods
|
|
|
27,988
|
|
|
|
$
|
163,710
|
|
LGA
HOLDINGS, INC.
Notes
to Condensed Financial Statements
(Unaudited)
Note
5: Embezzlement
During
the three months ended September 30, 2006, the former bookkeeper embezzled
an
additional $35,085 and known recoveries of $20,600 have been netted against
the
embezzlement losses during this period. Embezzlement expense in the amount
of
$14,485 is shown on the accompanying condensed financial
statements.
The
company has implemented internal control procedures to prevent any future
losses.
Note
6: Adjustment for Immaterial Uncorrected Financial Statement
Differences
During
the three months ended September 30, 2006, we evaluated and quantified
accumulated immaterial uncorrected financial statement differences in
accordance
with SAB 108, as follows:
|
|
|
|
|
|
|
|
|
|
Financial
Statements Effect
|
|
|
|
Amount
of Over (Under) Statement of:
|
|
|
|
Total
Assets
|
|
Total
Liabilities
|
|
Working
Capital
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
(7,658
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,658
|
|
Accrued
interest
|
|
|
-
|
|
|
12,062
|
|
|
-
|
|
|
-
|
|
|
(12,062
|
)
|
Total
|
|
|
(7,658
|
)
|
|
12,062
|
|
|
-
|
|
|
-
|
|
|
(4,404
|
)
|
Less
Audit Adjustments Subsequently Booked
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
Unadjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
Differences—June 30, 2006
|
|
|
(7,658
|
)
|
|
12,062
|
|
|
-
|
|
|
-
|
|
|
(4,404
|
)
|
Effect
of Unadjusted Audit Differences—Prior Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
Audit Differences
|
|
$
|
(7,658
|
)
|
$
|
12,062
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(4,404
|
)
|
During
the year ended June 30, 2006, basic accounting errors were made and were
left
uncorrected as they were considered immaterial to our overall financial
statements. The overstatement of interest expense is corrected in the
current
quarter as an adjustment to the opening balance of retained earnings
in the
accompanying condensed financial statement. The difference in inventory
was
subsequently adjusted through our physical inventory count during the
three
months ended September 30, 2006.
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
|
|
1Q
07
|
|
1Q
06
|
|
Revenue
|
|
|
117,015
|
|
|
123,037
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
54,667
|
|
|
53,730
|
|
|
|
|
|
|
|
|
|
SGA
|
|
|
118,014
|
|
|
80,479
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(81,683
|
)
|
|
(16,454
|
)
|
First
Quarter 2007 Compared with First Quarter 2006
During
the first Quarter of Fiscal 2007, the Company had revenues of $117,015,
which
represented a decrease of $6,022 or 5% over the comparable quarter's
revenue of
$123,037. During the first quarter of Fiscal 2006 the Company had $46,251
of
GearWagon trailer sales compared to -0- for the first quarter of Fiscal
2007.
Cost
of
revenue increased $937 or 2% from $53,730 in 2006 to $54,667
in2007.
Gross
margin on product sales decreased to 53% for the current quarter from
56%
during
last year’s first Quarter.
SG&A
expenses increased to $118,014 for the current Quarter, compared to $80,479
for
last year’s comparable Quarter. Of the 47% or $37,535 increase in SG&A
expenses, approximately $14,485 is attributable to the 2007 first quarter
impact
of the prior reported employee embezzlement, with $19,300 of the balance
attributable to higher depreciation, accounting and legal fees.
Net
loss
for the current quarter was ($81,683) or ($0.01) per share as compared
to
($16,454) or ($0.00) per share for the Quarter ended Sept. 30,
2005.
As
of September 30, certain internal controls and procedures
regarding inventory management which the Company decided to implement
as a
result of our 2006 audit are not yet complete. As a result, certain of our
inventory accounts do not reconcile. We expect these implementations to be
completed in the current quarter.
Liquidity
and Capital Resources
The
Company's cash position decreased from $19,706 at September 30, 2005
to $18,889
at September 30, 2006. During the first quarter of Fiscal 2007, the Company
used
$95,964 of cash to fund its operating activities. And used $35,647 for
the
purchase of tooling and patent related expenses.
LGA
Capital Requirements
The
Company reported shareholder equity of $181,755 as of September 30,2006,
as
compared with a deficit of ($10,517) as of September 30, 2005.
The
Company will need additional capital in order to achieve and sustain
profitable
operations. LGA has a history of obtaining growth capital from three
sources, 1)
equity sales, 2) product margin 3) licensing revenue. LGA prefers to
obtain
operating capital from operating margin and licensing revenue. LGA has
opportunities, exclusive of equity sales, to generate the capital required
for
growth from licensing revenue.
The
Company is working on several 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.
During
and subsequent to the end of the first quarter of Fiscal 2007, the company
negotiated and signed a memorandum of understanding with AutoTek Group,
Inc. for
the manufacture and sale of the Company's LittleGiant Trailer system.
AutoTek
Group, Inc. is the majority shareholder in a China-based trailer and
trailer
component manufacturing joint venture, AutoTek China. Please review the
AutoTek
China web site: http://www.autotekchina.com/ AutoTek debuted a seven
foot
version of the LittleGiant Trailer (LGT-7) at the October 15th
Canton
Fair in Guangzhou, China and LGA debuted the same product at the Specialty
Equipment Manufacturers Association Show (SEMA Show) October 30th
in Las
Vegas. The Company's LGT-7 brochure can be viewed at LGA's web site:
www.letsgoaero.com. The Company's LGT-7 design generated a significant
response
for AutoTek in China and for LGA in North America. LGA has patents issued
and
patents pending that protect the intellectual property contained in the
LittleGiant line of kit trailers.
During
the first quarter of fiscal 2007, the Company finalized the design, engineering
and tooling of the new GearWagon 125 (GW-125) trailer. Subsequent to
the end of
the Quarter, the Company debuted GW-125 at the October 30th
SEMA
Show in Las Vegas to a favorable response. Please visit LGA's website
to view
images of this new design. LGA has patents issued and pending that protect
the
novel aspects of GearWagon 125. LGA is in receipt of orders for GearWagon
125.
LGA is discussing production and sales licenses with several RV industry
manufacturers for various versions of GearWagon 125.
Immediately
subsequent to the end of the first quarter of fiscal 2007, the Company
was
notified by the U.S. Patent and Trade Office that the Company's "GullWing"
and
"FoldOut" patent claims for expandable space have been allowed and will
issue in
the near term. LGA is in discussions with several RV industry manufacturers
interested in licensing the GullWing/FoldOut IP for inclusion with their
new
product offerings.
The
Company is experiencing a growing level of product interest from consumers,
dealers,
distributors and OEM's. The Company displayed product at the October,
2006 SEMA
show and the Company's products received a favorable response.
The
Company has Silent Hitch Pin, TwinTube-UBI, GearDeck and GearSpace inventory
available for immediate shipment. The Company's LGT-7, GearWagon 125
and
GearCage products will not be available until early 2007.
The
Company will incur costs to complete LGT-7, GW-125 and GearCage, and
will need
financial resources greater than it currently possesses to pay for the
initial
inventory of these products. The Company can provide shareholders with
no
assurance the capital needed to complete this process will be forthcoming
on
terms acceptable to shareholders.
LittleGiant
Trailer System
LGA
is in
receipt of international interest and order indications for LGT-7 trailer
kits.
LGA
has
several manufacturers interested in producing the LGT line in China.
LGA
initially showed two early LGT models at the April, 2005 Canton Fair
with our
partner AutoTek Group, Inc. New York. During the month of April, 2005,
rules
changed in China making it legal for Chinese citizens to tow trailers
with a
Gross Vehicle Weight Rating(GVWR) of less than 700 kilo's (~1,500 pounds)
on
China roads. Currently, the Chinese towing requirements and trailer standards
are being promulgated and there is a growing level of interest in China
for
lightweight trailer designs. These circumstances provide LGA with a unique
opportunity to manufacture and sell LGT's in China and for export.
If
LGT
production occurs as expected and with acceptable quality, LGA expects
to see an
increase in revenue and gross margin from LGT sales.
The
LGT
trailer line is one elemental part of a three product family featuring
a new
shipping crate design (GearCrate) that is re-useable or re-fittable to
be the
mobility trailer (LittleGiant Trailer) for whatever is being shipped,
with the
trailer ultimately configurable as a novel camping system (GullWing/FoldOut),
among other features. Whether LGA derives economic benefit from these
designs
cannot be forecast.
Subsequent
to the October, 2006 Canton Fair, AutoTek China is in receipt of interest
for
LGA's GearCrate/LGT design from China/Asia based equipment manufacturers.
The
impact of this interest cannot be forecast at this time.
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. LGA will pursue
additional operating capital from either finance or licensing-related
sources.
There can be no assurance 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 $114,471, is owed to
present
officers and/or directors, there can be no assurance that these
officers/directors will not seek payment in the near term.
Inflation
has not had a significant impact on the Company's operations.