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, 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
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Commission File No.
TENET INFORMATION SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
UTAH 87-0405405
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3380 North El Paso, Street, Ste. G
Colorado Springs, Colorado 80907
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(Address of principal executive office)
(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 March 31, 2005, the Company had 8,119,074 shares of common stock issued
and outstanding.
Transitional Small Business Disclosure Format (Check one) Yes No X
--- ---
Tenet Information Services, Inc.
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet at March 31, 2005 ............. F-1
Condensed Consolidated Statements of Operations, for the nine
months ended March 31, 2005 and 2004 and for the three
months ended March 31, 2005 and 2004 ............................... F-2
Condensed Consolidated Statement of Changes in Shareholders' Deficit
for the period from July 1, 2004 through March 31, 2005 ............ F-3
Condensed Consolidated Statements of Cash Flows, for the nine months
ended March 31, 2005 and 2004 ...................................... F-4
Notes to condensed consolidated 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.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
SIGNATURES.................................................................. 11
TENET INFORMATION SERVICES, INC.
(Formerly Let's Go Aero, Inc.)
Condensed Consolidated Balance Sheet
(Unaudited)
March 31, 2005
Assets
Current assets:
Cash ..................................................... $ 51,202
Accounts and notes receivable ........................... 27,014
Inventory, at lower of cost or market (Note 4) ........... 167,314
Prepaid expenses ......................................... 2,290
---------
Total current assets ...................... 247,820
Property and Equipment ................................... 142,425
Accumulated depreciation ................................. (91,963)
Intangible assets ........................................ 71,737
Accumulated amortization ................................. (15,779)
Other assets ............................................. 6,179
---------
Total assets .............................. $ 360,419
=========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ......................................... $ 100,791
Other current liabilities ................................ 202,575
---------
Total current liabilities ................. 303,366
---------
Shareholders' equity (Notes 2 and 5):
Common stock ............................................. 319,329
Additional paid-in capital ............................... 309,756
Retained loss ............................................ (572,032)
---------
Total shareholders' equity ................ 57,053
---------
Total liabilities and shareholders' equity $ 360,419
=========
See accompanying notes to condensed consolidated financial statements
F-1
TENET INFORMATION SERVICES, INC.
(Formerly Let's Go Aero, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales and revenue ....................... $ 174,969 $ 133,620 $ 51,734 $ 84,700
----------- ----------- ----------- -----------
Operating expenses:
Costs of revenue .................... 78,617 55,728 22,903 31,387
Selling, general and administrative . 294,940 205,534 65,474 155,369
Stock based compensation (Note 5) ... 309,756 -- 309,756 --
Research and development ............ 15,195 3,520 4,096 --
----------- ----------- ----------- -----------
Total operating expenses 698,508 264,782 402,229 186,756
----------- ----------- ----------- -----------
Operating loss .......... (523,539) (131,162) (350,495) (102,056)
Other income (expense):
Other income ........................ 17,133 1 774 1
Interest expense .................... (2,813) (138,210) (4) (136,934)
----------- ----------- ----------- -----------
Loss before income taxes .. (509,219) (269,371) (349,725) (238,989)
----------- ----------- ----------- -----------
Income tax provision (Note 3) ........... -- -- -- --
----------- ----------- ----------- -----------
Net loss .................. $ (509,219) $ (269,371) $ (349,725) $ (238,989)
=========== =========== =========== ===========
Basic and diluted income (loss) per share $ (0.07) $ (0.08) $ (0.04) $ (0.07)
=========== =========== =========== ===========
Number of weighted average common shares
outstanding ......................... 7,086,635 3,501,134 8,044,079 3,572,576
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements
F-2
TENET INFORMATION SERVICES, INC.
(Formerly Let's Go Aero, 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, 2004 ................ 6,779,074 $ 6,779 $ -- $ (62,813) $ (56,034)
Common stock sales (Notes 2 and 5) 1,340,000 312,550 -- -- 312,550
Common stock options
granted (Note 5) ............ -- -- 309,756 -- 309,756
Net loss ......................... -- -- -- (509,219) (509,219)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2005 ........ 8,119,074 $ 319,329 $ 309,756 $ (572,032) $ 57,053
========== ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
F-3
TENET INFORMATION SERVICES, INC.
(Formerly Let's Go Aero, Inc.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
----------------------
2005 2004
--------- ---------
Net cash used in operating activities ........... $(400,640) $(129,741)
--------- ---------
Cash flows from investing activities:
Purchase of equipment and other assets ...... (31,185) (310)
--------- ---------
Net cash used in investing activities ........... (31,185) (310)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ................ -- 117,811
Payment for long-term debt .................. (10,142) --
Sale of common stock ........................ 312,550 73,500
--------- ---------
Net cash provided by financing activities ...... 302,408 191,311
--------- ---------
Net change in cash ............ (129,417) 61,260
Cash, beginning of period ................... 180,619 6,192
--------- ---------
Cash, end of period ......................... $ 51,202 $ 67,452
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes .............................. $ -- $ --
========= =========
Interest .................................. $ -- $ --
========= =========
See accompanying notes to condensed consolidated financial statements
F-4
TENET INFORMATION SERVICES, INC.
(Formerly Let's Go Aero, 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, 2004, 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.
The financial results during the three and nine months ended March 31, 2005
presents the result of operations of Let's Go Aero, Inc. and does not include
the financial results of Tenet Information Services, Inc.
Note 2: Related party
During the three months ended March 31, 2005, we sold 18,000 shares of
restricted common stock to one of our directors, for $12,510 cash at $0.695 per
share.
On December 1, 2004, we sold 1,250,000 shares of restricted common stock to a
company owned by one of our directors, for $250,000 at $0.20 per share. We are
entitled to a call option, giving our Company the right to repurchase all of the
shares issued at an exercise price of $0.40 per share any time before November
30, 2006.
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 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 have deemed this unnecessary.
Raw materials...................... $ 43,262
Finished goods..................... 124,052
---------
$ 167,314
=========
Note 5: Capital Stock
During the quarter ended March 31, 2005, we sold 72,000 shares of restricted
common stock to an unrelated third party, for $50,040 cash at $0.695 per share.
F-5
TENET INFORMATION SERVICES, INC.
(Formerly Let's Go Aero, Inc.)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Common 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
The status of the Company's stock options are summarized as follows:
Weighted
Number Average
of Shares Exercise
Exercisable Price
------------ -----------
Outstanding at June 30, 2004........ 1,508,008 $ 0.70
Granted............................. 768,000 0.60
Exercised........................... -- --
Canceled............................ -- --
------------ -----------
Outstanding at March 31, 2005....... 2,276,008 $ 0.67
============ ===========
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 Nine Months Ended
March 31,
-------------------
05 04
----- -----
Revenue 174,969 133,620
Cost of Revenue 78,617 55,728
SGA 294,940 205,534
R & D 15,195 3,520
Other Income(expense) 17,133 1
Interest Expense (2,813) (138,210)
Stock based compensation
Note 5 (309,756) --
Net Loss (509,219) (269,371)
Nine Months Ended March 31, 2005, Compared with Nine Months Ended March 31, 2004
During the first nine months of Fiscal 2005, the Company's revenue grew 31% to
$174,969 compared to $133,620 in revenue for the similar period of Fiscal 2004.
During the current period the Company's sales resulted primarily from inquiries
generated by our web site. The Company intends to increase its selling effort
during the fourth period of fiscal 2005, and beyond.
Cost of revenue for the nine months ended March 31, 2004, increased $22,889 or
41% from $55,728 during the 2003 period, to $78,617 for the 2004 period.
Gross margin on product sales decreased to 55% for the current period from 58%
during last years comparable period.
SG&A expenses increased to $294,920 for the nine months ended March 31, 2005,
compared to $205,534 for the comparable period of 2004. The increase in SG&A
expenses for the current nine month period is primarily attributable to costs
associated with the Tenet Information Services combination and to a lesser
extent an increased operating tempo at the Company.
7
Net loss for the nine months ended March 31, 2005, was ($509,219) or ($0.07) per
share as compared to ($269,371) or ($0.08) per share for the nine months ending
March 31, 2004. $309,756, or 61% of the current periods Net Loss is attributable
to the accounting treatment of stock option grants.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position decreased from $142,279 at December 31, 2004 to
$51,202 at March 31, 2005. During the first nine months of fiscal 2005, the
Company used $400,640 of cash to fund its operating activities and $31,185 for
the purchase of tooling and patent related expenses.
LGA Capital Requirements
The Company will need to raise additional operating capital from either
financing activities or from product licensing revenue to fund the Company's
growth through the end of the 2005 fiscal year and beyond. The Company is
currently increasing its product inventory and higher inventory levels will also
increase the use of cash until the inventory is sold. Currently, LGA intends to
add approximately $90,000 of inventory to its books over the next 120 days. In
addition, the Company will incur higher operating expenses into the future for,
among other reasons, an increased focus on selling, product fullfillment and the
personnel necessary to support this growth.
During the three month period ended March 31, 2005, the Company sold 72,000
shares of restricted common stock to an unrelated third party, for $50,040 or
$0.695 per share.
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.
Subsequent to the end of the March, 31, 2005 quarter, the Company signed a
licensing agreement with AutoTek China that is related to a recent addition to
the Company's Intellectual Property (IP) portfolio. This IP, known as the Little
Giant Trailer System (LGT), is a high quality, "knockdown" shippable, kit
trailer. As of April 5, 2005, it is now legal for Chinese citizens to tow
lightweight (under 1,500 pound load rating) trailers on China's roads. AutoTek
China is a joint venture between AutoTek New York and Haide Special Vehicle
Factory located in Yantai, China. AutoTek China debuted the LGT at the 97th
Caton Fair trade show in early April. The technology was well received as
acceptable not only in China, but worldwide. LGA has licensed AutoTek China to
manufacture trailers in China using the LGT IP, for exclusive sale in China,
Russia and the former Soviet State countries. LGA and AutoTek are in continuing
discussions regarding AutoTek's desire to acquire additional selling rights for
LGT in the broader worldwide market for this technology. In addition, LGA has
been approached and is in discussions with several other companies interested in
securing rights to the Little Giant IP and its derivatives.
LGA has also begun licensing discussions regarding the Company's TwinTube,
GearBag and GearDeck product lines with several third party's.
During the three months ended March 31, 2005, LGA received notification from the
U.S. Patent and Trade office that additional claims for the Company's GearBed
cargo management system for pickup beds have been allowed and will issue in the
near future. LGA is currently aware of two automotive OEM's that are selling a
product containing the exact IP contained LGA's intellectual property portfolio.
Due to the timing of anticipated inventory additions and higher operating
expenses, the Company will need to raise capital, in addition to the recent
stock sales, from either financing or licensing sources during fiscal 2005.
8
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.
While a portion of the current liabilities, approximately $88,278, 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 third quarter of fiscal 2005, LGA sold a total of 90,000 shares of
common stock, for $62,550, or $0.695 per share. The shares of common stock were
sold to an existing LGA shareholder and to an unrelated third party. The
transaction was completed on March 2005. The Tenet shares were issued pursuant
to exemption from registration under Sections 3(b)and/or 4(2) and or 4(6) of the
Securities Act of 1933 and/or Regulation D promulgated thereunder.
During the second Quarter of fiscal 2005, LGA sold 1,250,000 shares of common
stock to an existing LGA shareholder, for $250,000, or $0.20 per share. In
conjunction with this sale, LGA retains a call option for these shares that
grants LGA the right for two years following the completion of this transaction,
to re-purchase any or all of these shares at $0.40 per share. The transaction
was completed on November 30, 2004. The Tenet shares were issued pursuant to
exemption from registration under Sections 3(b)and/or 4(2) and or 4(6) of the
Securities Act of 1933 and/or Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submissions of Matters to a Vote of Security Holders.
None.
9
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
10
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 12, 2005 TENET INFORMATION SERVICES, INC.
/s/ Marty Williams
----------------------------------
Chairman of the Board of Directors
Marty Williams
11