Aero,
LGA's wholly owned subsidiary, is LGA's only operating business. Aero is in the
business of designing and selling gear management solutions for automotive,
recreation and commercial uses. Aero's family of products uses
patented designs, and includes the GearWagon(R) line of Sport Performance
Trailers(R), the GearSpace(TM) line of hitch-mount cargo carriers, the Silent
Hitch Pin line, the LittleGiant Trailer line and the GullWing line of RV
technology. Aero was formed in 1998.
Aero was
founded as a product design, development and engineering company. It specializes
in providing novel solutions for vehicular cargo carrying enhancements. Aero has
patents issued and pending that protect its intellectual property. These patents
and claims relate to how cargo can be attached and carried on a vehicle's hitch
receiver, frame, or body surface. Some examples are:
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Silent
Hitch Pin(TM) rigidly couples the connection between the trailer hitch
receiver and any inserted ball mount or accessory;
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TwinTube(TM)
provides a universal mounting structure for carrying gear and equipment
with a receiver style hitch;
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The
fully-enclosed, encapsulated, and easy-opening designs of Aero's product
enclosures for cargo safety, security, and accessibility;
and
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Aero also
has numerous product extensions and accessories that complement and expand these
core technologies.
Aero's
intellectual property has broad application in the automotive industry, and
several automotive Original Equipment Manufacturers are in various stages of
integrating aspects of Aero's technology into their product
lines. Aero has developed and will continue to develop intellectual
property for the Automotive, RV and commercial industries. It is Aero's intent
to license its technology to the industry leaders that can most effectively
bring the licensed technology to market. Aero plans to license the
production and sales of its products for up-front fees and ongoing
royalties based on unit sales.
Products
Aero
currently has several product lines that it has been selling for several years
and other product lines that are emergent. These product lines are described as
follows:
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GearWagon
125 Sport Performance Trailers(R). Aero's GearWagon(R) line of Sport
Performance Trailers(R) are designed for carrying all types of personal,
recreational, and commercial gear in an aerodynamic, weather-resistant,
secure and attractive transport.
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GearSpace(TM)
Carriers. The GearSpace(TM) hitch based carrier line consists of two fully
enclosed cargo carrier models, GearSpace 34(TM) and GearSpace 20(TM), with
three structural options to choose from for varying function while on the
vehicle's hitch receiver. These designs offer versatility, security and
safety.
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SILENT
HITCH PIN(TM). This anti-vibration device takes all movement out of the
connection between the vehicle towing system and what's being towed or
carried. In short, it freezes the attachment securely in place. It works
with most consumer vehicle towing systems.
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TwinTube(TM)
System. The TwinTube(TM) ("TT(TM)") System is a patented design that was
included in the technology licensed to Sport Rack International/Valley
Industries, Inc. as discussed above. TwinTube(TM) is a
universal mounting structure for carrying gear and equipment with a hitch
receiver. TwinTube(TM) is also available as a UBI(TM) system
(U-Build-It).
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GearDeck(TM)
System. Incorporating Aero's novel TwinTube(TM) technology, GearDeck(TM)
is a modular carrier that functions as an open platform carrier or a
fully-enclosed carrier through the use of a modular hardtop lid enclosure
that is easily attached and removed. The open platform can carry bicycles,
among many other large items; the full enclosure system carries all kinds
of general cargo as well as items such as power
generators.
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GearCrate(TM)/LittleGiant
Trailer System(TM). New design for both a stand alone recyclable shipping
crate, a stand alone utility trailer and the novel function of a shipping
crate that can be easily converted into a trailer at destination for the
device being shipped; for example, ATV's, motorcycles, generators,
welders, etc. The design debuted at the April, 2005, Canton Fair in
Guangzhou, China.
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GullWing(TM)
camper. Derivative of Little Giant Trailer(TM). New design for personal
motor sport and RV applications. The GullWing(TM) design allows a cargo
trailer to convert into a new category of camping trailer. GullWing(TM)
intellectual property also has application for pickup toppers and pickup
campers. On October 7, 2006 the U.S. Patent and Trade Office
notified LGA of its acceptance of LGA's GullWing claims, and the patent
was issued on February 20, 2007. LGA is in discussions
with several RV Original Equipment Manufacturers regarding the
GullWing/Foldout intellectual property.
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TENTRIS(TM)
tent and portable structure. New design for tent and portable enclosure
applications.
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GearDeck
APU(TM). New derivative of Aero's GearDeck 17 system. APU is an all-in-one
electrical generator storage, transportation and organization solution
designed initially for recreational vehicles. The APU system may also have
application with the broader portable generator market.
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ONAN
JUICEBOX. During 2006, Aero completed a product development
effort with the Onan division of Cummins, Inc. resulting in Onan's
JuiceBox product. The licensed design is based on LGA's Silent Hitch Pin,
TwinTube, GearDeck and LandingGear Intellectual Property. LGA
began receiving product royalties in July, 2006. During fiscal
2007, a formal licensing agreement with Onan was signed that specifies
per-unit royalty payments and the precise extent of licensing rights for
Onan for the life of LGA’s patents. Since the signing of this
agreement, revenues resulting from it have been
immaterial.
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PIXIE
™ BICYCLE CARRIER. During 2007, Aero developed and patented a
new technology for bicycle carriers. Aero licensed this
technology to Cequent Towing Products, a division of Trimas Corp., at the
prototype stage of development, in January 2008. Aero expects
to receive royalties from this license as Cequent brings products based
upon this technology to market.
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The
Future
Aero's
future focus is on market, partner and product development. There is a large
consumer market for Aero's products, and Aero’s approach to this market is to
enter it through partnership arrangements with large existing
participants. The license with Cequent discussed above typifies that
approach. We are offering licenses to all of our existing products
under terms similar to the Cequent license. Royalties and other
payments stemming from such licenses are currently allocated to fund continuing
development of our newer ideas.
Objectives
and Sales
Objectives
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To
establish manufacturing, sales and marketing for
Aero's products domestically and
internationally
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To
continue product development and invention work where a clear payoff is
predictable
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To
establish positive operating cash flow and
earnings
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Customer
Direct Sales
Historically,
close to 80% of Aero's revenue has come from direct-to-end-user sales that
resulted from the customer finding Aero's web site. This proportion
has declined and is expected to continue declining as a result of the Cequent
license and other similar licenses the company may issue in the
future. We make our products available directly to consumers
primarily to prove our products’ market viability to potential licensing
partners, such as Cequent.
Aero has
promoted its products primarily through a "Public Relations" approach. As a
result of these efforts, Aero has spent little on direct advertising, yet has
been featured in many national magazines, newspapers, and TV and radio shows.
Because Aero's product designs are novel, publishers of magazines frequently
feature them in the magazines’ "New Product Review" sections along with Aero's
address and web site. This approach has been important to Aero's products
getting discovered, while keeping its promotional expenses low.
Aero's
customers also provide great leads for product sales. In addition to current
owners giving Aero positive reviews to prospective new owners, Aero's products
all feature its web site address on its product logo. Aero regularly gets
inquiries from individuals who have seen Aero products in the
field.
Market
for Products
For many
years, people have been increasing their recreation time and recreation
interests. This trend has spurred a dramatic increase in the purchase of sport
utility vehicles (SUV's), mini-vans, and pick-up trucks. The purchase of these
style vehicles reflects, in part, the consumers' perceived need for increased
cargo capacity.
The
installed base of receiver style hitches presents a large latent market for
Aero's products. Further, Aero believes that the automotive Original Equipment
Manufacturers would like to migrate the accessories currently being carried on
the roofs of SUVs to the receiver hitch in order to reduce the roll-over risk of
SUVs and provide consumers with more convenient cargo carrying
solutions.
Competition
The sport
equipment carrier market is a competitive environment with more than ten
participants that are larger than Aero and have the following advantages
relative to Aero:
Name
recognition
Several
competitors, like Yakima Products and Thule have established names with the
public. Aero is still relatively unknown. It can take years to establish a Brand
name, and Aero is at the beginning of exposing its products and brand to the
public. Aero’s success against these competitors can not be
assured.
Product
Lines
Several
competitors have broad product lines compared to Aero. Aero participates in the
roof top cargo carrier market in a limited way with a roof top version of its
GearCage line and with GearBag, a full enclosure cargo bag that works well both
on roof tops and as a full-enclosure accessory to GearCage.
In terms
of product strength, Aero believes it has several distinct advantages over the
competition:
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Large
cargo capacities and lightweight designs easily surpass the cargo
transport capabilities of roof-top products and other receiver based
products currently on the market.
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The
opening systems enable Aero products to enclose space more
efficiently.
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Aero
enclosed carrier products offer increased security over open
carriers.
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Aero
products are safer than rooftop carriers.
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Patent
filings protect Aero products' ergonomics and
efficiencies.
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Aero
products' aerodynamic efficiencies reduce impact on fuel
economy.
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Multiple
product offerings provide consumers with various options and price
consideration.
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Opening
Systems
Aero's
GearWagon(R) and GearSpace(TM) capsules represent a new category of container.
These containers have shells that are concave so that the lids open by dropping
and "nesting" under the base. This allows easy content access for customers.
When closed, the shells are "self-reinforcing" and very tough.
Content
Security
Aero's
GearWagon® trailers, GearSpace™, and GearDeck™ carriers are lockable and fully
enclosed so the owner's gear is in a water and dust free environment. When
traveling, having gear out of sight is one of the best theft-prevention steps to
take. This means high-value, lightweight objects like cameras and computers can
be stowed out of sight in Aero's carriers.
Safety
Factor
Safety
comes in many forms for Aero customers. When compared to roof-based systems,
Aero carriers do not raise a vehicle's center of gravity and therefore, when
compared to a similar weight on the roof of a vehicle, make the vehicle less
prone to rollover.
Aero's
carriers are also loaded by standing on the ground. Roof carriers are commonly
loaded by standing on a running board, a doorsill or a stepladder--all
precarious positions from which to be lifting and moving gear. Most roof systems
are limited to 100 pounds of gear weight. Most SUV hitch receivers are rated for
500 pounds of load carrying.
Patent
Protection
Starting
in 1998, Aero has been diligent at protecting its technology with "utility"
patent protection, which is the highest form of invention protection. Utility
patents are issued for truly novel technological achievements. The method by
which Aero's product capsules open, the way Aero's GearSpace(TM) carrier
platforms telescope and pivot, and the features of the Silent Hitch Pin(TM) are
all patented aspects of Aero's products. All Aero's patents have at least 11
years remaining in their respective terms. Aero has eight issued
patents and nine pending patents.
Aero has
patents issued and patents pending protecting its GearBed intellectual
property. Nissan Motor Company has challenged certain GearBed claims
with the US Patent and Trademark Office. While Aero intends to pursue
its claims vigorously, it cannot forecast the outcome of the GearBed patent
review at this time.
Aerodynamic
Efficiencies and Fuel Economy
It
appears from informal evidence that Aero's GearWagon(R) line of Sport
Performance Trailers(R) is fuel efficient. It also appears from informal
evidence that Aero's GearSpace(TM) carriers have no noticeable effect on fuel
economy. When used on an SUV, these carriers sit in the vehicle's
draft.
Volume
and Weight Advantages
Because
of Aero's capsular designs, its products offer high "space-to-weight" ratios
relative to other cargo carrying products currently on the
market. The GearWagon(R) 125 weighs 480 pounds empty, encloses
approximately 125 cubic feet and has a carrying capacity of 1,000 pounds. A
standard "box" trailer with similar storage capability typically weighs close to
1,000 pounds empty, meaning that a fully loaded GearWagon(R) 125 weighs only 480
pounds more than a comparable empty box trailer. Aero's GearSpace(TM)
line attaches to one of the strongest points on a vehicle, the hitch
receiver. Aero rates its GearSpace(TM) carriers for 300 pounds of
cargo carrying, which gives the owner of a standard SUV more than twice the
weight carrying ability of a typical roof top box.
Manufacturing
and Development
Manufacturing
Aero's
focus is on product and technology development. As a result of the
Cequent license, all significant product assembly operations formerly performed
in-house have been taken over by Cequent. In the future, Aero may
assemble new products, some trailer accessories, and possibly the GearWagon 125
trailer, in-house.
Aero
purchased its initial inventory of LGT-7 trailers from AutoTek China, and
anticipates a continuing and growing supplier relationship with Autotek China
for the LGT-7 and other products utilizing that core technology.
Aero is
actively engaged in specifying sources for all its assembly services, raw
materials and parts in order to ensure that its products meet its quality and
performance standards. All specified raw materials and parts or acceptable
substitutions are available from many suppliers, and Aero does not rely on any
one supplier the loss of which would cause any long term adverse consequences to
Aero.
Shipping
The
shipping cost of Aero's products is reasonable considering some of the products'
sizes. Aero has shipped over 1,000 units from Elkhart, Indiana, to destinations
throughout the United States. Aero has had few freight claims for damaged goods
and believes it has the packaging adequate to properly protect the
product.
Aero
utilizes the shipping services of Yellow, DATS, FedEx, National, LTL, and Old
Dominion among others.
Research
and Development
Aero's
expenditures for research and development have been $94,095 and $42,654. for the
fiscal years ended June 30 2007 and 2008, respectively. See Management's
Discussion and Analysis, below. Aero will continue product
development and invention work where a clear payoff is
anticipated. Aero is considering numerous ways to branch and grow its
current products depending on market opportunity and demand. Aero
continues to work on new product designs and improvements to protect and expand
Aero's existing intellectual property.
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 operations and the ability to
control expenses.