SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission file number: 0-6867
LYNTON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2688055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 AIRPORT ROAD
MORRISTOWN MUNICIPAL AIRPORT
MORRISTOWN, NEW JERSEY 07960
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 292-9000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
Common, $.30 par value per share: 6,394,872
Outstanding as of FEBRUARY 7, 1998
<PAGE>
Part 1 - FINANCIAL INFORMATION
LYNTON GROUP, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PERIOD ENDED DECEMBER 31, 1997
ITEM PAGE
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
December 31, 1997 and September 30, 1997 3
Condensed Consolidated Statements of Operations -
For the Three months ended December 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
For the Three months ended December 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and results of operations 9-10
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash $2,329,234 $726,645
Accounts receivable 4,004,606 3,268,879
Investment in jointly-owned company
held for resale 928,321 1,222,620
Inventories 1,366,592 803,677
Aircraft held for resale 12,114,000 -
Prepaids and other current assets 821,122 214,124
Total current assets 21,563,875 6,235,945
Property, plant and equipment 32,145,789 18,045,935
Less accumulated depreciation
and amortization 4,878,732 4,652,703
27,267,057 13,393,232
Funds held in escrow 150,000 150,000
Aircraft held for resale 1,870,233 1,870,233
Long-term ground lease, less
accumulated amortization 1,919,175 1,933,861
Goodwill, less accumulated amortization 9,322,077 2,155,007
Other assets and deferred charges,
less accumulated amortization 465,633 484,970
$62,558,050 $26,223,248
Liabilities and stockholders equity
Current liabilities:
Accounts payable and accrued liabilities $5,978,847 $4,201,508
Advances from customers and
deferred revenue 1,845,152 1,761,950
Current portion of capital lease
obligations 40,949 38,480
Current portion of debt on aircraft
held for resale 10,433,771 -
Current portion of other long-term debt 3,876,591 1,285,364
Total current liabilities 22,175,310 7,287,302
Long term debt, less current portion 24,248,472 13,459,832
Subordinated convertible debentures 5,816,000 -
Deferred revenue 660,000 720,000
Obligations under capital leases, less
current portion 60,525 69,071
Deferred income taxes 4,825,520 163,183
Stockholders' equity:
Common stock 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (6,948,742) (7,141,115)
Translation adjustment 34,028 (21,962)
4,783,571 4,535,208
Common stock held in treasury (11,348) (11,348)
Total stockholders' equity 4,772,223 4,523,860
$62,558,050 $26,223,248
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net revenues $6,909,971 $5,871,591
Expenses:
Direct costs 5,436,029 4,603,877
Selling, general and administrative 707,174 658,915
Depreciation 179,803 171,014
Amortization of goodwill and ground lease 31,954 31,924
Operating income 555,011 405,861
Amortization of debt discount and issuance
costs 19,337 19,337
Interest 314,401 241,109
Income before provision for income taxes 221,273 145,415
Income tax provision 28,900 -
Net income 192,373 145,415
Net income per share of Common Stock
Basic $0.03 $0.02
Diluted $0.03 $0.02
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $192,373 $145,415
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 231,094 222,275
Change in certain assets and liabilities:
Accounts receivable 1,560,302 745,206
Due from/to affiliates (net) - (41,955)
Inventories (12,544) (41,835)
Prepaids and other assets (414,647) 204,919
Accounts payable and accrued expenses 9,384 (1,029,585)
Advances from customers and deferred
revenues 23,202 36,366
Net cash provided by operating activities 1,589,164 240,806
Cash flow from investing activities:
Cash paid for Magec Aviation and related
acquisition costs (30,294,785) -
Capital expenditures (net) (66,735) (113,645)
Net cash used by investing activities (30,361,520) (113,645)
Cash flow from financing activities:
Capital lease obligations (net) (6,077) (9,636)
Proceeds of financing for Magec Aviation
acquisition 30,177,451 -
Repayment of notes payable and long-term
debt (547,813) (220,823)
Net cash provided (used) by financing
activities 29,623,561 (230,459)
Effect of exchange rate changes on cash 55,990 32,208
Increase (decrease) in cash 907,195 (71,090)
Cash, beginning of period 726,645 1,268,475
Cash, end of period $1,633,840 $1,197,385
Supplemental Information
Interest Paid $311,596 $237,084
Taxes Paid $5,250 $45,000
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1997
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended December 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1998. The balances as of
September 30, 1997 in the accompanying balance sheets have been derived from
the audited financial statements as of such date. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Lynton Group, Inc. (the "Company") Annual Report on Form 10-K for the
year ended September 30, 1997.
Note 2. ACQUISITION OF MAGEC AVIATION LIMITED
In December 1997, the Company acquired through Lynton Group Limited, a wholly-
owned subsidiary of the Company, all of the issued and outstanding shares of
capital stock (the "Magec Shares") of Magec Aviation Limited ("Magec"), a
company organized under the laws of England in a business combination which has
been accounted for as a purchase. Magec provides hangarage and refueling,
charter, management, and maintenance services for corporate aircraft from its
own exclusive terminal at London Luton Airport, England. The purchase price
(including acquisition costs) of $30,295,000 exceeded the estimated fair value
of the net assets of Magec by $7,176,000, which will be amortized over its
expected useful life at a rate to be determined. The purchase price allocation
is based on the following:
[S] [C]
Tangible fixed assets $13,995,207
Aircraft held for resale 12,114,000
Inventories 550,371
Accounts receivable 2,001,731
Prepaids and other assets 192,351
Cash and cash equivalents 695,394
Accounts payable and accrued expenses (1,773,094)
Deferred tax provision (4,657,200)
Net assets acquired $23,118,760
Purchase price 30,294,785
Goodwill on acquisition $7,176,025
The consideration paid to Magec was 17,000,000 Pounds Sterling (equal to
$28,288,000) paid in cash at Closing. The funds used to purchase Magec
(including acquisition costs) included bank financing in the principal amount
of 12,827,000 Pounds Sterling with the balance of the purchase price from debt
financing as follows: (i) promissory notes in the aggregate principal amount of
$1,664,000 due on December 23, 1999, with interest at 12.0% per annum, issued
and sold to entities which may be deemed affiliates of Paul R. Dupee, Jr.,
Chairman of the Board and a director of the Company, and (ii) a non interest
bearing loan in the principal amount of $1,353,000 due on December 23, 1998,
pursuant to an Option Agreement entered into between Magec and an unrelated
party to acquire a certain aircraft owned by Magec, and (iii) 8.0% Subordinated
Convertible Debentures due December 31, 2007 in the aggregate principal amount
of $5,816,000 (the "Debentures") issued and sold to certain directors and
principal stockholders of the Company, and/or their affiliates, as well as
other third parties.
The Debentures will be convertible into shares of the Company's Common Stock at
the option of the holder at any time prior to maturity at an initial conversion
price of $1.00 per share (subject to adjustment upon the occurrence of certain
events) once the Certificate of Incorporation is modified to increase the
number of authorized shares of Common Stock. In connection with the aforesaid
financing, an Option Agreement was entered into between Magec and Westbury
Properties Corporation ("Westbury"), which may be deemed an affiliate of Paul
R. Dupee, Jr., Chairman of the Board and a director of the Company, whereby
Westbury was granted an option expiring December 23, 1999 to acquire a certain
aircraft owned by Magec for the purchase price of $6,664,000.
Assuming the acquisition of Magec had occurred on October 1, 1996 the Company's
pro forma (unaudited) net revenue, net loss, primary and fully diluted loss per
share for the periods ended December 31, 1997 and 1996 are estimated to have
been as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
<S> <C> <C>
Revenue $12,524,000 $11,64,000
Net loss $41,000 $52,000
Basic loss per common share $0.01 $0.01
Diluted loss per common share $0.01 $0.01
</TABLE>
Note 3. LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited) (Audited)
<S> <C> <C>
Mortgage due to bank with interest at Sterling
LIBOR rate (7.19% at September 30, 1997) plus
2.0%, due in monthly installments through
April, 2001. - $210,866
Mortgage Note payable to Massachusetts Mutual
Life Insurance Company with an interest rate
of 6.69% due in monthly installments through
January 3, 2006. 7,338,577 7,485,990
Mortgage Note payable to Finova Capital Corp.
with an interest rate of 10.7% due in monthly
installments through December 1, 2004, with a
final installment payment of $1,400,000 due
December 1, 2004. 3,763,502 3,820,525
Senior Subordinated Convertible Debentures with
interest at 10%, payable on December 31, 1998. 795,000 795,000
Note payable to finance company with interest at
Sterling LIBOR rate (7.19% at September 30, 1997)
plus 3.5% payable in monthly installments through
August, 2000. 499,200 536,597
Aircraft financing note payable to finance company
with an interest rate of 10.0% with principal due
every six months and interest due every four months
through January 20, 1999, with a final installment
payment of $1,589,698 due January 20, 1999. 1,776,721 1,870,233
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1997
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited) (Audited)
<S> <C> <C>
Notes payable to bank with interest at Sterling LIBOR
rate plus 2.25% payable in installments through
September 2002. 21,344,128 -
Promissory notes payable to entities, which may be
deemed to be affiliates of the Company's Chairman
of the Board, with interest at 12% per annum
payable in one installment on December 31, 1999. 1,664,000 -
Loan note payable to third party at zero interest,
payable in one installment on December 23, 1998. 1,353,323 -
Notes payable due to finance company with an
interest rate of 10.5%, due in monthly installments
through February, 2000. 24,383 25,985
$38,558,834 $14,745,196
Less:
Amount due within one year (14,310,362) (1,285,364)
$24,248,472 $13,459,832
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES & OPERATING INCOME
Revenues for the three months ended December 31, 1997 increased to $6,910,000
from revenues of $5,872,000 for the comparable fiscal 1997 period, an increase
of $1,038,000 or 17.7%. This increase is primarily attributable to an increase
in fuel sales volume and tenant occupancy at the Company's fixed base operation
and an increase in charter operations in the UK.
Operating income for the three months ended December 31, 1997 increased to
$555,000 compared to operating income of $406,000 for the three months ended
December 31, 1996, an increase of $149,000. This increase primarily consists
of increased operating income from the fixed base operation and charter
operations in the UK.
INTEREST
Interest expense for the three months ended December 31, 1997 increased to
$314,000 compared to interest expense of $241,000 for the three months ended
December 31, 1996, an increase of $73,000. This increase results from higher
levels of borrowings specifically relating to the aircraft financing note along
with a full quarter interest charge for the mortgage note with Finova Capital
Corporation in fiscal 1998, as compared to one month in fiscal 1997.
NET INCOME
Net income for the three months ended December 31, 1997 was $192,000 as
compared to a net income of $145,000 for the three months ended December 31,
1996, an increase of $47,000. This increase is primarily the result of the
increased operating income, as discussed above, offset by increased interest
expense from increased levels of borrowings and an income tax provision in
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had a working capital deficit of $611,000 as
compared to a working capital deficit of $1,051,000 at September 30, 1997, an
increase in working capital of $440,000. This increase in working capital is
primarily attributable to the Magec acquisition providing $1,667,000 offset by
the increase in the current portion of long term debt as a consequence of the
acquisition and the reclassification under current liabilities at December 31,
1997 of $795,000 for the retirement of the Company's senior subordinated
convertible debentures in December 1998.
In connection with the acquisition of Magec, the consideration paid was
17,000,000 Pounds Sterling (equal to $28,288,000) paid in cash. The funds used
to purchase Magec (including acquisition costs) included bank financing in the
principal amount of 12,827,000 Pounds Sterling (equal to $21,344,000) with the
balance of purchase price from debt financing as follows: (i) promissory notes
in the aggregate principal amount of $1,664,000 due on December 23, 1999, with
interest at 12.0% per annum, issued and sold to entities which may be deemed
affiliates of Paul R. Dupee Jr., Chairman of the Board and a director of the
Company; (ii) a non interest bearing loan in the principal amount of $1,353,000
due on December 23, 1998, pursuant to an Option Agreement entered into
between Magec and an unrelated party to acquire a certain aircraft owned by
Magec, and (iii) 8.0% Subordinated Convertible Debentures due December 31,
2007 in the aggregate principal amount of $5,816,000 (the "Debentures") issued
and sold to certain directors and principal stockholders of the Company,
and/or their affiliates, as well as other third parties. The Debentures will
be convertible into shares of the Company's Common Stock at the option of the
holder at any time prior to maturity at an initial conversion price of $1.00
per share (the "Conversion Price") once the Certificate of Incorporation is
modified to increase the number of authorized shares of Common Stock. The
Conversion Price will be subject to adjustment upon the occurrence of certain
events, which include, among other things, the issuance of Common Stock or the
issuance of securities convertible into or exchangeable for shares of Common
Stock (with certain exceptions as set forth in the Debentures) at less than the
then current market price of the Common Stock, in which event the Conversion
Price will be reduced (i) proportionately by the difference between the then
current market price and the offering price if such offering price is greater
than the then Conversion Price or (ii) to equal the offering price if such
offering price is less than the then Conversion Price. In addition, the
Company may from time to time reduce the Conversion Price by any amount for any
period of time if the period is at least 20 days and if the reduction is
irrevocable during the period, provided that in no event may the Conversion
Price be less than the par value of a share of Common Stock.
The Company anticipates seeking additional equity and/or debt financing during
the next twelve months although no assurance can be given that any such
financing will be successfully completed. In connection therewith, the Company
may effect such financing which may require an adjustment in the Conversion
Price of the Debentures described above (as well as requiring an adjustment in
other outstanding convertible debentures of the Company) or the Company may
voluntarily decide to reduce the Conversion Price of any such instruments in
order to encourage their conversion.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Dollar Air is a defendant in an action pending in the United Kingdom relating
to certain actions taken by Dollar Air in connection with its acting as a
broker in the sale of a certain helicopter. In such action, the plaintiff is
seeking damages in the approximate amount of 170,000 Pounds Sterling
(approximately $250,000). Dollar Air has denied the allegations therein and
the Company has defended and intends to continue to defend this matter
vigorously. While the Company cannot predict the outcome of such litigation,
it does not expect, based upon advice of counsel, that damages will be awarded
to the full extent of plaintiff's claim.
Other than the foregoing, there are no material pending legal proceedings to
which the Company is a party or to which any of its property is subject.
Item 2. CHANGES IN SECURITIES
As previously reported, on December 23, 1997, the Company acquired through
Lynton Group Limited, a wholly-owned subsidiary of the Company, all of the
issued and outstanding shares of capital stock of Magec Aviation Limited for a
purchase price of 17,000,000 Pounds Sterling paid in cash. The Company
obtained part of the purchase price through the sale of securities, which were
not registered under the Securities Act of 1933, as amended (the "Act"). In
connection therewith, and as of December 23, 1997, the Company issued and sold
8.0% Subordinated Convertible Debentures due December 31, 2007 in the aggregate
principal amount of $5,816,000 (the "Debentures") to certain accredited
investors (as defined in Rule 501 under the Act) comprised of certain directors
and principal stockholders of the Company, and/or their affiliates, as well as
other third parties. The Debentures will be convertible into shares of the
Company's Common Stock at the option of the holder at any time prior to
maturity at an initial conversion price of $1.00 per share (subject to
adjustment upon the occurrence of certain events) once the Certificate of
Incorporation is modified to increase the number of authorized shares of Common
Stock. No underwriter was engaged in connection with or participated in the
foregoing sale of the Debentures. Sales of Debentures were made in reliance
upon Section 4(2) and Regulation D of the Act.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
<PAGE>
PART II - OTHER INFORMATION CONTINUED
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)Exhibits
11.0 Statement re Computation of Per Share Earnings
(B)Reports on Form 8-K
Listed below are reports on Form 8-K filed during the fiscal quarter ended
December 31, 1997:
<TABLE>
<CAPTION>
ITEMS REPORTED Financial Statements Filed Date of Report
<S> <C> <C>
Acquisition of Magec To be Filed by Amendment December 23, 1997
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
LYNTON GROUP, INC.
Dated: FEBRUARY 19, 1998 By: /S/ CHRISTOPHER TENNANT
Christopher Tennant, President
and Chief Executive Officer
Dated: FEBRUARY 19, 1998 By: /S/ PAUL A. BOYD
Paul A. Boyd, Secretary, Treasurer and
Principal Financial Officer
<PAGE>
Exhibit 11 - Computation of per share earnings
LYNTON GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the three months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Weighted average shares of Common Stock outstanding 6,394,872 6,394,872
Weighted average Common Stock equivalents 431,299 -
Average shares outstanding - Basic earnings per share 6,826,171 6,394,872
Weighted average shares of Common Stock outstanding 6,394,872 6,394,872
Weighted average Common Stock equivalents 431,299 -
Assumed conversion of 10% Senior Subordinated
Convertible Debentures 77,772 -
Assumed conversion of 8% Convertible Debentures 568,957 -
Average shares outstanding - Diluted earnings per share 7,472,900 6,394,872
BASIC EARNINGS PER SHARE:
Average shares outstanding 6,826,171 6,394,872
Net income available to common shareholders $192,373 $145,415
Per share amount $0.03 $0.02
DILUTED EARNINGS PER SHARE:
Average shares outstanding 7,472,900 6,394,872
Net income $192,373 $145,415
Plus effect of dilutive securities 1,944 -
Net income available to common shareholders plus
assumed conversions $194,317 $145,415
Per share amount $0.03 $0.02
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM LYNTON GROUP, INC.'S AUDITED ANNUAL
REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,329,234
<SECURITIES> 0
<RECEIVABLES> 4,955,822
<ALLOWANCES> 22,895
<INVENTORY> 13,480,592
<CURRENT-ASSETS> 21,563,875
<PP&E> 32,145,789
<DEPRECIATION> 4,878,732
<TOTAL-ASSETS> 62,558,050
<CURRENT-LIABILITIES> 22,175,310
<BONDS> 30,064,472
0
0
<COMMON> 1,918,462
<OTHER-SE> 2,853,761
<TOTAL-LIABILITY-AND-EQUITY> 62,558,050
<SALES> 6,909,971
<TOTAL-REVENUES> 6,909,971
<CGS> 5,436,029
<TOTAL-COSTS> 6,354,960
<OTHER-EXPENSES> 19,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,401
<INCOME-PRETAX> 221,273
<INCOME-TAX> 28,900
<INCOME-CONTINUING> 192,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,373
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
