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 JUNE 30, 1998
[ ] 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 JULY 31, 1998
<PAGE>
Part 1 - FINANCIAL INFORMATION
LYNTON GROUP, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PERIOD ENDED JUNE 30, 1998
ITEM PAGE
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1998 and September 30, 1997 3
Condensed Consolidated Statements of Operations -
For the Three and Nine months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
For the Nine months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-14
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash $1,296,173 $726,645
Accounts receivable 5,191,863 3,268,879
Investment in jointly-owned company
held for resale - 1,222,620
Inventories 1,425,050 803,677
Aircraft held for resale 5,450,000 -
Prepaids and other current assets 589,666 214,124
Total current assets 13,952,752 6,235,945
Property, plant and equipment 33,565,230 18,045,935
Less accumulated depreciation
and amortization 5,861,294 4,652,703
27,703,936 13,393,232
Funds held in escrow 150,000 150,000
Aircraft held for resale - 1,870,233
Long-term ground lease, less
accumulated amortization 2,223,135 1,933,861
Goodwill, less accumulated amortization 9,352,887 2,155,007
Other assets and deferred charges, less
accumulated amortization 696,787 484,970
$54,079,497 $26,223,248
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $6,012,269 $4,201,508
Advances from customers and deferred
revenue 1,363,148 1,761,950
Current portion of capital lease
obligations 53,509 38,480
Current portion of debt on aircraft
held for resale 3,328,322 -
Current portion of other long-term debt 3,830,070 1,285,364
Total current liabilities 14,587,318 7,287,302
Long term debt, less current portion 22,859,562 13,459,832
Subordinated convertible debentures 6,021,499 -
Deferred revenue 540,000 720,000
Obligations under capital leases, less
current portion 60,634 69,071
Deferred income taxes 4,825,842 163,183
Stockholders' equity:
Common stock 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (6,508,739) (7,141,115)
Translation adjustment 6,444 (21,962)
5,195,990 4,535,208
Common stock held in treasury (11,348) (11,348)
Total stockholders' equity 5,184,642 4,523,860
$54,079,497 $26,223,248
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------------ -------------------------
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $14,344,481 $6,428,379 $31,960,538 $18,511,661
Expenses:
Direct costs 10,894,680 4,735,813 24,474,616 13,997,248
Selling, general and
administrative 1,467,293 833,429 3,525,345 2,247,634
Depreciation 503,007 172,420 1,159,756 515,615
Amortization of goodwill
and ground lease 172,611 31,918 345,654 95,755
Operating income 1,306,890 654,799 2,455,167 1,655,409
Amortization of debt discount
and issuance costs 33,685 19,336 77,259 58,010
Interest 645,084 308,462 1,683,043 823,881
Income before provision
for income taxes 628,121 327,001 694,865 773,518
Income tax provision 24,889 44,000 62,489 44,000
Net income attributable
to Common Stock $603,232 $283,001 $632,376 $729,518
Net income per share of Common Stock :
Basic $0.09 $0.04 $0.10 $0.11
Diluted $0.06 $0.04 $0.08 $0.11
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $632,376 $729,518
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,582,669 669,380
Change in certain assets and liabilities:
Accounts receivable 1,301,364 455,536
Due from/to affiliates (net) - (30,015)
Inventories (71,002) (30,597)
Prepaids and other assets (183,189) 193,758
Accounts payable and accrued expenses (206,473) (966,450)
Advances from customers and
deferred revenues (608,568) (554,836)
Net cash provided by operating activities 2,447,177 466,294
Cash flow from investing activities:
Cash paid for Magec Aviation and related
acquisition costs (30,294,785) -
Cash paid for Jet Systems Acquisition
and related costs (1,864,076) -
Cash received for sales of aircraft
held for resale 8,564,000 -
Capital expenditures (net) (307,436) (312,193)
Net cash used by investing activities (23,902,297) (312,193)
Cash flow from financing activities:
Capital lease obligations (net) 6,592 45,898
Proceeds from financing for Magec
Aviation acquisition 30,177,451 -
Proceeds from financing for Jet Systems
acquisition 1,625,000 -
Proceeds from other debt financing 1,540,789 -
Repayment of notes payable and
long-term debt (12,048,983) (844,564)
Net cash provided (used) by financing
activities 21,300,849 (798,666)
Effect of exchange rate changes on cash 28,403 47,281
Decrease in cash (125,868) (597,284)
Cash, beginning of period 726,645 1,268,475
Cash, end of period $600,777 $671,191
Supplemental Information :
Interest Paid $1,405,523 $788,671
Taxes Paid $171,105 $110,880
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
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 nine-month
period ended June 30, 1998 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. ACQUISITIONS
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 $7,426,000, which will be amortized using the
straight line method over twenty years. The purchase price allocation is based
on the following:
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 (2,022,694)
Deferred tax provision (4,657,200)
Net assets acquired $22,869,160
Purchase price 30,294,785
Goodwill on acquisition $7,425,625
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
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 (the "December 1999 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.
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. During the quarter ended June 30, 1998 the said aircraft
was sold by Magec for the purchase price of $7,250,000. In connection
therewith, the December 1999 Notes including accrued interest thereon were paid
in full, certain other bank indebtedness in the amount of $4,998,000 was repaid
and Westbury surrendered its option over said aircraft in return for a sum
equal to the difference between the purchase price ($7,250,000) and the option
exercise price ($6,664,000).
Also, in connection with the aforesaid financing, an Option Agreement was
entered into between Magec and an unrelated party to acquire a certain aircraft
owned by Magec for the purchase price of $5,450,000. On June 19, 1998 the
terms of the Option Agreement were amended to allow for a further advance of
$1,500,000 followed by additional further advances on certain dates in
accordance with the payment schedule included in the Option Agreement. The
further advances will be utilized to repay certain bank borrowings of Lynton
Group Limited. The first further advance under the Option Agreement of
$1,500,000 was received by Magec in accordance with the revised terms of the
Option Agreement and was immediately utilized to repay certain bank borrowings
of Lynton Group Limited.
The 8% Subordinated Convertible Debentures, referred to above, are
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. The conversion price was set at $1.00 which
management believed to be fair market price based on recent bid prices for
certain Common Stock of the Company (reference is made to information on page 9
of the Subject Form 10-K Annual Report for September 30, 1997). Conversion of
the Debentures, if still held by the original purchasers at the time of
conversion, would not lead to a significant change in ownership as the
significant majority of the Debentures were purchased by certain existing
principal stockholders of the Company in significant proportion to their
current stockholding in the Company. However if these certain stockholders
were to transfer their interests in the Debentures prior to such conversion
then this could result in a substantial change in ownership of the Company.
The Debentures bear interest at the rate of 8.0% per annum, payable semi-
annually in arrears on the first day of June and December of each year with the
first such payment due on June 1, 1998, provided, however, that in lieu of
paying such interest in cash, the Company may, at its option, pay interest for
any interest payment date occurring before December 23, 1999 by adding the
amount of such interest to the outstanding principal amount due thereunder (the
"PIK Interest"). In such event, any such PIK Interest when so added shall be
deemed part of the principal indebtedness for purposes of determining amounts
which may be convertible into shares of Common Stock. The Company has
exercised this option with respect to the interest payments due June 1, 1998 so
such PIK Interest resulting therefrom has been added and is now deemed part of
the principal indebtedness for purposes of determining amounts which may be
convertible into shares of Common Stock.
Assuming the acquisition of Magec had occurred on October 1, 1996 the Company's
pro forma (unaudited) net revenue, net income, basic and diluted income per
share for the three and nine months ended June 30, 1998 and 1997 are estimated
to have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
$000s June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $14,344 $11,822 $37,574 $34,550
Net income $603 $237 $398 $58
Basic income per common share $0.09 $0.03 $0.06 $0.00
Diluted income per common share $0.06 $0.03 $0.03 $0.00
</TABLE>
On February 27, 1998 the Company, through Lynton Jet Centre, Inc. ("Lynton
Jet"), a wholly-owned subsidiary of the Company, acquired for $1,864,000 in
cash (including acquisition costs) substantially all the assets of Jet Systems,
including its ground lease on a hangar facility, located at Morristown
Municipal Airport, Morristown, New Jersey (the "Jet System Acquisition"),
pursuant to an Asset Purchase Agreement between 41 North 73 West Inc. d/b/a Jet
Systems and Lynton Jet. The funds used to purchase Jet Systems included bank
financing from Finova Capital Corporation in the principal amount of
$1,625,000. The purchase price allocation is based on the following:
Tangible fixed assets $1,175,000
Covenant not to compete 50,000
Ground lease 400,000
Acquisition costs 239,000
Purchase price $1,864,000
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
Note 3.LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1998 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. 7,036,776 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. 3,665,022 3,820,525
Mortgage note payable to Finova Capital
Corp. with an interest rate of 10.1%
due in monthly installments through
February 1, 2003 with a final
installment payment of $568,750 due
March 1, 2003. 1,583,843 -
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. 400,200 536,597
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. - 1,870,233
Notes payable to Bank of Scotland with
interest at Sterling LIBOR rate plus 2.25%
payable in installments through September
2002. 13,627,298 -
Loan note payable to third party at zero
interest, pursuant to an Option Agreement
to purchase an aircraft (see Note 2.) 2,853,322 -
Notes payable due to finance company with
an interest rate of 10.5%, due in monthly
installments through February, 2000. 56,493 25,985
$30,017,954 $14,745,196
Less:
Amount due within one year (7,158,392) (1,285,364)
$22,859,562 $13,459,832
</TABLE>
The Finova loans require compliance with certain covenants, financial and
otherwise, as defined in the loan agreements, including maintaining a minimum
consolidated net worth; a minimum earnings, before interest taxes, depreciation
and amortization coverage ratio; and a total liabilities to consolidated net
worth coverage ratio, by both Lynton Jet, as borrower, and Lynton Group, Inc.
as guarantor. At March 31, 1998 Lynton Group, Inc. was in technical default of
its total liabilities to consolidated net worth coverage ratio. This default
was cured, within the period allowed to remedy default under article 7.1.2 of
the loan agreement, as two of the aircraft held in stock at March 31, 1998 were
sold by April 8, 1998 and the outstanding associated liabilities repaid in
full.
During 1998, the Company repaid the Sterling mortgage note in the amount of
$211,000, referenced above, with a portion of the proceeds received from the
Bank of Scotland for the acquisition of Magec. The Company also repaid the
aircraft financing note and its related accrued interest in the amount of
$1,840,034, from the proceeds of the sale of such aircraft for $1,900,000.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1998
Note 4. EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
- - - -
Average shares outstanding
- Basic earnings per share 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average of Common
Stock equivalents (1) 582,272 - 582,272 -
Assumed conversion of 10%
Senior Subordinated
Convertible Debentures (1) 553,297 - 553,297 -
Assumed conversion of 8%
Subordinated Convertible
Debentures (1)(2) 4,047,766 - 4,047,766 -
Average shares outstanding
- Diluted earnings
per share 11,578,207 6,394,872 11,578,207 6,394,872
BASIC EARNINGS PER SHARE :
Average shares outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Net income available to
common shareholders $603,232 $283,001 $632,376 $729,518
Per share amount $0.09 $0.04 $0.10 $0.11
DILUTED EARNINGS PER SHARE :
Average shares outstanding 11,578,207 6,394,872 11,578,207 6,394,872
Net income $603,232 $283,001 $632,376 $729,518
Plus effect of dilutive
securities 109,564 - 287,282 -
Net income available to
common shareholders plus
assumed conversions $712,796 $283,001 $919,658 $729,518
Per share amount $0.06 $0.04 $0.08 $0.11
</TABLE>
(1) Certain options to purchase shares of Common Stock of the Company, and the
Convertible Debentures have a an exercise price below the fair value of common
stock for the three and nine months ended June 30, 1998, had a dilutive effect
on earnings per share and are, therefore included on a weighted average basis
in the calculation of diluted earnings per share. Fair market value has been
computed using the weighted average market price of shares traded in the three
and nine months ended June 30, 1998.
(2) The 8% Convertible Debentures have an exercise price below the fair value
of common stock for the three and nine months ended June 30, 1998. These
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. Although no assurances can be
given, management is not aware of any reasons that would cause the
aforementioned transaction not to occur.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Pursuant to a Share Sale and Purchase Agreement dated December 5, 1997 among
Lynton Group, Inc. (the "Company"), Lynton Group Limited, a company organized
under the laws of England and a wholly-owned subsidiary of the Company
("Limited"), and The General Electric Company p.l.c., the owner of all the
shares of capital stock of Magec Aviation Limited, a company organized under
the laws of England ("Magec"), the Company through Limited acquired on December
23, 1997 all of the issued and outstanding shares of capital stock of Magec.
The purchase price for Magec was 17,000,000 Pounds Sterling paid in cash (see
Liquidity and Capital Resources for details of financing) and has been
accounted for as a purchase. Magec operates from hangars, workshops and office
facilities of approximately 65,000 square feet at London Luton Airport,
England. Magec provides a full range of services for users of corporate
aircraft including refueling and handling, charter, engineering, management and
maintenance services for corporate aircraft. The acquisition has more than
doubled the total asset base of the Company since September 30, 1997. The
purpose of the acquisition is to enhance the long-term earnings ability of the
Company by enlarging the asset base of the UK operations. The acquisition has
resulted in the expansion of the Company's fixed wing aviation capability as
well as providing a complimentary facility to its fixed base operation at
Morristown Municipal Airport, New Jersey.
On February 27, 1998 the Company, through Lynton Jet Centre, Inc. ("Lynton
Jet"), a wholly-owned subsidiary of the Company, acquired for $1,864,000 in
cash (including acquisition costs) substantially all the assets of Jet Systems,
including its ground lease on a hangar facility, located at Morristown
Municipal Airport, Morristown, New Jersey (the "Jet System Acquisition"),
pursuant to an Asset Purchase Agreement between 41 North 73 West Inc. d/b/a Jet
Systems and Lynton Jet. The purchase will enable Lynton Jet to provide
additional FBO facilities for corporate aircraft users of Morristown Municipal
Airport.
On July 28, 1998 the Company filed with the Securities and Exchange Commission
(the "Commission") a Preliminary Information statement in connection with
action proposed to be taken by written consent of stockholders with respect to
certain matters including a proposed reverse stock split of the Company's
Common Stock. If the proposed reverse stock split is effected, the Company
expects to have fewer than 300 stockholders and the Company expects to cease
the filing of certain reports with the Commission. Such Preliminary
Information Statement is subject to change and is subject to the review and
comments of the Commission. There can be no assurances that the actions
contemplated thereby will be undertaken. In addition, in the event the Company
completes the proposed reverse stock split, the Company may change the
Company's legal domicile to outside of the United States, attempt to effect a
public offering in the United Kingdom and have its securities listed on the
London Stock Exchange. There can be no assurance that the Company will attempt
to effect any or all of the foregoing transactions or, if attempted, that any
of such transactions will be successfully completed.
<PAGE>
RESULTS OF OPERATIONS
REVENUES & OPERATING INCOME
Revenues for the three and nine months ended June 30, 1998 increased to
$14,344,000 and $31,961,000 from revenues of $6,428,000 and $18,512,000 for the
comparable fiscal 1997 periods, an increase of $7,916,000 and $13,449,000 or
123% and 73% respectively. This increase is primarily attributable to the
inclusion from January 1, 1998 of the revenues for Magec of $10,715,000 along
with increase in fuel sales volume and tenant occupancy at the Company's US
fixed base operation, offset by reduced revenues in the UK maintenance
operations.
Operating income for the three and nine months ended June 30, 1998 increased to
$1,307,000 and $2,455,000 compared to operating income of $655,000 and
$1,655,000 for the comparable fiscal 1997 periods, an increase of $652,000 and
$800,000. This increase is primarily attributable to the inclusion from January
1, 1998 of the operating income for Magec of $685,000 along with increased
operating income from the fixed base operation in the US and charter operations
in the UK, partly offset by reduced operating income from UK maintenance
operations and the increase in depreciation and amortization expense.
Management believes the level of activity between the date of acquisition of
Magec and December 31, 1997 is not material and therefore has consolidated the
results of operations for Magec with effect from January 1, 1998. The
annualized effect of the consolidation of Magec will be to increase revenues by
approximately $20,000,000 per annum and increase operating income by
approximately $1,300,000 compared to historical revenues of $25,000,000 and
operating income $2,500,000.
INTEREST
Interest expense for the three and nine months ended June 30, 1998 increased to
$645,000 and $1,683,000 compared to interest expense of $308,000 and $824,000
for the comparable fiscal 1997 periods, an increase of $337,000 and $859,000
respectively. This increase results from higher levels of borrowings
specifically relating to the acquisitions of Magec and Jet Systems.
As a direct result of the debt finance (see Liquidity and Capital Resources)
raised to purchase Magec, the Company's interest expense will increase by
approximately $1,500,000 per annum.
NET INCOME
Net income for the three months ended June 30, 1998 was $603,000 compared to a
net income of $283,000 for the comparable fiscal 1997 period, an increase of
$320,000. Net income for the nine months ended June 30, 1998 was $632,000
compared to $730,000 for the comparable fiscal 1997 period, a decrease of
$98,000. This net decrease is primarily the result of the increased
amortization and interest expense as discussed above.
The proforma effect on per share earnings for the nine months ended June 30,
1998 would have been to reduce the basic net income per share from $0.10 to a
basic net income per share of $0.00 and to reduce the diluted income per share
from $0.08 to a diluted net income per share of $0.00.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, the Company sold its 50% share of the capital stock in PDG to
the remaining 50% shareholders of PDG for approximately $1,307,000. Under the
purchase agreement, the aggregate purchase price is payable in two payments,
the first of which was received in November 1997. The final payment was due on
July 31, 1998 and the investment held for resale has been included in accounts
receivable. As of the date of this filing, the amount due has not yet been
received. The Company, per the terms of the purchase agreement, is charging
interest at the Sterling LIBOR rate (7.50% at June 30, 1998) plus 5.0%.
Although no assurances can be given, management expects this amount to be
received before the end of August 1998.
At June 30, 1998, the Company had a working capital deficit of $904,000 as
compared to a working capital deficit of $1,051,000 at September 30, 1997, an
increase in working capital of $147,000. This increase in working capital is
primarily attributable to an increase in aircraft held for resale and other
current assets, offset by an increase in the current portion of long term debt
principally relating to the acquisition of Magec.
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
(the "December 1999 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 Debentures bear interest at the rate of 8.0%
per annum, payable semi-annually in arrears on the first day of June and
December of each year with the first such payment due on June 1, 1998,
provided, however, that in lieu of paying such interest in cash, the Company
may, at its option, pay interest for any interest payment date occurring before
December 23, 1999 by adding the amount of such interest to the outstanding
principal amount due thereunder (the "PIK Interest"). In such event, any such
PIK Interest when so added shall be deemed part of the principal indebtedness
for purposes of determining amounts which may be convertible into shares of
Common Stock. The Company has exercised this option with respect to the
interest payments due June 1, 1998 so such PIK Interest resulting therefrom has
been added and is now deemed part of the principal indebtedness for purposes of
determining amounts which may be convertible into shares of Common Stock.
During the quarter ended June 30, 1998, the December 1999 Notes (in the
principal amount of $1,664,000) were repaid in full as a result of the sale of
a certain aircraft by Magec for the purchase price of $7,250,000. In
connection therewith, certain other bank indebtedness in the amount of
$4,998,000 was repaid, and Westbury Properties Corp. (which may be deemed an
affiliate of the company's Chairman of the Board) which entity held an option
to acquire said aircraft for the price of $6,664,000 surrendered its option
over said aircraft in return for a sum equal to the difference between the
purchase price ($7,250,000) and the option price ($6,664,000).
During the quarter ended June 30, 1998 the terms of the Option Agreement
between Magec and an unrelated party were amended to allow for a further
initial advance of $1,500,000 to be followed by further advances on certain
payment dates in accordance with the payment schedule included in the Option
Agreement. The further advances will be utilized to repay certain bank
borrowings of Lynton Group limited. The first further advance under the Option
Agreement of $1,500,000 was received by Magec in accordance with the revised
terms of the Option Agreement and was immediately utilized to repay certain
bank borrowings of Lynton Group Limited.
The Company is currently seeking certain debt financing and 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.
The Finova loans require compliance with certain covenants, financial and
otherwise, as defined in the loan agreements, including maintaining a minimum
consolidated net worth; a minimum earnings, before interest taxes, depreciation
and amortization coverage ratio; and a total liabilities to consolidated net
worth coverage ratio, by both Lynton Jet, as borrower, and Lynton Group, Inc.
as guarantor. At March 31, 1998 Lynton Group, Inc. was in technical default of
its total liabilities to consolidated net worth coverage ratio. This default
was cured, within the period allowed to remedy default under article 7.1.2 of
the loan agreement, as two of the aircraft held in stock at March 31, 1998 were
sold by April 8, 1998 and the outstanding associated liabilities repaid in
full.
<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. (See, also, Part I, Item 2,
Management's Discussion and Analysis).
Item 3. DEFAULTS UPON SENIOR SECURITIES
None (other than referred to in Part I, Item 2, Management's Discussion and
Analysis).
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
June 30, 1998:
None.
<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: AUGUST 14, 1998 By: /S/ CHRISTOPHER TENNANT
Christopher Tennant, President
and Chief Executive Officer
Dated: AUGUST 14, 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 and nine months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
- - - -
Average shares outstanding
- Basic earnings per share 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average of Common
Stock equivalents (1) 582,272 - 582,272 -
Assumed conversion of 10%
Senior Subordinated
Convertible Debentures (1) 553,297 - 553,297 -
Assumed conversion of 8%
Subordinated Convertible
Debentures (1)(2) 4,047,766 - 4,047,766 -
Average shares outstanding
- Diluted earnings
per share 11,578,207 6,394,872 11,578,207 6,394,872
BASIC EARNINGS PER SHARE :
Average shares outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Net income available to
common shareholders $603,232 $283,001 $632,376 $729,518
Per share amount $0.09 $0.04 $0.10 $0.11
DILUTED EARNINGS PER SHARE :
Average shares outstanding 11,578,207 6,394,872 11,578,207 6,394,872
Net income $603,232 $283,001 $632,376 $729,518
Plus effect of dilutive
securities 109,564 - 287,282 -
Net income available to
common shareholders plus
assumed conversions $712,796 $283,001 $919,658 $729,518
Per share amount $0.06 $0.04 $0.08 $0.11
</TABLE>
(1) Debentures have an exercise price below the fair value of common stock for
the three and nine months ended June 30, 1998, had a dilutive effect on
earnings per share and are, therefore included on a weighted average basis in
the calculation of diluted earnings per share. Fair market value has been
computed using the weighted average market price of shares traded in the three
and nine months ended June 30, 1998.
(2) The 8% Convertible Debentures have an exercise price below the fair value
of common stock for the three and nine months ended June 30, 1998. These
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. Although no assurances can be
given, management is not aware of any reasons that would cause the
aforementioned transaction not to occur.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM LYNTON GROUP, INC.'S QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,296,173
<SECURITIES> 0
<RECEIVABLES> 5,212,770
<ALLOWANCES> 20,907
<INVENTORY> 1,425,050
<CURRENT-ASSETS> 13,952,752
<PP&E> 33,565,230
<DEPRECIATION> 5,861,294
<TOTAL-ASSETS> 54,079,497
<CURRENT-LIABILITIES> 14,587,318
<BONDS> 28,881,061
0
0
<COMMON> 1,918,462
<OTHER-SE> 3,266,180
<TOTAL-LIABILITY-AND-EQUITY> 54,079,497
<SALES> 31,960,538
<TOTAL-REVENUES> 31,960,538
<CGS> 24,474,616
<TOTAL-COSTS> 29,505,371
<OTHER-EXPENSES> 77,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,683,043
<INCOME-PRETAX> 694,865
<INCOME-TAX> 62,489
<INCOME-CONTINUING> 632,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632,376
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.08
</TABLE>
