SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($.30 PAR VALUE)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of December 31, 1997, the aggregate market value of the Common Stock held by
non-affiliates of the Registrant (1,075,486 shares) was approximately
$1,209,922 (based upon the average bid and asked prices of such stock on
December 18, 1997, the most recent date on which bid and ask prices were
available). The number of shares outstanding of the Common Stock ($.30 par
value) of the Registrant as of the close of business on December 31, 1997 was
6,394,872.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Unless otherwise indicated by the context, the terms "Company" or "Registrant"
refer to Lynton Group, Inc. and its consolidated subsidiaries.
The Company, operating from its primary bases in the New York and London
metropolitan regions, performs aviation sales and services for an international
list of customers. Services provided by the Company include the management,
charter, maintenance, hangarage and refueling of corporate helicopters and
fixed wing aircraft. In addition, the Company's sales operations perform
aircraft sales and brokerage services to customers located in markets
throughout the world.
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs and assumptions made by
the Company's management as well as information currently available to the
management. When used in this document, the words "anticipate", "believe",
"estimate", and "expect" and similar expressions, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
Lynton Group, Inc. was incorporated in the State of Delaware in August 1971
under the name of Decair Corporation. In June 1989, the Company changed its
name to Lynton Group, Inc. Prior to May 1989, the Company's operations
consisted primarily of performing helicopter maintenance, management and
charter services through its subsidiaries Ramapo Helicopters, Inc. ("Ramapo")
and Rockland Aviation, Inc. (later renamed Lynton Aviation Charter, Inc.
("Lynton Aviation Charter") and now known as LynStar Aviation, Inc.
("LynStar").
In May 1989, the Company acquired (the "Limited Acquisition") all of the issued
and outstanding shares of Lynton Group Limited, a company organized under the
laws of England ("Limited"). Limited, a London based company founded in 1984,
is currently a holding company with two wholly-owned operating subsidiaries,
Lynton Aviation Limited ("Aviation Limited"), a wholly-owned subsidiary at the
time of the Limited Acquisition, and European Helicopters Limited ("EHL"), a
40% owned affiliate at the time of the Limited Acquisition, each a company
organized under the laws of England. In August 1990, the Company acquired (the
"EHL Acquisition") the remaining 60% of the capital stock of EHL. Aviation
Limited is primarily involved in the sale, management and charter of corporate
helicopters and fixed wing aircraft while EHL is primarily involved in the
rebuilding, sale and maintenance of corporate helicopters.
Simultaneous with the consummation of the EHL Acquisition, Lynton Jet Centre,
Inc. ("Lynton Jet Centre"), a wholly-owned subsidiary of the Company
incorporated in April 1990 under the laws of the State of New Jersey, acquired
substantially all of the assets of the Linpro Jet Centre (the "Jet Centre"),
including its ground lease on a hangar facility located at the Morristown
Municipal Airport, Morristown, New Jersey (the "Jet Centre Acquisition"). The
Jet Centre is a fixed base operation of approximately 132,000 square feet of
hangar and office space, and provides hangarage and fueling services to
corporate helicopters and fixed wing aircraft at the Morristown Municipal
Airport. Following the acquisition, the Jet Centre was renamed the Lynton Jet
Centre.
In August 1990, the Company incorporated a wholly-owned subsidiary, Lynton
Aviation, Inc., a New Jersey corporation ("Lynton Aviation"), and in April
1992, incorporated a wholly-owned subsidiary, Lynton Aviation Services, Inc., a
New Jersey corporation ("Lynton Services"), to provide aviation charter and
management services and corporate aircraft sales services through operations
based at the Jet Centre.
In July 1992, the Company sold its interest in Lynton Aviation Charter to
LynStar Holdings, Inc., a New Jersey corporation which is 20% owned by the
Company and formed for the purpose of effecting the acquisition of all of the
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<PAGE>
shares of capital stock of Lynton Aviation Charter. Thereafter, and also in
July 1992, Lynton Aviation Charter changed its name to LynStar Aviation, Inc.
In January 1994, the Company acquired (the "Dollar Air Acquisition") all of the
issued and outstanding shares of Dollar Air Services Limited, a company
organized under the laws of England ("Dollar Air"). At the time of the Dollar
Air Acquisition, Dollar Air owned a 75% equity interest in Black Isle
Helicopters Limited, a company organized under the laws of Scotland ("Black
Isle"). In September 1994, the remaining 25% of Black Isle's capital stock was
acquired by the Company.
In March 1994, the Company incorporated Lynton Properties, Inc., a New Jersey
corporation and a special purpose wholly-owned subsidiary of Lynton Jet Centre
("Lynton Properties"), in order to effect a leasehold mortgage financing
transaction.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air and Black Isle were transferred to a newly formed company, PLM
Dollar Group Limited ("PDG"), a company organized under the laws of Scotland,
in exchange for 50% of the capital stock of PDG. Simultaneously with the
consummation of the transaction, substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited ("PLM") were transferred to PDG and
the shareholders of PLM were issued the remaining 50% of the capital stock of
PDG. PDG operates a fleet of 13 helicopters from bases primarily in Scotland
and England, and provides helicopter support services for industrial and
utility applications in the United Kingdom. In October 1997, the Company sold
its 50% share of the capital stock in PDG to the remaining 50% shareholders of
PDG.
In fiscal 1997, the Company agreed to dissolve Lynton Aviation which had been
in the business of providing aviation management services to HM Industries,
Inc., an affiliate of HM Holdings, Inc. Such services terminated with the
completion of the Debt Discharge Transaction in November 1996. (See Part II,
Item 7 for information on the Debt Discharge Transaction.)
In December 1997, the Company acquired through Limited (the "Magec
Acquisition") all of the issued and outstanding shares of Magec Aviation
Limited, a company organized under the laws of England ("Magec"). Magec
provides hangarage and refueling, charter, management, and maintenance
services for corporate aircraft from its own exclusive terminal at London
Luton Airport located in the London, England metropolitan area (see Note 14
to the Company's consolidated financial statements).
(b) Financial Information About Industry Segments
The Company primarily operates in one industry segment, i.e. aviation and
aviation related services.
(c) Narrative Description of Business
FLIGHT OPERATIONS
In the United Kingdom, the Company through Aviation Limited, performs charter
and management services for corporate helicopters and fixed wing aircraft. A
typical management contract will require the Company to staff an aircraft with
a crew and arrange for maintenance of the aircraft for a management fee. The
Company in turn charters the aircraft to outside customers and pays to the
owner of the aircraft a percentage of the revenues received. The Company
currently operates 9 helicopters and 4 fixed wing aircraft under such
arrangements. Contracts for management and general services may be canceled on
a short-term basis. Management believes that the loss of any single management
contract or charter customer in the United Kingdom would not have a material
effect on the Company.
Also in the United Kingdom, PDG, which, until October 1997, was 50% owned by
the Company, performs helicopter support services for the construction, fish
farming, forestry, mining and oil industries and for various utilities. These
services are primarily provided to companies under short and medium term
contracts. PDG currently owns 8 aircraft and has an additional 5 aircraft under
short-term lease arrangements. In October 1997, the Company sold its 50% share
of the capital stock in PDG to the remaining 50% shareholders of PDG.
3
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In the United States, the Company performs aircraft management services through
its subsidiaries Lynton Jet Centre and Lynton Services.
MAINTENANCE OPERATIONS
The Company operates two helicopter maintenance facilities through its
subsidiaries EHL, located in Denham, Middlesex, outside of London, England and
Ramapo, located at the Morristown Municipal Airport, Morristown, New Jersey.
The principal maintenance activities consist of routine and major helicopter
maintenance, component overhaul, and aircraft parts sales.
EHL is one of a few facilities in the United Kingdom licensed by the Civil
Aviation Authority ("CAA") as a Repair Station entitled to maintain, overhaul
and repair helicopters. EHL's maintenance operations are based in part on a
certificate from Eurocopter Corporation for helicopters produced by it. These
certificates are of indefinite duration but are subject to cancellation,
suspension or revocation if, in the case of the manufacturer's certificate, EHL
fails to provide satisfactory maintenance facilities and levels of service or,
in the case of the CAA certificate, EHL fails to meet Joint Airworthiness
Requirements as mandated by the Joint Airworthiness Authorities of the European
Community and administered by the CAA. EHL currently meets all requirements
for both the CAA and the manufacturer's certificates. Management believes that
the loss of any of the foregoing certificates or licenses could have a material
effect on the Company.
Ramapo is one of numerous facilities in the United States licensed by the
Federal Aviation Administration ("FAA") as a Repair Station entitled to
maintain, overhaul and repair all helicopter models with a gross weight under
12,500 pounds. Ramapo is also one of numerous facilities in the United States
licensed by the FAA as a Repair Station entitled to maintain and repair all
fixed wing King-Air models manufactured by Beechcraft. Ramapo's maintenance
operation is based in part on certificates from Bell Helicopter/Textron for the
206 and 222 Series helicopters and certificates from American Eurocopter
Corporation for the AS350, AS355 and AS365 Series helicopters. These
certificates are of indefinite duration but are subject to cancellation,
suspension or revocation if, in the case of the manufacturers' certificate,
Ramapo fails to provide satisfactory maintenance facilities and levels of
service or, in the case of the FAA certificate, Ramapo fails to meet FAA
maintenance and employment requirements. Ramapo currently meets all
requirements for both the FAA and manufacturers' certificates. Management
believes that the loss of any of the foregoing certificates or licenses would
not have a material effect on the Company.
The Company currently services and maintains approximately 36 helicopters and 5
fixed wing aircraft for individuals and corporations in the New York and London
regions. Management believes that the loss of any single maintenance customer
would not have a material effect on the Company.
AIRCRAFT SALES OPERATIONS
The Company, through both its United States and United Kingdom subsidiaries,
performs sales and brokerage services related to the purchase and sale of
corporate helicopters and fixed wing aircraft between owners and buyers of such
aircraft located throughout the world. The Company will generally receive a
fixed commission or a percentage of the amount of such transactions from the
buyer and/or seller of the aircraft. The Company also purchases aircraft for
resale in instances where it believes the aircraft may be resold at a profit.
For aircraft sales transactions in which the Company acts as principal, the
Company records the full sales price of the aircraft as revenue and the cost of
the aircraft as a charge to direct costs, resulting in a relatively low gross
margin percentage. In other transactions, the Company may act strictly as a
broker and record as revenue only the commissions on these sales transactions,
generating a relatively high gross margin percentage. Consequently, the
performance of these operations can best be gauged by the gross margins
achieved for each period. Gross margins generated by aircraft sales operations
have a material impact on the operating results of the Company and have
historically varied significantly from period to period. The level of aircraft
sales transactions is, to a significant degree, reflective of overall economic
conditions.
4
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FIXED BASE OPERATIONS
The Company through Lynton Jet Centre and Lynton Properties, is engaged in the
operation of aviation fixed base operation ("FBO") at the Morristown Municipal
Airport, Morristown, New Jersey. Services performed at the FBO consist of the
hangarage and refueling of aircraft operated primarily by corporate flight
departments located in the New York/New Jersey metropolitan area, as well as
refueling of transient customers stopping at the airport. The facility has 13
tenants with non-cancelable operating leases with terms remaining ranging from
one to eleven years. (see Note 9 to the Consolidated Financial Statements
annexed hereto for information on the lease arrangements between the Company
and Hanson North America, Inc. and Millennium America Holdings, Inc.). The
loss of either of the largest two tenants (with leases which expire in February
2006 and June 1999 for the largest and second largest tenant, respectively)
could have a material effect on the Company.
The Company through Ramapo, operates an additional FBO business out of a
hangar/office facility also located at the Morristown Municipal Airport,
Morristown, New Jersey. Services performed are similar to those provided at the
Jet Centre. The facility has 13 tenants of which 5 have non-cancelable
operating leases with one year remaining on three-year terms. The remaining
tenants rent on a month to month basis. In addition, Ramapo conducts its
maintenance operation from this facility.
As a result of the Magec Acquisition completed in December 1997, the Company
now operates an additional FBO at London Luton Airport located in the London,
England metropolitan area.
COMPETITION
The Company generally experiences significant competition in all areas of its
business from a number of domestic and international competitors.
The Company competes both in the United States and United Kingdom with numerous
other organizations which perform similar services related to the management,
charter, and sales of corporate helicopters and fixed wing aircraft, some of
which are larger than the Company in terms of the number of aircraft under
management and some of which have greater financial resources than those of the
Company. Competition in the industry is principally affected by quality of
service and price. The Company has, in the opinion of management, maintained a
reputation for excellent service in the management, charter, and sales of
aircraft and has remained price competitive for the comparative level of
service.
The Company's maintenance operations in the United States and United Kingdom
each compete with several other maintenance organizations within their
geographic regions, ranging from small sole proprietorships to larger
facilities, several of which are as large or larger than the Company in terms
of the number of helicopters under maintenance, several of which have greater
financial resources than those of the Company, and most of which compete with
the Company in its major services. In addition, the manufacturers themselves
and certain corporate aircraft owners operate their own maintenance facilities.
Competition in the industry is principally based upon price and the quality of
the services provided. The Company has remained price competitive and in the
opinion of management has historically maintained a reputation for excellence
in its maintenance work.
The Company's FBO operation in the U.S. competes with one other FBO at
Morristown Municipal Airport, Morristown, New Jersey, as well as numerous FBO's
located at several airports within the New York/New Jersey metropolitan region.
Competition consists primarily of obtaining tenants for the facility and
attracting transient customers to use the facility primarily for refueling.
Many of the Company's competitors are as large or larger than the Company and
several have financial resources as great or greater than the Company.
Competition in the industry is principally based upon price and the quality of
accommodation and service at the facility. The Company has remained price
competitive with the other FBO's in the area and has, in the opinion of
management, maintained a level of accommodation and service that is as good or
better than its competitors.
5
<PAGE>
BACKLOG
The Company, through Aviation Limited and EHL, have entered into contracts to
provide certain aviation support services to customers. Such contracts expire
at various dates in fiscal 1998 and have provisions which allow for early
termination on a short-term basis.
A portion of Lynton Jet Centre's, Lynton Properties' and Ramapo's operating
revenue is obtained from tenants through rental payments provided for under
non-cancelable operating leases. The leases typically provide for guaranteed
minimum rentals and other charges to cover certain operating costs in excess of
base amounts.
The following is a schedule of minimum future rentals on non-cancelable
operating leases, including the lease agreement with Hanson North America, Inc.
and Millennium America Holdings, Inc. as referenced in Note 9 to the
Consolidated Financial Statements, as of September 30, 1997 (thousands of
dollars):
<TABLE>
<S> <C>
1998 $3,191
1999 2,196
2000 1,593
2001 1,668
2002 1,386
Thereafter 3,118
Total $13,151
</TABLE>
GOVERNMENT REGULATION
The Company is subject to the jurisdiction of the FAA in the United States and
the CAA in the United Kingdom related to its authorization to operate aircraft
maintenance facilities and to operate as an air carrier. No assurance can be
given that the authorizations mentioned above will be maintained in the future.
Management believes that the loss of the above mentioned authorization in the
United States would not have a material effect on the Company while the loss of
any of the United Kingdom authorizations could have a material effect on the
Company.
HAZARDS AND INSURANCE
The operation of helicopters and fixed wing aircraft involves a substantial
level of risk. Hazards such as aircraft accidents, collisions and fire are
inherent in the providing of aviation services and may result in losses of
life, equipment and revenues.
The Company maintains insurance of types customary to the aviation services
industry and in amounts deemed adequate by the Company to protect the Company
and its property. These policies include aircraft liability, aviation
spares/equipment, all risks, hull, products liability, hangar keepers
liability, property and casualty, automobile and workers' compensation. The
Company has not experienced significant difficulty in obtaining insurance and
has not incurred any insured losses in excess of its property and liability
coverage. While the Company believes that its insurance coverage is adequate
for its operations, there can be no assurance that such insurance coverage is
now, or will be, adequate to cover any claims to which it may be subject or
that such levels of insurance may be obtained at comparable rates in the
future.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous laws and regulations designed
to protect the environment. The Company believes that it is in compliance, in
all material respects, with applicable environmental requirements. Although
future environmental obligations are not expected to have material impact on
the consolidated results of operations or the consolidated financial position
of the Company, there can be no assurance that future developments, including
increasingly stringent environmental laws or enforcement thereof, will not
cause the Company to incur material environmental liabilities or costs.
6
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PERSONNEL
In addition to its principal officers, the Company, as of September 30, 1997,
has approximately 50 employees in the United States and approximately 50
employees in the United Kingdom, consisting principally of managers, pilots,
mechanics, aviation services personnel and administrative staff and which are
primarily employed on a full-time basis.
POST BALANCE SHEET ACQUISITIONS
In December 1997, the Company, through Limited, acquired all of the issued and
outstanding shares of Magec Aviation Limited, a company organized under the
laws of England. Magec provides hangarage and refueling, charter, management,
and maintenance services for corporate aircraft from its own exclusive terminal
at London Luton Airport (see Note 14 to the Company's consolidated financial
statements).
ITEM 2. PROPERTIES
The Company operates the Jet Centre business out of the Company's hangar/office
facility of approximately 132,000 square feet, owned by the Company, located at
the Morristown Municipal Airport, Morristown, New Jersey, on a site leased
pursuant to a ground lease with an initial term expiring on December 31, 2010
and with options to extend the term of the lease for five additional terms of
five years each. The rental payments due under the lease are generally based
upon increases in the consumer price index through the year 2020 and based upon
fair market value thereafter. The Company maintains its executive offices at
the Jet Centre facility.
The Company leases an additional facility of approximately 36,000 square feet
at the Morristown Municipal Airport, Morristown, New Jersey, with an initial
term expiring on May 31, 1998, with an option to renew for an additional three
years. Ramapo conducts its maintenance operation from this facility, in
addition to the Company's additional FBO business.
The Company operates Aviation Limited and EHL principally out of a hangar
facility of approximately 20,000 square feet located in Denham, Middlesex,
which is located outside of London. The hangar is owned by the Company and is
located on a site leased pursuant to a ground lease, which expires in 2012. In
addition, the Company leases on a month-to-month basis office space of
approximately 2,000 square feet from a company, which is wholly-owned by the
Company's Chief Executive Officer.
As a result of the Magec Acquisition completed in December 1997, the Company
now operates an additional FBO out of a hangar/office facility of approximately
65,000 square feet, at London Luton Airport located in the London, England
metropolitan area.
Management believes that the current facilities are sufficient to operate the
Company's business at its current level.
ITEM 3. 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is traded in the over-the-counter market and is
quoted in the "pink sheets" promulgated by the National Quotation Bureau, Inc.
and is qualified for listing on the OTC Bulletin Board under the symbol "LYNG".
Until October 20, 1995, the Company's Common Stock was listed on the Nasdaq
Small-Cap Market. Trading in the Company's stock has been sporadic and
relatively inactive since October 20, 1995.
The following chart sets forth the range of the high and low bid quotations for
the Company's Common Stock for each period indicated. The quotations represent
prices between dealers and do not include retail markups, markdowns,
commissions or other adjustments and may not represent actual transactions.
BID PRICES
PERIOD HIGH LOW
Fiscal year ended September 30, 1995:
Oct. 1, 1994 to Dec. 31, 1994 15/16 7/8
Jan. 1, 1995 to March 31, 1995 1-7/16 15/16
April l, 1995 to June 30, 1995 1-1/8 3/4
July 1, 1995 to Sept. 30, 1995 3/4 1/8
Fiscal year ended September 30, 1996:
Oct. 1, 1995 to Oct. 20, 1995 3/16 1/8
Fiscal year ended September 30, 1997:
Oct. 1, 1996 to Dec. 31, 1996 1/8 1/8
Jan. 1, 1997 to March 31,1997 1/8 1/8
April l, 1997 to June 30, 1997 1/8 1/8
July 1, 1997 to Sept. 30, 1997 7/8 1/8
(b) As of December 31, 1997, there were approximately 525 record holders of the
Company's Common Stock.
(c) The Company has never declared any cash dividends on its Common Stock and
does not anticipate declaring cash dividends in the foreseeable future.
ITEM 6.SELECTED FINANCIAL DATA
(000'S EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Fiscal year ended September 30: (1)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenue $25,585 $22,786 $27,221 $27,361 $21,121
Net income (loss) before
extraordinary item 1,046 119 (2,320) (1,231) 119
Extraordinary item - gain
(loss) related to early
extinguishment of debt 47 287 - (166) -
Net income (loss) 1,092 406 (2,320) (1,397) 119
PRIMARY EARNINGS PER SHARE:
Net income (loss) per
common share before
extraordinary item .16 .06 (1.30) (.72) (.01)
Extraordinary item .01 .15 - (.09) -
Net income (loss) per
common share (2) .17 .21 (1.30) (.81) (.01)
Working capital (deficit) (1,051) (2,159) (2,748) (3,790) (2,210)
Total assets 26,223 24,373 23,912 31,725 25,178
Long term debt,
net of current portion 13,529 12,873 17,411 18,332 15,378
</TABLE>
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(1)This table should be read in conjunction with Part I, Item 1(a) for
information on historical acquisitions of the Company, and in conjunction with
the Consolidated Financial Statements and related notes thereto.
(2)Adjusted for the one-for-six reverse stock split effected in June 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The table below sets forth operating results information for each of the
Company's operations and on a consolidated basis for the three years ended
September 30, 1997 (thousands of dollars):
<TABLE>
<CAPTION>
Year ended September 30,
1997 1996 1995
<S> <C> <C> <C>
Flight operations revenues - historical
operations $9,004 $7,894 $6,619
Gross margin $1,259 $931 $927
Gross margin % 14.0% 11.8% 14.0%
Flight operations revenues - Dollar Air (1) $0 $0 $4,875
Gross margin $0 $0 $205
Gross margin % 0.0% 0.0% 4.2%
Maintenance operations revenues $5,990 $6,238 $5,290
Gross margin $999 $924 $848
Gross margin % 16.7% 14.8% 16.0%
Aircraft sales operations revenues $984 $834 $3,288
Gross margin $655 $466 $488
Gross margin % 66.6% 55.9% 14.8%
Fixed base operations revenues $9,607 $7,820 $6,702
Gross margin $3,443 $2,836 $2,678
Gross margin % 35.8% 36.3% 40.0%
Other net revenues $0 $0 $447
Consolidated revenues $25,585 $22,786 $27,221
Consolidated direct costs 19,229 17,629 21,628
Consolidated gross margin 6,356 5,157 5,593
Selling, general & administrative expenses 3,016 2,432 3,473
Depreciation 689 662 933
Amortization of goodwill & intangible assets 128 127 200
Writedown of goodwill - - 1,338
Operating income (loss) 2,523 1,936 (351)
Amortization of debt discount & issuance costs 77 139 139
Interest expense 1,162 1,336 1,772
Equity in loss of jointly-owned company - - 58
Write-off of amount due from affiliate - 191 -
Income (loss) before tax provision and
extraordinary item 1,284 270 (2,320)
Income tax provision 238 151 -
Income (loss) before extraordinary item 1,046 119 (2,320)
Extraordinary item - Gain (loss) related
to early extinguishment of debt 46 287 -
Net income (loss) $1,092 $406 $(2,320)
</TABLE>
(1) See Note 3 to the Consolidated Financial Statements.
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The following discussions of results of operations for the Company include
results of operations for United Kingdom ("UK") subsidiaries translated from
pounds sterling ("sterling") to U.S. dollars at the average rate of exchange
during the respective periods. The average value of sterling increased by
approximately 6% in fiscal 1997 compared to fiscal 1996 and 2% in fiscal 1996
compared to fiscal 1995. The effect on consolidated results of operations
resulting from changes in the exchange rate of sterling as compared to a
constant exchange rate from period to period has been to report lower revenues
and expenses for UK subsidiaries when the value of sterling decreased and to
report higher revenues and expenses for UK subsidiaries when the value of
sterling increased. Fluctuations in the value of sterling will continue to
have an effect on the results of operations for UK subsidiaries as reported in
U.S. dollars and the resulting consolidated results of operations for the
Company.
1997 COMPARED TO 1996
Revenues for fiscal 1997 increased to $25,585,000 as compared to revenues in
fiscal 1996 of $22,786,000, an increase of $2,799,000 or 12.3%. This increase
consists primarily from increased revenues from the Company's fixed base
operations of $1,787,000 and UK flight operations of $851,000 (see discussion
of each operational area below).
The Company reported operating income for fiscal 1997 of $2,523,000 as compared
to $1,936,000 in fiscal 1996, an increase of $587,000. This change resulted
primarily from increased operating income from the Company's fixed base
operations and UK flight operations.
Interest expense for fiscal 1997 decreased to $1,162,000 as compared to
$1,336,000 for fiscal 1996, a decrease of $174,000 or 13.0%. This decrease
primarily represents interest paid on the reduced average level of outstanding
borrowings.
In fiscal 1997, the Company repurchased a portion of its 10% Senior
Subordinated Convertible Debentures due December 31, 1998 (the "Debentures") in
the principal amount of $100,000 for cash payments totaling $50,000. The
Company realized a gain on redemption of $47,000, net of related debt issuance
costs, on these repurchases. In fiscal 1996, the Company repurchased a portion
of its 10% Senior Subordinated Convertible Debentures due December 31, 1998
(the "Debentures") in the principal amount of $540,000 for cash payments
totaling $162,000. The Company realized a gain on redemption of $287,000, net
of related debt issuance costs, on these repurchases.
The Company had net income of $ 1,092,000 for fiscal 1997 as compared to
$406,000 for fiscal 1996, an increase in profit of $686,000. The primary
causes for this increase were increased operating income from the Company's
fixed base operations and UK flight operations and reduced interest costs on
the reduced average level of outstanding borrowings offset by a reduction in
gains realized by the Company on the redemption of a portion of its Debentures,
net of related debt issuance costs.
The Company's ability to improve earnings is primarily dependent on the
enhancement of revenues and margins from its operations. The performance of
each operation is affected by different market conditions and varies as to
stability and degree of predictability. Below is a discussion of each of the
Company's operating areas and the factors which have historically, and will
continue, to affect performance.
FLIGHT OPERATIONS
Certain revenues and costs relating to aviation management services provided to
HM Industries, Inc. ("HM Industries") which had been provided by the Company to
HM Industries at cost, were included in prior years in revenues, direct costs
and selling, general and administrative expenses. These amounts have been
excluded from revenues, direct costs and selling, general and administrative
expenses for fiscal 1996 and results for the fiscal year 1995 have been
reclassified to reflect their exclusion (see following table).
11
<PAGE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues excluded $3,985,000 $6,417,000
Direct costs excluded 3,801,000 6,067,000
Selling, general and administrative 184,000 350,000
costs excluded
Net income effect $0 $0
</TABLE>
Revenues from flight operations overall increased by $1,110,000 or 14.1%
for fiscal 1997 as compared to fiscal 1996. This improvement was primarily
due to increased fixed-wing charter revenues in the UK, partly offset by a
reduced level of helicopter charter in the UK. The performance of these
operations has been and will continue to be primarily affected by demand
for both helicopter and fixed-wing charter within the UK market and between
the UK and international destinations. Such demand may vary significantly
from period to period.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air was transferred to PLM Dollar Group Limited ("PDG"), in exchange
for 50% of the capital stock of PDG. Simultaneously with the consummation
of this transaction, substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited ("PLM"), were transferred to PDG
and the shareholders of PLM were issued the remaining 50% of the capital
stock of PDG. Accordingly, the operating results set forth above reflect
consolidated operating results for Dollar Air, which was acquired in
January 1994, through August 31, 1995. The Company's 50% share in the
operating results of PDG for the year ended September 30, 1996 and the one
month ended September 30, 1995 have not been consolidated but are recorded
as equity in jointly-owned company. The carrying value of the unamortized
goodwill arising on the acquisition of Dollar Air was written off in fiscal
1995 in the amount of $1,338,000. In fiscal 1996, the Company decided to
dispose of its interest in PDG. Accordingly, the asset was reclassified as
investment in jointly-owned company, held for resale, and therefore, the
Company's share of the gain or loss in the jointly-owned company was no
longer recognized under the equity method of accounting. The Company's
equity in the loss of jointly-owned company was immaterial in fiscal 1996.
In October 1997, the Company sold its 50% share of the capital stock in PDG
to the remaining 50% shareholders of PDG.
MAINTENANCE OPERATIONS
Revenues from maintenance operations decreased by $248,000 or 4.0% in
fiscal 1997 as compared to fiscal 1996, primarily due to a decreased volume
of maintenance sales related to customer aircraft in the UK. Gross margin
percentage from these operations declined in fiscal 1997 as compared to
fiscal 1996 due to increased market competitiveness in the helicopter
maintenance area. Revenues from maintenance operations are affected by
both the number of hours flown per aircraft and changes made by either the
FAA or CAA to component parts lives and inspection intervals.
Additionally, revenues are dependent upon the levels of installation
projects completed during the year.
AIRCRAFT SALES OPERATIONS
Revenues from aircraft sales operations increased by $150,000 in fiscal
1997 as compared to fiscal 1996. Significant fluctuations in revenues and
gross margin percentages from aircraft sales operations may occur from
period to period based upon the role the Company takes in such transactions
in which it is involved. For aircraft sales transactions in which the
Company acts as principal, the Company records the full sales price of the
aircraft as revenue and the cost of the aircraft as a charge to direct
costs, resulting in a relatively low gross margin percentage. In other
transactions, the Company may act strictly as a broker and record as
revenue only the commissions on these sales transactions, generating a
relatively high gross margin percentage. Consequently, the performance of
these operations can best be gauged by the gross margins achieved for each
period. Gross margins generated by aircraft sales operations have a
material impact on the operating results of the Company and have
historically varied significantly from period to period. The level of
aircraft sales transactions is, to a significant degree, reflective of
overall economic conditions.
12
<PAGE>
FIXED BASE OPERATIONS
Revenues from fixed base operations increased by $1,787,000 or 22.8% in
fiscal 1997 as compared to fiscal 1996. This change is primarily
attributable to an increase in the level of fuel sales volume and tenant
occupancy at the Company's fixed base operations in Morristown, New Jersey.
The performance of these operations to a significant degree is based upon
the level of tenant occupancy with tenant leases ranging in term from one
year to eleven years. High occupancy levels for such facilities in the New
York/New Jersey metropolitan area have allowed the financial performance of
these operations to consistently improve during the last several years.
1996 COMPARED TO 1995
Revenues for fiscal 1996 decreased to $22,786,000 as compared to revenues
in fiscal 1995 of $27,221,000, a decrease of $4,435,000 or 16.3%. This
decrease consists of the exclusion of revenues of Dollar Air Services
Limited ("Dollar Air") of $4,875,000 due to its transfer into a jointly-
owned company (see details below), reduced revenue from aircraft sales of
$2,454,000, the receipt in 1995 of proceeds from insurance policies over
book value on aircraft involved in accidents and rendered unserviceable of
$447,000, offset by increased revenues from flight operations of
$1,275,000, from fixed base operations of $1,118,000 and from maintenance
operations of $948,000, (see discussion of each operational area below).
The Company reported operating income for fiscal 1996 of $1,936,000 as
compared to an operating loss of $351,000 for fiscal 1995, an increase of
$2,287,000. This change resulted primarily from the writedown in fiscal
1995 of the carrying value of the unamortized goodwill arising on the
acquisition of Dollar Air amounting to $1,338,000, and increased operating
income from the Company's fixed base operations and UK flight operations.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air were transferred to PLM Dollar Group Limited ("PDG"), in
exchange for 50% of the capital stock of PDG (see details below). In
connection with this transfer, the carrying value of the unamortized
goodwill arising from the acquisition of Dollar Air was written off in
fiscal 1995 and amounted to $1,338,000. Included in fiscal 1995 was a
charge of $263,000 for the loss sustained on the sale of a Company-owned
aircraft which was sold in that year. In 1994, the Company had reclassified
this aircraft from fixed assets to aircraft held for resale and had
recorded a charge of $180,000 to reduce its carrying value to estimated
fair market value.
Interest expense for fiscal 1996 decreased to $1,336,000 as compared to
$1,772,000 for fiscal 1995, a decrease of $436,000 or 24.6%. This decrease
primarily represents interest paid on reduced levels of outstanding
borrowings.
In fiscal 1996, the Company repurchased a portion of its 10% Senior
Subordinated Convertible Debentures due December 31, 1998 (the
"Debentures") in the principal amount of $540,000 for cash payments
totaling $162,000. The Company realized a gain on redemption of $287,000,
net of related debt issuance costs, on these repurchases.
The Company had net income of $406,000 for fiscal 1996 as compared to a net
loss of $2,320,000 for fiscal 1995, an increase in profit of $2,726,000.
The primary causes for this increase were increased operating income and
reduced interest costs resulting from the transfer of Dollar Air, the
writedown in fiscal 1995 of the carrying value of unamortized goodwill in
Dollar Air, the gain on redemption of convertible debt of $287,000, and
increased operating income for the Company's fixed base operations and UK
flight operations.
The Company's ability to improve earnings is primarily dependent on the
enhancement of revenues and margins from its operations. The performance
of each operation is affected by different market conditions and varies as
to stability and degree of predictability. Below is a discussion of each
of the Company's operating areas and the factors which have historically,
and will continue, to affect performance.
13
<PAGE>
FLIGHT OPERATIONS
Certain revenues and costs relating to aviation management services
provided to HM Industries, Inc. ("HM Industries") which had been provided
by the Company to HM Industries at cost, were included in prior years in
revenues, direct costs and selling, general and administrative expenses.
These amounts have been excluded from revenues, direct costs and selling,
general and administrative expenses for fiscal 1996 and results for the
fiscal years 1995 and 1994 have been reclassified to reflect their
exclusion.
Revenues from flight operations overall increased by $1,275,000 or 19.3%
for fiscal 1996 as compared to fiscal 1995. This improvement was primarily
due to increased fixed-wing charter revenues in the UK, partly offset by a
reduced level of helicopter charter in the UK. The performance of these
operations has been and will continue to be primarily affected by demand
for both helicopter and fixed-wing charter within the UK market and between
the UK and international destinations. Such demand may vary significantly
from period to period.
In August 1995, substantially all the business, assets and liabilities of
Dollar Air was transferred to PLM Dollar Group Limited ("PDG"), in exchange
for 50% of the capital stock of PDG. Simultaneously with the consummation
of this transaction, substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited ("PLM"), were transferred to PDG
and the shareholders of PLM were issued the remaining 50% of the capital
stock of PDG. Accordingly, the operating results set forth above reflect
consolidated operating results for Dollar Air, which was acquired in
January 1994, through August 31, 1995. The Company's 50% share in the
operating results of PDG for the year ended September 30, 1996 and the one
month ended September 30, 1995 have not been consolidated but are recorded
as equity in jointly-owned company. The carrying value of the unamortized
goodwill arising on the acquisition of Dollar Air was written off in fiscal
1995 in the amount of $1,338,000. Although no assurance can be given, the
Company intends to dispose of its interest in PDG as soon as practicable.
The Company estimates that it will not sustain a loss upon such
disposition. Accordingly, the asset has been reclassified as investment in
jointly-owned company, held for resale, and therefore, the Company's share
of the gain or loss in the jointly-owned company will no longer be
recognized under the equity method of accounting. The Company's equity in
the loss of jointly-owned company was immaterial in fiscal 1996.
MAINTENANCE OPERATIONS
Revenues from maintenance operations increased by $948,000 or 17.9% in
fiscal 1996 as compared to fiscal 1995, primarily due to an increased
volume of maintenance sales related to customer aircraft. Gross margin
percentage from these operations declined in fiscal 1996 as compared to
fiscal 1995 due to increased market competitiveness in the helicopter
maintenance area. Revenues from maintenance operations are affected by
both the number of hours flown per aircraft and changes made by either the
FAA or CAA to component parts lives and inspection intervals.
Additionally, revenues are dependent upon the levels of installation
projects completed during the year.
AIRCRAFT SALES OPERATIONS
Revenues from aircraft sales operations decreased by $2,454,000 in fiscal
1996 as compared to fiscal 1995. Significant fluctuations in revenues and
gross margin percentages from aircraft sales operations may occur from
period to period based upon the role the Company takes in such transactions
in which it is involved. For aircraft sales transactions in which the
Company acts as principal, the Company records the full sales price of the
aircraft as revenue and the cost of the aircraft as a charge to direct
costs, resulting in a relatively low gross margin percentage. In other
transactions, the Company may act strictly as a broker and record as
revenue only the commissions on these sales transactions, generating a
relatively high gross margin percentage. Consequently, the performance of
these operations can best be gauged by the gross margins achieved for each
period. Gross margins generated by aircraft sales operations have a
material impact on the operating results of the Company and have
historically varied significantly from period to period. The level of
aircraft sales transactions is, to a significant degree, reflective of
overall economic conditions.
14
<PAGE>
FIXED BASE OPERATIONS
Revenues from fixed base operations increased by $1,118,000 or 16.7% in
fiscal 1996 as compared to fiscal 1995. This change is primarily
attributable to an increase in the level of fuel sales volume and tenant
occupancy at the Company's fixed base operations in Morristown, New Jersey.
The performance of these operations to a significant degree is based upon
the level of tenant occupancy with tenant leases ranging in term from one
year to eleven years. High occupancy levels for such facilities in the New
York/New Jersey metropolitan area have allowed the financial performance of
these operations to consistently improve during the last several years.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had a working capital deficit of
$1,051,000 and stockholders' equity of $4,524,000. The Company had net
cash provided by operating activities of $969,000 in fiscal 1997 compared
to $1,761,000 in fiscal 1996. The Company had an overall decrease in cash
and cash equivalents of $542,000 in fiscal 1997 compared to an increase of
$1,131,000 in fiscal 1996. This decrease in cash flow from operating
activities is primarily due to the effect of the increase in accounts
receivable and the decrease in accounts payable and deferred revenues,
offset by improvements in operating profitability.
Pursuant to a Credit Agreement, as amended, entered into in August 1990
(the "Credit Agreement"), HM Holdings, Inc., an indirect wholly-owned
subsidiary of Hanson PLC ("HM Holdings"), had provided secured debt
financing ("the Loans") in the aggregate amount of $17,000,000 to the
Company and Lynton Jet Centre, Inc. ("Lynton Jet Centre"). Prior to the
completion of the Debt Discharge Transaction (as described below), the
principal amount owing to HM Holdings at September 30, 1996 under the Loans
was $6,605,923.
On November 8, 1996, a Debt Discharge Agreement (the "Debt Discharge
Agreement") was entered into by and among Hanson North America, Inc.
("Hanson North America"), Millennium America Inc. (formerly named Hanson
America Inc.) ("Millennium America"), and the Company, Lynton Jet Centre
and Lynton Properties, Inc. ("Lynton Properties"), a wholly-owned
subsidiary of Lynton Jet Centre. Prior thereto, Hanson North America had
succeeded to HM Holdings as lender under the Credit Agreement and had
acquired certain assets of HM Holdings including the equity securities
described below. Pursuant to the Debt Discharge Agreement and on November
13, 1996, Hanson North America was paid the sum of $3,500,000, and in
consideration thereof (plus other consideration described below), (i)
cancelled the Loans and discharged all obligations under the Credit
Agreement except for certain indemnification obligations stated therein to
survive termination of the Loans, (ii) surrendered to the Company 848,454
shares of common stock, par value $.30 per share (the "Common Stock"), of
the Company, (iii) surrendered Warrants to purchase an aggregate of 247,513
shares of Common Stock of the Company, and (iv) surrendered 2,000 shares of
Series D Preferred Stock of the Company (the "Debt Discharge Transaction").
The foregoing shares and Warrants represented Hanson North America's entire
equity interest in the Company. As provided in the Debt Discharge
Agreement, the foregoing transactions were deemed to have occurred as of
September 30, 1996.
In connection with the Debt Discharge Transaction, Hanson North America
also released all security and liens under the Credit Agreement, including
its First Leasehold Mortgage (the "Leasehold Mortgage") and Assignment of
Rents on the Jet Centre facility operated by Lynton Jet Centre at the
Morristown Municipal Airport, Morristown, New Jersey. In addition,
Millennium America, which previously guaranteed certain obligations of
Lynton Jet Centre which were also secured by the First Leasehold Mortgage,
terminated and released its interests in the Leasehold Mortgage. Millennium
America continues to guarantee certain obligations of Lynton Jet Centre to
Massachusetts Mutual Life Insurance Company (see discussion below under
this heading).
Simultaneously with the completion of the Debt Discharge Transaction, and
in order to pay Hanson North America $3,500,000 in connection therewith,
Lynton Jet Centre, as borrower, entered into a Loan and Security Agreement
dated November 13, 1996 with Finova Capital Corporation ("Finova"), as
Lender, pursuant to which Finova made a secured loan to Lynton Jet Centre
in the principal amount of $4,000,000 (the "Finova Loan").
15
<PAGE>
The Finova Loan, together with interest thereon at the interest rate of
10.7% per annum shall be repaid in 96 equal consecutive monthly payments
consisting of (a) principal and interest in an amount that will fully
amortize 65% of the Finova Loan plus (b) interest only, on the remaining
35% of the principal balance of the Finova Loan calculated at 10.7% per
annum. The remaining unpaid principal balance ($1,400,000) of the Finova
Loan shall be payable on December 1, 2004. The Finova Loan requires
compliance with certain covenants, financial and otherwise, as defined in
the loan agreement, including maintaining a minimum tangible net worth and
a minimum earnings, before interest, taxes, depreciation and amortization,
coverage ratio by both Lynton Jet Centre as borrower and Lynton Group, Inc.
as guarantor. At September 30, 1997 and subsequent thereto, the Company
was in default of a covenant of the Finova Loan. On January 13, 1998,
Finova waived this default.
In December 1993, the Company completed an off-shore placement of
$2,500,000 principal amount of 10% Senior Subordinated Convertible
Debentures due December 31, 1998 (the "Debentures"). The Debentures were
originally convertible into shares of the Company's Common Stock at the
option of the holder at any time prior to maturity at a price of $3.75 per
share. The Debentures may also be redeemed by the Company at any time or
from time to time commencing July 1995, at the Company's option, in whole
or in part at the redemption prices (expressed as percentages of the
principal amount) ranging from 109% to 100%. Prior to December 31 of each
of the years from 1996 to 1998, inclusive, the Company has agreed to pay to
the trustee for the Debentures, as a sinking fund payment, cash in the
amount of 1/3 of the aggregate principal amount of the issued Debentures,
provided that Debentures converted or reacquired or redeemed by the Company
may be used, at the principal amount thereof, to reduce the amount of any
sinking fund payment. In fiscal 1997, the Company repurchased a portion of
its Debentures due December 31, 1998 in the principal amount of $100,000
for cash payments totaling $50,000. The Company realized a gain on
redemption of $47,000, net of related debt issuance costs, on these
repurchases. In fiscal 1996, the Company repurchased a portion of its
Debentures in the amount of $540,000 for cash payments totaling $162,000.
The Company realized a gain on redemption of $287,000, net of related debt
issuance costs, on these repurchases. In addition, the remaining holders of
the Debentures have been given the opportunity to convert the Debentures
into shares of Common Stock of the Company at a conversion price of $.33
per share. Prior to completion of the Debt Discharge Transaction and
refinancing of the Jet Centre facility described above, there were
Debentures in the principal amount of $1,960,000 outstanding. Two holders
of the Debentures, who are affiliates of the Company, issued their consent
to convert the Debentures held by them (in the principal amount of
$1,065,000) into 3,227,273 shares of Common Stock (effective at September
30, 1996). The Debentures acquired in the above transactions were applied
against the sinking fund obligations for December 31, 1996, 1997 and 1998.
At December 31, 1997, the Company has satisfied its sinking fund
requirement (see Note 4 to the Company's consolidated financial
statements).
During the period from June 30, 1995 through January 22, 1996, the Company
was not in compliance with the minimum net worth requirements under the
Debentures. As of January 23, 1996, in connection with such requirements,
a majority of the debenture holders agreed to waive any and all such net
worth requirements for fiscal 1995 and 1996 and the first quarter of fiscal
1997. The Company was in compliance with this net worth requirement for
the second, third and fourth quarters of fiscal 1997. No assurances can be
given as to the Company's ability to meet future net worth requirements
under the Debenture Agreement or that additional waivers will be received
at appropriate times.
The Company expects to continue meeting all of its obligations in the
coming year by focusing on its established operations. Cash flows from
these operations are expected to be sufficient to meet all of its operating
requirements and reduced debt service requirements.
Aircraft are financed primarily through short and medium term notes
payable to banks and financing companies and are generally collateralized
by such aircraft. In April 1997, the Company purchased a new helicopter
for $1,870,000, for the sole purpose of selling in a joint ownership
program the Company introduced in January 1997. Due to a longer time than
was anticipated, by the Company, to sell the helicopter under a joint
ownership program, the Company has recently decided to sell the aircraft to
a single purchaser. Although no assurances can be given, the Company
intends to dispose of this aircraft as soon as practicable, the proceeds of
which must be used to repay the debt to G.E. Capital Corporation, who
financed the purchase of the aircraft. The Company estimates that it will
not sustain a loss upon such disposition.
16
<PAGE>
The Company anticipates no material capital expenditures will be required
in fiscal 1998. However, there can be no assurance that the Company will
not incur substantial costs related to the year 2000 compliance issue, as
discussed below under "Other Matters".
In June 1994, Lynton Properties issued to Connecticut Mutual Life Insurance
Company ("Connecticut Mutual") a $9,000,000 mortgage note at 6.69% due
January 3, 2006 (the "Mortgage Note") with scheduled monthly payments of
principal and interest. The Mortgage Note is secured by a Leasehold
Mortgage and Security Agreement and an Assignment of Leases and Rents on a
lease between a certain tenant and Lynton Properties relating to a hangar
and office facility located at the Lynton Jet Centre. Massachusetts Mutual
Life Insurance Company ("MassMutual") is an assignee of Connecticut Mutual
under this loan. In addition, the obligations of Lynton Properties under
the Mortgage Note are guaranteed by Lynton Jet pursuant to a Guaranty
Agreement dated June 22, 1994, between Lynton Jet and Connecticut Mutual
(the "Jet Centre Guaranty"). Further, the obligations of Lynton Jet under
the Jet Centre Guaranty, other than certain environmental and related
obligations, are, and continue to be, guaranteed by Millennium America,
pursuant to a Guaranty Agreement, dated June 22, 1994, between Millennium
America and Connecticut Mutual (the "Millennium America Guaranty").
The Company has unused U.S. Federal net operating loss carryforwards at
September 30, 1997 of approximately $1,260,000, which expire through
September 30, 2010. As a result of the Jet Centre acquisition, the related
issuance of a warrant to HM Holdings and the conversion of the Debentures
and Preferred Stock into common stock referred to above, utilization of the
net operating loss carryforwards is substantially restricted under Section
382 of the Internal Revenue Code of 1986, as amended, to a specified
maximum percentage (approximately 5.8%) of the fair market value of the
Company at the time of the ownership change. For purposes of this
limitation, management has estimated that the value of the Company was in
excess of $3,800,000 at the time of the ownership change.
Inflation has not significantly impacted the Company's operations.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for financial statements, for both interim and
annual periods, ending after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully
dilutive earnings per share and requires presentation of basic and diluted
earnings per share with disclosure of the methods used to compute the per
share amounts.
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average common
shares outstanding for the period. Diluted earnings per share reflects the
weighted-average common shares outstanding plus the potential effect of
securities or contracts which are convertible to common shares, such as
options, warrants, and convertible debt and preferred stock. The adoption
of this standard is not expected to have a material impact on earnings per
share of the Company.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for fiscal years beginning
after December 15, 1997. SFAS No. 129 will not change the disclosure of
the capital structure of the Company.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for fiscal years beginning after December 15,
1997. The Statement addresses the reporting and displaying of
comprehensive income and its components. The adoption of SFAS No. 130
relates to disclosure within the financial statements and is not expected
to have a material effect on the Company's financial statements.
17
<PAGE>
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. The Statement changes the way public
companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports. Adoption of SFAS No. 131 is not
expected to have a material effect on the Company's financial statements.
OTHER MATTERS
The Company is in the process of identifying operating and application
software problems related to the year 2000. While the Company expects to
resolve year 2000 compliance issues substantially through normal
replacement and upgrades of software, there can be no assurance that there
will not be interruption of operations or other limitations of system
functionality or that the Company will not incur substantial costs to avoid
such limitations. Any failure to effectively monitor, implement or improve
the Company's operational, financial, management and technical support
systems could have a material adverse effect on the Company's business and
consolidated results of operations.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is included elsewhere in this
report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within
120 days of the Registrant's year end in connection with the 1998 Annual
Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within
120 days of the Registrant's year end in connection with the 1998 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within
120 days of the Registrant's year end in connection with the 1998 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference herein information which will be
contained in the Registrant's definitive proxy statement to be filed within
120 days of the Registrant's year end in connection with the 1998 Annual
Meeting of Stockholders.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1)(2) Consolidated Financial Statements and Financial Statement
Schedules.
The Consolidated Financial Statements and Schedules filed as part of this
report are listed in the Index to Consolidated Financial Statements and
Schedules annexed hereto and made a part hereof.
(a) (3) Exhibits.
3.1 Registrant's restated certificate of incorporation (7)
3.2 Registrant's by-laws(1)
4.1 Indenture dated as of December 21, 1993 between the Registrant and
American Stock Transfer & Trust Company, as Trustee, relating to
Registrant's 10% Senior Subordinated Convertible Debentures due December
31, 1998, together with form of Debenture (6)
10.1 Ground Lease for premises at Morristown Municipal Airport, Morristown,
New Jersey (4)
10.2 Employment Agreement dated August 30, 1996 with Christopher Tennant (9)
10.3 1993 Stock Option Plan (5)
21.0 Lynton Group, Inc., parent and subsidiaries (6)
99.1 Stockholders' Agreement dated as of August 14, 1990 by and among the
Registrant, HM Holdings, Inc. and Christopher Tennant (3)
99.2 First Amendment to Stockholders' Agreement dated December 22, 1992 by
and among Lynton Group, Inc., HM Holdings, Inc., Brae Group, Inc., James
Niven and Task Holdings, Inc. (2)
99.3 Note Agreement dated as of June 22, 1994 between Lynton Properties,
Inc. and Connecticut Mutual Life Insurance Company relating to a $9.0
million 6.69% mortgage note due January 3, 2006 (6)
99.4 Business Acquisition Agreement between Dollar Air Services Limited and
PLM Dollar Group Limited (7)
99.5 Debt Discharge Agreement dated as of November 8, 1996 by and among
Hanson North America, Inc., Millennium America Inc., Lynton Group, Inc.,
Lynton Jet Centre, Inc. and Lynton Properties, Inc. (8)
99.6 Loan and Security Agreement dated November 13, 1996 by and between
Lynton Jet Centre, Inc., as Borrower, and Finova Capital Corporation, as
Lender (8)
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, and incorporated by reference herein.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
December 22, 1992, and incorporated by reference herein.
20
<PAGE>
(3) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
August 14, 1990, and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990, and incorporated by reference herein.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993, and incorporated by reference herein.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, and incorporated by reference herein.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995, and incorporated by reference herein.
(8) Filed as an exhibit to the Company's Current Report on Form 8-K, dated
November 13, 1996, and incorporated by reference herein.
(9) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, and incorporated by reference herein.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the last quarter of the
period covered by this report:
None.
(c) Exhibits.
See Item 14(a)(3) above.
(d) See Index to Consolidated Financial Statements and Schedules annexed
hereto and made a part hereof.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LYNTON GROUP, INC.
(Registrant)
By: /s/Christopher Tennant
Christopher Tennant,
President, Chief Executive Officer
Date: 1/13/98
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Christopher Tennant President, Chief Executive 1/13/98
Christopher Tennant Officer, Director
(Principal Executive Officer)
/s/ Richard Hambro Chairman of the Board, 1/13/98
Richard Hambro Director
/s/ James G. Niven Director 1/13/98
James G. Niven
/s/ Paul R. Dupee, Jr. Director 1/13/98
Paul R. Dupee, Jr.
/s/ Nigel Pilkington Director 1/13/98
Nigel Pilkington
/s/ Paul A. Boyd Secretary, Treasurer and 1/13/98
Paul A. Boyd Principal Financial Officer
/s/ Brian T. McCloskey Corporate Controller 1/13/98
Brian T. McCloskey (Controller)
22
<PAGE>
Lynton Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule
September 30, 1997
Report of Independent Certified Public Accountants F-l
Report of Independent Auditors F-2
Consolidated Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-9
Notes to Consolidated Financial Statements F-10
Schedules
Report of Independent Certified Public Accountants F-32
Report of Independent Auditors F-33
Schedule II - Valuation and Qualifying Accounts F-34
Schedules other than those listed above are omitted since they are
not required, are not applicable or the information is included in
the consolidated financial statements and notes thereto.
23
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated balance sheets of
Lynton Group, Inc. and subsidiaries as of September 30, 1997 and
1996 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Lynton Group, Inc. and subsidiaries at
September 30, 1997 and 1996, and the consolidated results of their
operations and their consolidated cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
New York, New York
January 13, 1998
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Lynton Group, Inc. and subsidiaries
for the year ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash
flows of Lynton Group, Inc. and subsidiaries for the year ended September 30,
1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 21, 1995, except for the tenth and the twenty-second paragraphs of Note
4, as to which the dates are January 5, 1996 and January 23, 1996, respectively
F-2
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30
1997 1996
<S> <C> <C>
ASSETS (NOTES 4 AND 5)
Current assets:
Cash and cash equivalents (NOTE 1) $726,645 $1,268,475
Accounts receivable (net of allowance for
doubtful accounts of $22,000 in 1997 and
$21,000 in 1996) (NOTE 1) 3,268,879 2,336,549
Investment in jointly-owned company held
for resale (NOTE 3) 1,222,620 -
Inventories (NOTE 1) 803,677 822,339
Prepaids, principally insurance, and
other current assets 214,124 396,605
Total current assets 6,235,945 4,823,968
Property, plant and equipment (NOTE 1):
Aircraft 1,414,673 1,286,139
Buildings 14,133,096 14,068,240
Furniture and equipment 1,352,370 1,205,295
Motor vehicles 379,660 344,946
Leasehold improvements 766,136 481,799
18,045,935 17,386,419
Less accumulated depreciation and amortization 4,652,703 3,977,517
13,393,232 13,408,902
Funds held in escrow (NOTE 4) 150,000 150,000
Aircraft held for resale (NOTE 4) 1,870,233 -
Investment in jointly-owned company
held for resale (NOTE 3) - 1,182,376
Long-term ground lease, less accumulated
amortization of$416,000 in 1997 and
$357,000 in 1996 (NOTE 1) 1,933,861 1,992,606
Goodwill, less accumulated amortization of
$530,000 in 1997 and $461,000 in 1996 (NOTE 1) 2,155,007 2,213,635
Other assets and deferred charges, less
accumulated amortization of $221,000 in 1997
and $153,000 in 1996 (NOTE 1) 484,970 601,690
$26,223,248 $24,373,177
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
Lynton Group, Inc and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30
1997 1996
<S> <C> <C>
Liabilities and stockholders' equity (NOTE 5)
Current liabilities:
Current portion of capital lease
obligations (NOTE 6) $38,480 $34,225
Current portion of long-term debt (NOTE 4) 1,285,364 986,506
Accounts payable 2,717,602 3,206,504
Accrued expenses (NOTE 11) 1,215,747 888,972
Accrued income taxes (NOTES 1, 4 AND 7) 268,159 154,000
Advances from customers 245,102 150,051
Deferred revenue (NOTES 1 AND 9) 1,516,848 1,563,166
Total current liabilities 7,287,302 6,983,424
Obligations under capital leases, less
current portion (NOTE 6) 69,071 34,580
Deferred revenue, less current portion
(NOTES 1 AND 9) 720,000 960,000
Long-term debt, less current portion
(NOTES 1 AND 4) 13,459,832 12,838,491
Deferred income taxes (NOTES 1, 4 AND 7) 163,183 157,812
Commitments and contingencies
(NOTES 1 THROUGH 9, 12, 13 AND 14)
Stockholders' equity (NOTES 2, 8 AND 9):
Common Stock, par value $.30 a share:
authorized 10,000,000 shares; issued
6,394,872 shares in 1997 and 1996 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (7,141,115) (8,233,475)
Translation adjustment (NOTE 1) (21,962) (54,592)
4,535,208 3,410,218
Common stock held in Treasury at cost;
850,454 shares in 1997 and 1996 (11,348) (11,348)
Total stockholders' equity 4,523,860 3,398,870
$26,223,248 $24,373,177
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended September 30
1997 1996 1995
<S> <C> <C> <C>
Net revenue (NOTES 1 AND 5):
Flight operations $9,004,333 $7,894,484 $11,494,202
Maintenance operations 5,990,233 6,237,913 5,290,253
Aircraft sales operations 983,723 833,781 3,287,761
Fixed base operations 9,606,813 7,820,148 6,702,505
Other - - 446,751
25,585,102 22,786,326 27,221,472
Expenses:
Direct costs of operations:
Flight operations 7,745,471 6,963,692 10,361,889
Maintenance operations 4,990,984 5,313,666 4,441,887
Aircraft sales operations 329,038 367,819 2,800,526
Fixed base operations 6,163,540 4,984,026 4,023,434
19,229,033 17,629,203 21,627,736
Selling, general and
administrative 3,016,468 2,432,063 3,473,641
Depreciation 689,170 661,572 932,603
Amortization of ground lease
and goodwill 127,646 126,960 200,280
Writedown of goodwill (NOTE 1) - - 1,338,302
Operating income (loss) 2,522,785 1,936,528 (351,090)
Amortization of debt discount
and issuance costs 77,347 139,475 139,450
Interest expense 1,161,549 1,336,137 1,772,028
Write-off of amount due from
affiliate (NOTE 9) - 191,308 -
Equity in loss of jointly-owned
company (NOTE 3) - - 57,585
Income (loss) before income tax
provision and extraordinary
item (NOTE 5) 1,283,889 269,608 (2,320,153)
Income tax provision
(NOTES 1, 4 AND 7) 238,393 151,206 -
Income (loss) before
extraordinary item 1,045,496 118,402 (2,320,153)
Extraordinary item-gain related
to early extinguishment of
debt (NOTE 4) 46,864 287,408 -
Net income (loss) 1,092,360 405,810 (2,320,153)
Dividends on Preferred Stocks
(NOTE 2) - - (214,424)
Net income (loss) attributable
to Common Stock $1,092,360 $405,810 $(2,534,577)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended September 30
1997 1996 1995
<S> <C> <C> <C>
Average number of common shares
outstanding (NOTE 2) 6,394,872 1,961,760 1,957,177
Primary earnings per share (NOTE 1)
Income (loss) per common share
before extraordinary item $.16 $.06 $(1.30)
Extraordinary item (NOTE 4) .01 .15 -
Net income (loss) per common share $.17 $.21 $(1.30)
Fully diluted earnings per share (NOTE 1)
Income (loss) per common share
before extraordinary item $.16 $.09 $(1.30)
Extraordinary item (NOTE 4) .01 .13 -
Net income (loss) per common share $.17 $.22 $(1.30)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Series C
Convertible Series D
Preferred Stock Preferred Stock Common Stock Treasury stock
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
9/30/94 1,000 $10 2,000 $20 1,957,177 $587,153 2,000 $(10,500)
Net loss for year ended 9/30/95
Dividends on Preferred Stocks (NOTE 2)
Translation adjustment at 9/30/95
Balance at ----- --- ----- --- --------- -------- ----- ---------
9/30/95 1,000 $10 2,000 $20 1,957,177 $587,153 2,000 $(10,500)
Issuance of shares of Common Stock related to acquisition of Dollar Air Services
Limited (NOTE 3) 5,000 1,500
Net income for year ended 9/30/96
Underaccrual of prior years dividends
Issuance of shares of Common Stock in exchange for Series C Preferred Stock
(NOTE 4) (1,000) (10) 2,053,876 616,163
Surrender of Series D Preferred Stock (NOTE 4)
(2,000) (20)
Issuance of shares of Common Stock related to redemption of convertible
debentures (NOTE 4) 3,227,273 968,182
Surrender of shares of Common Stock to company (NOTE 4)
(848,454) (254,536) 848,454 (848)
Discharge of debt due HM Industries, net of related taxes and costs (NOTE 4)
Translation adjustment at 9/30/96
Balance at ----- --- ----- --- --------- ---------- ------- --------
9/30/96 0 $0 0 $0 6,394,872 $1,918,462 850,454 $(11,348)
Net income for year ended 9/30/97
Translation adjustment at 9/30/97
Balance at ----- --- ----- --- --------- ---------- ------- ---------
9/30/97 0 $0 0 $0 6,394,872 $1,918,462 850,454 $(11,348)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Continued)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Total
Paid-In Accumulated Translation Stockholders'
Capital Deficit Adjustment Equity
<S> <C> <C> <C> <C>
Balance at
9/30/94 $8,321,055 $(6,089,708) $(83,957) $2,724,073
Net loss for year ended 9/30/95 (2,320,153) (2,320,153)
Dividends on Preferred Stocks (NOTE 2) (214,424) (214,424)
Translation adjustment at 9/30/95 3,248 3,248
Balance at ---------- ------------ --------- --------
9/30/95 $8,321,055 $(8,624,285) $(80,709) $192,744
Issuance of shares of Common Stock related to acquisition of Dollar Air Services
Limited (NOTE 3) 3,500 5,000
Net income for year ended 9/30/96 405,810 405,810
Underaccrual of prior years dividends (15,000) (15,000)
Issuance of shares of Common Stock in exchange for Series C Preferred Stock
(NOTE 4) (616,153) -
Surrender of Series D Preferred Stock (NOTE 4)
20 -
Issuance of shares of Common Stock related to redemption of convertible
debentures (NOTE 4) 100,045 1,068,227
Surrender of shares of Common Stock to company (NOTE 4)
255,384 -
Discharge of debt due HM Industries, net of related taxes and costs (NOTE 4)
1,715,972 1,715,972
Translation adjustment at 9/30/96 26,117 26,117
Balance at ---------- ------------ --------- ----------
9/30/96 $9,779,823 $(8,233,475) $(54,592) $3,398,870
Net income for year ended 9/30/97 1,092,360 1,092,360
Translation adjustment at 9/30/97 32,630 32,630
Balance at ---------- ------------ --------- ----------
9/30/97 $9,779,823 $(7,141,115) $(21,962) $4,523,860
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE>
Lynton Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (NOTE 10)
<TABLE>
<CAPTION>
Year ended September 30
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $1,092,360 $405,810 $(2,320,153)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 894,163 928,007 1,272,333
Equity in loss of jointly-owned company - - 57,585
Provision for deferred taxes - 151,206 -
Write-off of amount due from affiliate - 191,308 -
Gain on early extinguishment of debt (46,864) (287,408) -
Writedown of goodwill - - 1,338,302
Changes in certain assets and liabilities,
excluding effect from acquisitions
and divestitures:
Accounts receivable (909,177) (405,409) 20,510
Due (to) from affiliates (23,153) 44,775 229,530
Inventories 18,622 182,479 346,418
Aircraft held for resale - - 1,605,635
Prepaids and other current assets 182,481 116,960 (33,799)
Accounts payable and accrued expenses (47,968) 114,342 (923,672)
Advances from customers and deferred
revenue (191,087) 319,084 285,793
Net cash provided by operating
activities 969,377 1,761,154 1,878,482
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (652,160) (273,263) (425,357)
Disposal of fixed assets 40,376 52,472 1,017,114
Net cash (used in) provided by
investing activities (611,784) (220,791) 591,757
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on preferred stocks - - (214,424)
Redemption of senior convertible debt (50,000) (162,000) -
Proceeds of borrowings from finance
company, net of issuance costs - 3,850,000 -
(Repayment to) borrowings of debt
from HM Holdings, Inc. - (3,500,000) 500,000
Repayment of long-term debt (900,034) (610,868) (2,607,396)
Proceeds from notes payable 84,000 34,700 -
Repayment of note payable - affiliate - - (68,081)
Reduction of capital lease obligations (47,226) (28,592) (86,705)
Net cash used in financing activities (913,260) (416,760) (2,476,606)
Effect of exchange rate changes
on cash flow 13,837 7,550 -
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (541,830) 1,131,153 (6,367)
Cash and cash equivalents,
beginning of year 1,268,475 137,322 143,689
Cash and cash equivalents,
end of year $726,645 $1,268,475 $137,322
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-9
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Lynton Group,
Inc. and its directly and indirectly wholly-owned subsidiaries (the "Company"),
Lynton Jet Centre, Inc. ("Lynton Jet"); Lynton Aviation, Inc.; Lynton Aviation
Services, Inc.; Ramapo Helicopters, Inc. ("Ramapo"); Lynton Properties, Inc.
("Lynton Properties"); Lynton Group Limited ("Limited"); Lynton Aviation
Limited; European Helicopters Limited ("EHL"); Dollar Air Services Limited
("Dollar Air") (see Note 3); Black Isle Helicopters Limited ("Black Isle");
Helicopters Dollar Interamericas SA and Dollar Air's 70% owned subsidiary,
Servicios de Helicopteros SA. LynStar Aviation, Inc. ("LynStar"), wholly-owned
by LynStar Holdings, Inc., which is 20% owned by the Company, has been
consolidated as a wholly-owned subsidiary in the accompanying consolidated
financial statements. The difference in consolidating the financial statements
of LynStar, rather than accounting for the Company's investment using the
equity method of accounting, is immaterial to the accompanying consolidated
financial statements. All significant intercompany accounts and transactions
have been eliminated in consolidation.
PRINCIPAL BUSINESS ACTIVITY
The Company and its subsidiaries are engaged primarily in the performance of
aviation sales and services in the United States and the United Kingdom (see
Note 5). Services include the charter, management and operation of aircraft
for corporate, industrial and utility applications ("flight operations");
maintenance of aircraft ("maintenance operations"); sale and brokerage of
aircraft ("aircraft sales operations"); and hangarage and refueling of aircraft
("fixed base operations").
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
However, the Company sustained negative cash flow of approximately $542,000, in
the year ended September 30, 1997, and its current liabilities exceeded its
current assets by approximately $1,050,000 as of September 30, 1997.
The Company expects to continue meeting all of its obligations in the coming
year by focusing on its established operations. Further, management believes
that the cash flows from these operations will be sufficient to meet all of its
operating requirements and obligations of the Company and reduce its debt
service requirements.
In view of the matters discussed in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts in the accompanying consolidated
balance sheets is dependent upon continuing profitable operations and the
ability of the Company to generate cash flows sufficient to support its future
F-10
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
operations. The accompanying consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
REVENUE RECOGNITION
Revenues for maintenance and flight operations are recognized when services
have been performed. Revenues related to aircraft sales and commissions are
recognized at the time title is transferred. Rental revenues related to tenant
leases are recognized pursuant to the terms of the respective leases.
INVENTORIES AND AIRCRAFT HELD FOR RESALE
Inventories (principally aircraft maintenance parts) and aircraft held for
resale and are valued at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives indicated
below.
<TABLE>
<CAPTION>
<S> <C>
Aircraft 10-15 years
Buildings 40 years
Furniture and equipment 5 years
Motor vehicles 5 years
Leasehold improvements Term of leases
</TABLE>
GROUND LEASE, DEFERRED CHARGES AND GOODWILL
Ground lease and deferred charges, in connection with the acquisition of the
assets of the Linpro Jet Centre in 1990 and its related refinancing (as
described in Note 4), are being amortized on a straight-line basis over terms
of forty and seven years, respectively. The Company operates the Jet Centre
business out of the Company's hangar/office facility of approximately 132,000
square feet, owned by the Company, located at the Morristown Municipal Airport,
Morristown, New Jersey, on a site leased pursuant to a ground lease with an
initial term expiring on December 31, 2010 and with options to extend the term
of the lease for five additional terms of five years each. The rental payments
due under the lease are generally based upon increases in the consumer price
index through the year 2020 and based upon fair market value thereafter. The
Company operates Aviation Limited and EHL principally out of a hangar facility
of approximately 20,000 square feet located in Denham, Middlesex, which is
located outside of London. The hangar is owned by the Company and is located
on a site leased pursuant to a ground lease, which expires in 2012.
Goodwill resulting from the excess of the purchase price over the net assets of
businesses acquired is being amortized over a forty-year period on the
straight-line method. The carrying value of the long-lived assets are reviewed
if the facts and circumstances suggest that it may be permanently impaired, in
accordance with Statement of Financial Accounting Standards No. 121,
"Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". Such
review is based upon the undiscounted expected future operating cash flows
F-11
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
derived from such businesses and, in the event such result is less than the
carrying value of the long lived assets, including goodwill, the carrying value
of such assets would be reduced to an amount that reflects the expected future
benefit. During 1995, a writedown of $1,338,302 of goodwill originally recorded
in connection with the Dollar Air acquisition was recorded.
INCOME TAXES
The Company applies an asset and liability approach to accounting for income
taxes. Deferred income tax assets and liabilities arise from differences
between the tax basis of an asset or liability and its reported amount in the
consolidated financial statements. Deferred tax balances are determined by
using the tax rates expected to be in effect when the taxes will actually be
paid or refunds received.
FOREIGN CURRENCY TRANSLATIONS
Assets and liabilities of foreign subsidiaries are translated at rates of
exchange in effect at the close of the period. Revenues and expenses are
translated at the weighted average of exchange rates in effect during the year.
The effects of exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are included as part of the foreign
currency translation adjustment component of stockholders' equity. Losses and
gains realized from foreign currency transactions resulted in a losses of
$4,000 and $26,000 and a gain of $152,000 in 1997, 1996 and 1995, respectively,
and are included in the consolidated statements of operations.
EARNINGS PER SHARE
Net income (loss) per common share is computed by dividing the net income
(loss) attributable to Common Stock by the weighted average number of shares of
Common Stock and other common stock equivalents outstanding during the year,
unless the effect of including such common stock equivalents would be anti-
dilutive.
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding, 6,394,872, 1,961,760 and 1,957,177 in
1997, 1996 and 1995, respectively.
Fully diluted earnings per share reflects the weighted-average common shares
outstanding plus the potential effect of securities or contracts which are
convertible to common shares, such asoptions, warrants, and convertible debt
and preferred stock. The number of shares used in the computations of fully
diluted earnings per share were 6,435,254 in 1997 and 2,260,427 in 1996. Fully
diluted earnings per share was not presented for 1995 because it was anti-
dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and receivables approximates fair value because of
their short-term nature. The fair value of long-term debt is based on current
rates at which the Company could borrow funds with similar remaining
maturities.
F-12
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for financial statements, for both interim and
annual periods, ending after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully
dilutive earnings per share and requires presentation of basic and diluted
earnings per share with disclosure of the methods used to compute the per share
amounts.
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflects the weighted-
average common shares outstanding plus the potential effect of securities or
contracts which are convertible to common shares, such as options, warrants,
and convertible debt and preferred stock. The adoption of this standard is not
expected to have a material impact on earnings per share of the Company.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 129 will not change the disclosure of the capital
structure of the Company.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which is effective for fiscal years beginning after December 15, 1997. The
Statement addresses the reporting and displaying of comprehensive income and
its components. The adoption of SFAS No. 130 relates to disclosure within the
financial statements and is not expected to have a material effect on the
Company's financial statements.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. The Statement changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information
in their quarterly reports. Adoption of SFAS No. 131 is not expected to have a
material effect on the Company's financial statements.
USING ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
F-13
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
and revenues and expenses during the reporting period. Among the significant
estimates made by management included in these Consolidated Financial
Statements are the useful lives of long-lived assets, the fair value of
financial instruments, the fair value of the Company's Common Stock, the
realizable value of the investment in PDG, inventories and the aircraft held
for resale, the estimated fair value of the aircraft at the end of the lease-
which is guaranteed by the Company, the undiscounted expected future operating
cash flows used in the review for testing the impairment of long-lived assets,
and the adequacy of the insurance coverage. Actual results may differ
significantly from those estimates.
RECLASSIFICATIONS
Certain revenues and costs relating to aviation management services provided to
HM Industries, Inc. ("HM Industries") which had been provided by the Company to
HM Industries at cost, were included in prior years in revenues, direct costs
and selling, general and administrative expenses. These amounts have been
excluded from revenues, direct costs and selling, general and administrative
expenses for fiscal 1996 and results for the fiscal year 1995 have been
reclassified to reflect their exclusion.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues excluded $3,985,000 $6,417,000
Direct costs excluded 3,801,000 6,067,000
Selling, general and administrative
costs excluded 184,000 350,000
Net income effect $0 $0
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid securities
having an original maturity date of three months or less. All cash balances in
the U.S. were covered by FDIC insurance at September 30, 1997. Cash, at
September 30, 1997, includes approximately $472,000 on deposit in the United
Kingdom, which are not covered by depository insurance.
2. STOCKHOLDERS' EQUITY
WARRANT
In connection with the execution of the 1990 Credit Agreement (see Note 4), the
Company issued to HM Holdings Inc., an indirect wholly owned subsidiary of
Hanson PLC ("HM Holdings"), a Warrant (the "Original Warrant") to purchase
996,334 shares of Common Stock. The Original Warrant was exercisable at any
time during the period in which the Loans were outstanding, and for a period of
90 days after repayment of the Loans, at an exercise price of $1,000,000 in the
aggregate. The Original Warrant was valued at the estimated fair market value
at the date of grant of the shares, to be received, less the exercise price.
On December 22, 1992, HM Holdings exercised a portion of the Original Warrant
amounting to 848,455 shares (see Recapitalization Agreement below).
F-14
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
Concurrently with the delivery of the Original Warrant, HM Holdings, the
Company and Christopher Tennant, a director and Chief Executive Officer of the
Company, executed a Stockholders' Agreement that provides for certain rights of
first refusal, rights of inclusion and rights to compel sales in connection
with certain sales of securities of the Company by HM Holdings and Mr. Tennant.
The Stockholders' Agreement further provides that upon exercise of the Original
Warrant and as long as HM Holdings beneficially owned at least 25% of the
outstanding shares of Common Stock of the Company, the Board of Directors of
the Company should consist of nine directors and HM Holdings shall have the
right to nominate four directors. In connection therewith, Mr. Tennant agreed
in the Stockholders' Agreement to vote his shares for the nominees of HM
Holdings, as directors. In addition, HM Holdings agreed to vote its shares for
Mr. Tennant, as a director, so long as Mr. Tennant owned not less than 5% of
the outstanding shares of Common Stock of the Company.
Pursuant to the Debt Discharge Agreement (see Note 4) and on November 13, 1996,
Hanson North America (as successor to HM Holdings) surrendered to the Company
all its outstanding Warrants to purchase an aggregate of 247,513 shares of
Common Stock of the Company.
RECAPITALIZATION AGREEMENT
Pursuant to a Recapitalization Agreement, dated as of December 22, 1992, among
the Company, Lynton Jet, HM Holdings, a director of the Company, and two
additional investors, (i) the Company sold in aggregate to the director and two
additional investors 1,000 shares of Series C Convertible Preferred Stock of
the Company for $1,000,000 in cash, (ii) HM Holdings (a) purchased 2,000 shares
of Series D Preferred Stock of the Company for $2,000,000 in cash which was
applied to reduce the Company's indebtedness to HM Holdings, (b) exercised a
portion of its Original Warrant for 848,454 shares of Common Stock of the
Company for an exercise price of $851,577 in cash which was applied to reduce
the Company's indebtedness to HM Holdings, and (c) was issued a New Warrant to
purchase up to an additional 99,634 shares of Common Stock of the Company for
$.30 per share at any time. The number of shares of Common Stock for which the
New Warrant and the price at which such shares were to be purchased was subject
to adjustment upon the occurrence of certain events.
Effective September 30, 1996, Hanson North America (as successor to HM
Holdings) surrendered to the Company 2,000 shares of Series D Preferred Stock
of the Company as part of the discharge settlement (the "Debt Discharge
Agreement", see Note 4). The Company paid dividends on the Series D Preferred
Stock of approximately $154,000 in fiscal 1995. No dividends were paid in
fiscal 1997 or fiscal 1996.
The four holders of all of the outstanding shares of Series C Convertible
Preferred Stock (the "Series C Preferred Stock") have been offered by the
Company and have agreed (effective September 30, 1996) to convert all of the
Series C Preferred Stock into an aggregate of 2,053,876 shares of Common Stock.
Two of such holders are James G. Niven, a director of the Company, and J. O.
Hambro Nominees Limited, which may be deemed to be controlled by Richard
Hambro, a director of the Company. This transaction has been accounted for as
an exchange of equity instruments with no gain or loss recognized. The Company
paid dividends on its Series C Convertible Preferred Stock aggregating $60,000
in fiscal 1995. No dividends were paid in fiscal 1997 or fiscal 1996.
F-15
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
3. ACQUISITION AND TRANSFER
ACQUISITION OF DOLLAR AIR SERVICES LIMITED
Pursuant to a Share Purchase Agreement dated January 13, 1994 (the "Dollar
Purchase Agreement") among the Company, Limited, a wholly-owned subsidiary of
the Company and all of the shareholders (the "Dollar Shareholders") of Dollar
Air, a company organized under the laws of England, the Company, through
Limited, acquired on such date all of the issued and outstanding shares of
capital stock of Dollar Air. At the time of the Dollar Air acquisition, Dollar
Air owned a 75% equity interest in Black Isle. In September 1994, the
remaining 25% of the capital stock of Black Isle was acquired by the Company.
The consideration paid related to the above transactions was 424,000 Pounds
Sterling (approximately $642,000) (including certain expenses of the Dollar
Shareholders) paid in cash and the issuance of 71,667 shares of Common Stock of
the Company. An additional 5,000 shares of Common Stock of the Company were
issued in 1996 to complete the transaction.
TRANSFER OF DOLLAR AIR SERVICES LIMITED
In August 1995, pursuant to a Business Transfer Agreement with PDG, a company
organized under the laws of Scotland, substantially all the business, assets
and liabilities of Dollar Air and Black Isle were transferred to PDG in
exchange for 50% of the capital stock of PDG. Simultaneously with the
consummation of the transaction, substantially all of the business, assets and
liabilities of P.L.M. Helicopters Limited, a company organized under the laws
of Scotland ("PLM") were transferred to PDG and the shareholders of PLM were
issued the remaining 50% of the capital stock of PDG. PDG operates a fleet of
15 helicopters from bases primarily in Scotland and England, and provides
helicopter support services for industrial and utility applications in the
United Kingdom. Accordingly, the Company's net investment in PDG at September
30, 1995 was shown as investment in jointly-owned company in the consolidated
balance sheet and the Company's proportionate share of the results of
operations of PDG, since the transfer date, were reflected in the accompanying
consolidated statement of operations under the equity method of accounting.
During fiscal 1996, the asset was reclassified as investment in jointly-owned
company held for resale, and therefore, the Company's share of the gain or loss
in the jointly-owned company will no longer be recognized under the equity
method of accounting. The Company's equity in the loss of jointly-owned company
was immaterial in fiscal 1996.
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 payment of approximately $323,000 was made in November 1997, with the
final payment, without interest, due on July 31, 1998.
F-16
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
4. LONG TERM DEBT
Long-term debt at September 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
<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 $340,989
Mortgage Note payable to Massachusetts Mutual Life
Insurance Company with an interest rate of 6.69% due
in monthly installments through Janaury 3, 2006. 7,485,990 8,010,980
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. 3,820,525 4,000,000
Senior Subordinated Convertible Debentures with
interest at 10%, payable in the amount of 1/3 of the
aggregate principal amount prior to December 31 of
each of the years from 1996 to 1998. 795,000 895,000
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. 536,597 546,035
Aircraft financing note payable to G.E. Capital
Corporation 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 due to finance company with an
interest rate of 10.5%, due in monthly installments
through February, 2000. 25,985 31,993
$14,745,196 $13,824,997
Less:
Amount due within one year (1,285,364) (986,506)
$13,459,832 $12,838,491
</TABLE>
Maturities of long-term debt for the fiscal years ending September 30 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $1,285,364
1999 2,058,209
2000 2,789,451
2001 1,241,159
2002 1,339,916
Thereafter 6,031,097
$14,745,196
</TABLE>
Note payable due to financing company of $537,000 is collateralized by aircraft
with an aggregate book value of approximately $788,000. The mortgage of
$211,000 is collateralized by buildings with a net book value of approximately
$664,000. The UK debt is further collaterized by a floating charge over its
assets as part of its UK banking arrangements. The aircraft financing note is
F-17
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
collateralized by an aircraft with a book value of $1,870,000, the proceeds,
from the sale of which, must be used to repay the debt to G.E. Capital
Corporation.
At September 30, 1997 and 1996, the weighted average interest rates on short-
term borrowings was 9.7% and 9.2%, respectively.
HM HOLDINGS DEBT
Simultaneous with the acquisition of the Jet Centre in 1990 the Company entered
into a Credit Agreement, dated August 14, 1990 ("the Credit Agreement"), with
HM Holdings in order to provide the Company and Lynton Jet with funds to be
used in part to finance the Jet Centre Acquisition and to finance a portion of
the ongoing working capital needs of the Company and the Jet Centre. The
Credit Agreement financing consisted of term loans in the amount of $2,000,000
and $10,800,000 to the Company and Lynton Jet, respectively, and a revolving
credit facility to Lynton Jet which provided for up to $4,200,000 in borrowings
(together, the "Loans").
In connection with the June 22, 1994 issuance of the Mortgage Note discussed
below, $8,000,000 of the net proceeds therefrom were applied to the repayment
of the Loans. The Company's term loan was repaid in full together with all
principal payments on the Lynton Jet term loan except for the final payment in
the principal amount of $2,905,923 which would be due on September 30, 1997.
The Credit Agreement also provided that the revolving credit loans of
$3,200,000 would also be due on September 30, 1997. The Company recorded an
extraordinary charge during the year ended September 30, 1994 of $166,000,
representing the unamortized debt discount and issuance costs related to the
repaid portion of the Loans. In October 1994, HM Holdings loaned the Company an
additional $500,000 under an additional revolving credit facility, increasing
the aggregate amount of the revolving credit facility to $3,700,000. As a
result, prior to the completion of the Debt Discharge Transaction (as described
below), the principal amount owing to HM Holdings at September 30, 1996 under
the Loans was $6,605,923.
On November 8, 1996, a Debt Discharge Agreement (the "Debt Discharge
Agreement") was signed by and among Hanson North America, Inc. ("Hanson North
America"), Millennium America Inc. (formerly named Hanson America Inc.)
("Millennium America"), and the Company, Lynton Jet and Lynton Properties, (a
wholly-owned subsidiary of Lynton Jet). Prior thereto, Hanson North America had
succeeded to HM Holdings as lender under the Credit Agreement and had acquired
certain assets of HM Holdings, including the equity securities described below.
Pursuant to the Debt Discharge Agreement and on November 13, 1996, Hanson North
America was paid the sum of $3,500,000, and in consideration thereof (plus
other consideration described below and in Note 9), (i) cancelled the Loans and
discharged all obligations under the Credit Agreement except for certain
indemnification obligations stated therein to survive termination of the Loans,
(ii) surrendered to the Company 848,454 shares of Common Stock of the Company,
(iii) surrendered Warrants to purchase an aggregate of 247,513 shares of Common
Stock of the Company, and (iv) surrendered 2,000 shares of Series D Preferred
Stock of the Company (the "Debt Discharge Transaction"). The foregoing shares
and Warrants represented Hanson North America's entire equity interest in the
Company. As provided in the Debt Discharge Agreement, the foregoing
transactions were deemed to have occurred at September 30, 1996, and the net
amount of debt discharged ($6,605,923), less consideration given, was recorded
as a credit to Additional Paid-In Capital.
F-18
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
In connection with the Debt Discharge Transaction, Hanson North America also
released all security and liens under the Credit Agreement, including its First
Leasehold Mortgage (the "Leasehold Mortgage") and Assignment of Rents on the
Jet Centre facility operated by Lynton Jet at the Morristown Municipal Airport,
Morristown, New Jersey. In addition, Millennium America, which previously
guaranteed certain obligations of Lynton Jet to MassMutual, which were also
secured by the First Leasehold Mortgage, terminated and released its interests
in the Leasehold Mortgage. Millennium America continues to guarantee certain of
such obligations of Lynton Jet to MassMutual.
Interest expense related to the borrowings from HM Holdings was approximately
$455,000 and $607,000 for the years ended September 30, 1996 and 1995,
respectively.
On January 12, 1995, in connection with the minimum net worth requirements
under the Credit Agreement, HM Holdings agreed to waive any and all such net
worth requirements for fiscal 1994, fiscal 1995 and the first quarter of fiscal
1996. On January 5, 1996, in connection with these requirements, HM Holdings
agreed to waive any and all such net worth requirements for the remainder of
fiscal 1996 and the first quarter of fiscal 1997. The Company received waivers
of the interest coverage ratio requirements under the Credit Agreement for each
quarter of the fiscal years ended September 30, 1995 and 1996 and the first
quarter of fiscal 1997.
FINOVA LOAN
Simultaneously with the completion of the Debt Discharge Transaction, and in
order to pay Hanson North America $3,500,000 in connection therewith, Lynton
Jet, as borrower, entered into a Loan and Security Agreement dated November 13,
1996 with Finova Capital Corporation ("Finova"), as Lender, pursuant to which
Finova made a secured loan to Lynton Jet in the principal amount of $4,000,000
(the "Finova Loan").
The Finova Loan is collateralized by a security interest in substantially all
of the assets and properties of Lynton Jet, including a Leasehold Mortgage on
the Jet Centre facility (excluding the portion of the facility subject to a
Leasehold Mortgage held by Massachusetts Mutual Life Insurance Company). In
addition, the obligations of Lynton Jet under the Finova Loan have been
guaranteed by the Company and certain other subsidiaries of the Company.
The Finova Loan, together with interest thereon at the interest rate of 10.7%
per annum shall be repaid in 96 equal consecutive monthly payments consisting
of (a) principal and interest in an amount that will fully amortize 65%
($2,600,000) of the Finova Loan plus (b) interest only, on the remaining (35%)
of the principal amount ($1,400,000) of the Finova Loan calculated at 10.7% per
annum. The remaining unpaid principal (35%) of the Finova Loan, $1,400,000,
shall be payable on December 1, 2004.
The Finova Loan requires compliance with certain covenants, financial and
otherwise, as defined in the loan agreement, including maintaining a minimum
tangible net worth and a minimum earnings, before interest, taxes, depreciation
and amortization, coverage ratio by both Lynton Jet, as borrower, and Lynton
Group, Inc. as guarantor.
F-19
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
At September 30, 1997 and subsequent thereto, the Company was in default of a
covenant of the Finova Loan. On January 13, 1998, Finova waived this default.
THE MASSMUTUAL MORTGAGE NOTE
On June 22, 1994, Lynton Properties issued to Connecticut Mutual Life Insurance
Company ("Connecticut Mutual") a $9,000,000, 6.69% mortgage note due January 3,
2006 (the "Mortgage Note") with varying scheduled monthly payments of principal
and interest. The Mortgage Note is collateralized by a Leasehold Mortgage and
Security Agreement and an Assignment of Leases and Rents, each dated June 22,
1994, on a lease between a certain tenant and Lynton Properties relating to a
hangar and office facility located on the property at the Jet Centre.
Massachusetts Mutual Life Insurance Company ("MassMutual") is an assignee of
Connecticut Mutual under this loan.
In addition, the obligations of Lynton Properties under the Mortgage Note are
guaranteed by Lynton Jet pursuant to a Guaranty Agreement dated June 22, 1994,
between Lynton Jet and Connecticut Mutual (the "Jet Centre Guaranty").
Further, the obligations of Lynton Jet under the Jet Centre Guaranty, other
than certain environmental and related obligations, are, and continue to be,
guaranteed by Millennium America, pursuant to a Guaranty Agreement, dated June
22, 1994, between Millennium America and Connecticut Mutual (the "Millennium
America Guaranty"). Further, Millennium America received a one-time fee of
$100,000, in 1994, in connection with the issuance of the Millennium America
Guaranty. MassMutual is the assignee of Connecticut Mutual.
At September 30, 1997, 1996 and 1995, the Company had $150,000 in interest-
bearing funds, accruing to the Company, held in escrow, as additional security
to the Mortgage Note.
10% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
In December 1993, the Company completed an off-shore placement of $2,500,000
principal amount of 10% Senior Subordinated Convertible Debentures due December
31, 1998 (the "Debentures"). The Debentures were convertible into shares of the
Company's Common Stock at the option of the holder at any time prior to
maturity at a price of $3.75 per share. The Debentures may also be redeemed by
the Company at any time or from time-to-time commencing July 1995 at the
Company's option, in whole or in part, at the redemption prices (expressed as
percentages of the principal amount) set forth below, plus accrued and unpaid
interest at the redemption date (and subject to the right of any record holder
to receive the interest payable on the applicable interest payment date that is
on or prior to the redemption date). If redeemed during the periods indicated
below, the applicable redemption percentage will be:
<TABLE>
<CAPTION>
FROM THROUGH PERCENTAGE
<S> <C> <C>
July 1, 1997 June 30, 1998 103%
July 1, 1998 And thereafter 100%
</TABLE>
PRIOR TO DECEMBER 31 OF EACH OF THE YEARS FROM 1996 TO 1998, INCLUSIVE, THE
COMPANY HAS AGREED TO PAY TO THE TRUSTEE FOR THE DEBENTURES, AS A SINKING FUND
PAYMENT, CASH IN THE AMOUNT OF 1/3 OF THE AGGREGATE PRINCIPAL AMOUNT OF THE
ISSUED DEBENTURES, PROVIDED THAT DEBENTURES CONVERTED, REACQUIRED OR REDEEMED
F-20
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
BY THE COMPANY MAY BE USED, AT THE PRINCIPAL AMOUNT THEREOF, TO REDUCE THE
AMOUNT OF ANY SINKING FUND PAYMENT. AT DECEMBER 31, 1997, THE COMPANY HAS
SATISFIED ITS SINKING FUND REQUIREMENT.
In connection therewith, the Company paid Value Investing Partners, Inc., the
placement agent for such offering (the "Placement Agent"), a commission of
$225,000 representing nine percent (9%) of the gross proceeds. In addition,
the Placement Agent received from the Company warrants exercisable for a period
of ten years for the purchase of 125,000 shares of the Common Stock of the
Company at an exercise price equal to $3.825 per share. In addition, the
Placement Agent was granted a right of first refusal for a period of three
years from December 1993 with respect to any private or public equity or debt
placement by the Company through an underwriter or placement agent during such
period.
During the period from June 30, 1995 through January 22, 1996, the Company was
not in compliance with the minimum net worth requirements of the Debenture
Agreement. As of January 23, 1996, in connection with such requirements, a
majority of the debenture holders agreed to waive any and all such net worth
requirements for fiscal 1995 and 1996. No assurances can be given as to the
Company's ability to meet future net worth requirements under the Debenture
Agreement or that additional waivers will be received at appropriate times.
In fiscal 1996, the Company repurchased a portion of its Debentures in the
principal amount of $540,000 for cash payments totaling $162,000. The Company
realized a gain on redemption of $287,000, net of related debt issuance costs,
on these repurchases. In addition, the remaining holders of the Debentures have
been given the opportunity to convert the Debentures into shares of Common
Stock of the Company at a conversion price of $.33 per share. Prior to
completion of the Debt Discharge Transaction and refinancing of the Jet Centre
facility described above, there were Debentures in the principal amount of
$1,960,000 outstanding. Two holders of the Debentures, who are affiliates of
the Company, issued their consent to convert the Debentures held by them (in
the principal amount of $1,065,000) into 3,227,273 shares of Common Stock
(effective retroactively to September 30, 1996). A charge has been recorded to
reflect the value of additional consideration provided by the Company as an
inducement to the above conversion, however, such amount was immaterial. In
fiscal 1997, the Company repurchased a portion of its Debentures in the
principal amount of $100,000 for cash payments totaling $50,000. The Company
realized a gain on redemption of $47,000, net of related debt issuance costs,
on these repurchases. The Debentures acquired in the above transactions have
been applied against the sinking fund obligations for December 31, 1996 and
1997.
5. FOREIGN OPERATIONS
Following is a summary of the consolidated financial position at September 30,
1997 and 1996 and consolidated results of operations for each of the three
years ended September 30, 1997, 1996 and 1995 of the Company's wholly-owned
foreign subsidiary, Limited, located in the United Kingdom, and its
subsidiaries.
F-21
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Summary of financial position:
Current assets $4,527,148 $2,855,814
Property, plant and equipment, net 1,870,217 1,792,667
Goodwill, investment in jointly-owned
company held for resale and other assets 250,383 1,431,855
Total assets $6,647,748 $6,080,336
Current liabilities $4,151,903 $4,115,839
Long-term liabilities 729,423 828,988
Equity 1,766,422 1,135,509
Total liabilities and equity $6,647,748 $6,080,336
</TABLE>
Revenues from foreign subsidiaries represented 51%, 55% and 67% of consolidated
net revenues in 1997, 1996 and 1995, respectively, and were derived from
geographic regions as specified below:
<TABLE>
<CAPTION>
Years ended September 30
<S> <C> <C> <C>
1997 1996 1995
Net revenues:
United States $12,568,159 $10,192,128 $8,854,266
United Kingdom and other
European countries 13,016,943 12,594,198 17,864,880
South America - - 502,326
$25,585,102 $22,786,326 $27,221,472
Income (Loss) before income
tax provision and extraordinary item:
Domestic $527,535 $(273,537) $(156,122)
Foreign 756,354 543,145 (2,164,031)
$1,283,889 $269,608 $(2,320,153)
</TABLE>
There were no dividends from foreign subsidiaries during 1997, 1996 or 1995.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company operates the Jet Centre business out of the Company's hangar/office
facility of approximately 132,000 square feet, owned by the Company, located at
the Morristown Municipal Airport, Morristown, New Jersey, on a site leased
pursuant to a ground lease with an initial term expiring on December 31, 2010
and with options to extend the term of the lease for five additional terms of
five years each. The rental payments due under the lease are generally based
upon increases in the consumer price index through the year 2020 and based upon
fair market value thereafter.
F-22
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
The Company leases an additional facility of approximately 36,000 square feet
at the Morristown Municipal Airport, Morristown, New Jersey, with an initial
term expiring on May 31, 1998, with an option to renew for an additional three
years. Ramapo conducts its maintenance operation from this facility, in
addition to the Company's additional FBO business.
In addition to the above facility leases, the Company leases automobiles,
various office equipment and the helicopter currently being flown for the U.S.
flight operations.
Minimum future obligations under operating leases in effect at September 30,
1997 are as follows:
<TABLE>
<CAPTION>
Year Ending September 30:
<S> <C>
1998 $ 373,331
1999 174,517
2000 167,925
2001 161,090
2002 159,865
Thereafter 1,278,920
Total minimum lease payments $2,315,648
</TABLE>
Rental expense for the years ended September 30, 1997, 1996 and 1995 was
approximately $510,000, $486,000 and $456,000, respectively.
CAPITAL LEASES
Subsidiaries of the Company in the United Kingdom lease automobiles, which have
been accounted for as capital leases. Following is a summary of property held
under capital leases:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Motor vehicles $185,489 $138,665
Less: Accumulated depreciation (25,897) (35,051)
Total assets $159,592 $105,610
</TABLE>
Aggregate future minimum lease payments under capital leases at September 30,
1997, by fiscal year, are as follows:
<TABLE>
<S> <C>
1998 $38,480
1999 40,043
2000 29,028
Total minimum lease payments 107,551
Less interest portion (19,605)
Present value of net minimum lease payments $87,946
</TABLE>
F-23
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
AIRCRAFT LEASE GUARANTEE
In fiscal 1994, the Company acted as broker in an aircraft leasing transaction
between an aircraft leasing company and a customer of the Company. Under the
terms of the transaction, the Company has guaranteed to the leasing company
that the Company will fund any shortfall if the aircraft is sold below a
specified sales price at the termination of the lease. Management believes
that the fair market value of the aircraft at the termination of the lease will
exceed the specified sales price, and thus no provision for such guarantee has
been made in the accompanying consolidated financial statements.
HAZARDS AND INSURANCE
The operation of helicopters and fixed wing aircraft involves a substantial
level of risk. Hazards such as aircraft accidents, collisions and fire are
inherent in the providing of aviation services and may result in losses of
life, equipment and revenues.
The Company maintains insurance of types customary to the aviation services
industry and in amounts deemed adequate by the Company to protect the Company
and its property. These policies include aircraft liability, aviation
spares/equipment, all risks, hull, products liability, hangar keepers
liability, property and casualty, automobile and workers' compensation. The
Company has not experienced significant difficulty in obtaining insurance and
has not incurred any insured losses in excess of its property and liability
coverage. While the Company believes that its insurance coverage is adequate
for its operations, there can be no assurance that such insurance coverage is
now, or will be, adequate to cover any claims to which it may be subject or
that such levels of insurance may be obtained at comparable rates in the
future.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous laws and regulations designed
to protect the environment. The Company believes that it is in compliance, in
all material respects, with applicable environmental requirements. Although
future environmental obligations are not expected to have material impact on
the consolidated results of operations or the consolidated financial position
of the Company, there can be no assurance that future developments, including
increasingly stringent environmental laws or enforcement thereof, will not
cause the Company to incur material environmental liabilities or costs.
GOVERNMENT REGULATION
The Company is subject to the jurisdiction of the FAA in the United States and
the CAA in the United Kingdom related to its authorization to operate aircraft
maintenance facilities and to operate as an air carrier. No assurance can be
given that the authorizations mentioned above will be maintained in the future.
Management believes that the loss of the above mentioned authorization in the
United States would not have a material effect on the Company while the loss of
any of the United Kingdom authorizations could have a material effect on the
Company.
F-24
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
LITIGATION
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.
7. INCOME TAXES
The Company and its wholly-owned United States subsidiaries file Federal income
tax returns on a consolidated basis. Limited and its subsidiaries file
separate tax returns in the United Kingdom.
Deferred income taxes recorded in the consolidated balance sheet at September
30, 1997 and 1996 include deferred tax assets, primarily related to net
operating loss carryforwards, which have been fully offset by valuation
allowances. The valuation allowances have been established equal to the full
amount of the deferred tax assets, as the Company is not assured at September
30, 1997 and 1996, that it is more likely than not that these benefits will be
realized. Deferred tax liabilities resulted primarily from different book and
tax basis of fixed assets in the United Kingdom.
The Company's effective tax rate differs from the U.S. statutory rate (34%) due
to the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1997 1996 1995
<S> <C> <C> <C>
Expected provision (benefit) at 34% $452,456 $91,667 $(788,852)
Foreign income taxes - 151,206 -
Benefit of operating losses (utilized)
or not utilized:
Domestic (102,339) (91,667) 53,082
Foreign (99,089) - 735,770
Other (12,635) - -
Total tax provision $238,393 $151,206 $0
</TABLE>
The Company has unused U.S. Federal net operating loss carryforwards at
September 30, 1997 of approximately $1,260,000 which expire through September
30, 2010. As a result of the Jet Centre acquisition and the related issuance
of the Original Warrant to HM Holdings (see Note 2), and the conversion of the
Debentures into Common Stock (see Note 2), the utilization of the Company's net
operating loss carryforwards is substantially restricted under Section 382 of
the Internal Revenue Code of 1986, as amended, to a specified maximum
percentage (approximately 5.8%) of the fair market value of the Company at the
time of the ownership change. For purposes of this limitation, management has
estimated that the value of the Company was in excess of $3,800,000 at the time
of the ownership change.
F-25
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
8. EMPLOYMENT AGREEMENT/STOCK OPTIONS
The Company has an employment agreement with its Chief Executive Officer
extending through March 31, 1998 providing for a base salary of $180,000
annually, which includes rent paid to a company which is wholly-owned by the
Company's Chief Executive Officer for office space in London rented by the
Company (see Note 9). The term of this agreement may be extended for an
additional three years under certain conditions relating to a merger or change
of control of the Company.
In August 1993, the Board of Directors adopted the 1993 Stock Option Plan (the
"1993 Plan") for employees, officers, consultants or directors of the Company
or its subsidiaries to purchase up to 250,000 shares of Common Stock of the
Company. Options granted under the 1993 Plan may either be "incentive stock
options" as defined in Section 422 of the Code, or non-statutory stock options
(options which fail to qualify as incentive stock options). Any incentive
stock options granted under the 1993 Plan shall be granted at no less than 100%
of the fair market value of the Common Stock of the Company at the time of the
grant and have a term of between five and ten years. The vesting periods for
the options vary under the 1993 Plan with a minimum vesting period of six
months. As of September 30, 1997, options to acquire 23,335 shares of Common
Stock have been granted under the 1993 Plan and 226,665 options were available
for future grant.
In addition to options granted under the Plan, in August 1997, the Company
granted non-statutory stock options to certain officers and key employees for a
total of 704,000 shares, all of which are immediately exercisable at a price of
$0.50 per share.
The Company's stock option plan has been accounted for under APB Opinion 25,
and related Interpretations. No compensation cost has been recognized
applicable to the plan. Had compensation cost for the plan been determined,
based on fair value of the options at the grant dates consistent with the
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
September 30
1997 1996
<S> <C> <C> <C>
Net income As Reported $1,092,360 $405,810
Pro forma $1,092,360 $405,780
Primary earnings per share As Reported $0.17 $0.21
Pro forma $0.17 $0.21
Fully diluted earnings per share As Reported $0.17 $0.22
Pro forma $0.17 $0.22
</TABLE>
The fair value of each option is estimated on the date of grant, using the
Black-Scholes options-pricing model, with the following weighted-average
assumptions used for grants in 1997 and 1996: expected volatility of 40%; risk-
free interest rates of 6.0%; and expected lives of 2 1/2 years.
F-26
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
Information with respect to the 1993 Plan and other options granted, under
similar provisions, to certain directors, officers and key employees of the
Company is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
Outstanding at beginning
of year 63,340 $1.54 94,176 $2.34 75,842 $2.83
Granted 704,000 0.50 5,001 0.25 26,668 1.04
Cancelled (33,337) 1.78 (35,837) 3.45 (8,334) 2.74
Exercised - 0.00 - 0.00 - 0.00
Outstanding at end of year 734,003 $0.53 63,340 $1.54 94,176 $2.34
Exercisable at end of year 734,003 $0.53 43,340 $1.74 74,176 $2.66
Weighted average fair value
options granted during
the year $0.00 $0.01 N/A
</TABLE>
The following information applies to options outstanding at September 30, 1997:
<TABLE>
<S> <C> <C>
Range of exercise prices 3,334 shares $0.25
704,000 shares $0.50
3,334 shares $0.80
23,335 shares $1.50
Weighted average exercise price $0.53
Weighted average remaining contractual life 4.73 years
</TABLE>
The initial application of SFAS No. 123, for the pro forma disclosures of the
fair value based method, may not be representative of those future effects of
applying this statement.
9. RELATED PARTY TRANSACTIONS
HANSON TRANSACTIONS
Under the Management Agreement with HM Industries, Inc. ("HM Industries'), an
affiliate of HM Holdings, the Company was obligated to provide complete
aviation management services, including flight scheduling, aircraft utilization
management, provision of pilots, repair and maintenance, fueling, catering and
bookkeeping and accounting through June, 1995. From June 30, 1995, until
September 30, 1996 under this agreement, the Company was obligated to provide
fueling, catering and bookkeeping and accounting services. HM Industries
reimbursed the Company for actual costs of performing these services, less
$125,000 per annum through June 30, 1994. Subsequent to June 30, 1994, in
accordance with the amendment to the lease dated July 1, 1994, there was no
F-27
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
deduction in the reimbursement amount. HM Industries' reimbursements to the
Company for the years ended September 30, 1996 and 1995 were $3,985,000 and
$6,417,000 respectively. These reimbursements have been excluded from revenues,
direct costs and selling, general and administrative expenses in the
accompanying consolidated financial statements. At September 30, 1995,
reimbursements receivable from HM Industries was $141,000. No amount was due
from HM Industries at September 30, 1996.
Under the terms of an Agreement of Lease entered into August 1990, as amended
in July 1994 ("the Lease"), Lynton Jet has been leasing to HM Industries office
and hangar space at the Jet Centre facility in Morristown, New Jersey.
In connection with the Debt Discharge Transaction, and on November 8, 1996,
Lynton Jet Centre entered into a Second Amendment to the Lease and Partial
Assignment and Assumption of the Lease (the "Second Amendment") with Hanson
North America (which prior thereto had merged with HM Industries with Hanson
North America being the surviving entity) and Millennium America Holdings, Inc.
("Millennium Holdings"). Under the terms of the Second Amendment, Hanson North
America assigned to Millennium Holdings an undivided one-half interest in and
to the Lease. The Second Amendment provides that the term of the Lease shall
end on November 7, 2001 and that no rent is or shall be due for the remainder
of the term. This rent reduction is considered additional consideration given
under the Debt Discharge Agreement and is recorded as a reduction in the credit
to Additional Paid-In Capital, resulting from the debt discharge (see Note 4),
and is recorded as deferred revenue, current and long-term, in the accompanying
consolidated balance sheet. The Second Amendment also provides that if at any
time during the term of the Lease, space sufficient to accommodate an
additional aircraft shall become available at the Jet Centre facility for
rental, Hanson North America and Millennium Holdings shall have the right of
first refusal with respect to such available space to lease such space for a
period of five years at a predetermined annual rate. The lease also provides
for liquidating damages payable by the Jet Centre in the event of the
termination of the lease other than by reason of default by Hanson North
America and or Millennium Holdings.
In conjunction with the Second Amendment, Lynton Jet, Hanson North America and
Millennium Holdings entered into a Jet Fuel Agreement, on November 8, 1996,
whereby Lynton Jet agreed to sell jet fuel to Hanson North America and
Millennium Holdings at the Jet Centre facility at a predetermined price, based
on Lynton Jet's actual cost of such fuel, for so long as aircraft of Hanson
North America and Millennium Holdings are based at the Jet Centre facility.
OTHER RELATED PARTY TRANSACTIONS
The Company rents office space in London from a company which is wholly-owned
by the Company's Chief Executive Officer. For the years ended September 30,
1997, 1996 and 1995, rental expense for this space was $51,000, $46,000 and
$48,000, respectively. At September 30, 1995 the Company had non-interest
bearing receivables from an entity controlled by the Chief Executive Officer of
the Company in the amount of $191,308. This amount was written off in fiscal
1996, pursuant to a Board of Director's resolution dated September 10, 1996.
F-28
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
The Company paid $25,000 and $27,000 in 1996 and 1995, respectively, to a
company owned by one of the Company's directors for management and advisory
services rendered. No such payments were made in fiscal 1997.
The Company has recognized an expense of $48,000, $12,000 per non-employee
director, in 1997 for the payment of directors fees. At September 30, 1997,
services provided by the Company to these directors totaling approximately
$33,000, were applied to this accrual. However, no cash payments have been
made for any of the remaining amounts due.
10. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-cash investing and financing activities for the years ended September 30
are as follows:
<TABLE>
<S> <C>
1997
Reclassification of investment in jointly-owned
company held for resale from long term assets to
current assets (see Note 3) $1,222,620
Purchase of helicopter, fully financed by G.E.
Capital Corporation $1,870,233
1996
Conversion of senior subordinated convertible
debentures for common stock $1,065,000
Cancellation of debt to HM Holdings, Inc. $6,605,923
Payment to HM Holdings, Inc. for cancellation of debt (3,500,000)
Deferred revenue for future rental obligation (1,200,000)
Unamortized debt discount (35,951)
Tax impact of transaction 154,000
Net credit to Additional Paid-In Capital from
discharge of debt $1,715,972
1995
Transfer of assets to jointly-owned company $3,533,893
Liabilities assumed by jointly-owned company (2,275,060)
Investment in jointly-owned company $1,258,833
</TABLE>
Cash paid for interest and income taxes during the fiscal years were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest $1,085,016 $1,509,512 $1,768,959
Income taxes $23,643 - -
</TABLE>
F-29
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
11. ACCRUED EXPENSES
As of September 30, 1997 and 1996, accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accrued purchases $182,863 $120,877
Aircraft maintenance reserves 327,465 231,448
Payroll and payroll taxes 182,047 200,718
Interest 86,222 9,689
Sales, excise and V.A.T. taxes 99,714 59,110
Professional fees 116,719 92,971
Aircraft management and charter costs 45,959 38,849
Site cleanup cost 40,000 40,000
Other 134,758 95,310
$1,215,747 $888,972
</TABLE>
12. EMPLOYEE BENEFIT PLANS
The Company has a voluntary savings plan covering substantially all of its
domestic employees. The plan qualifies under Section 401(k) of the Internal
Revenue Code. Eligible employees may elect to contribute up to 15% of their
salaries to an investment trust. Effective October 1, 1990, the Company
contributes an amount equal to 100% of the first 4% of employee contributions.
Contributions related to this plan were $44,000, $47,000, and $68,000 for
fiscal 1997, 1996 and 1995, respectively.
The Company also has a voluntary savings plan covering eligible employees of
its subsidiaries in the United Kingdom. Eligible employees may elect to
contribute up to 17.5% of their salaries to an investment trust. The Company
contributes an amount equal to 100% of the first 4% of employee contributions.
Contributions related to this plan were approximately $51,000, $47,000, and
$68,000 for fiscal 1997, 1996, and 1995, respectively.
13. RENTAL INCOME
The Company's FBO facility, through Lynton Jet Centre and Lynton Properties, at
the Morristown Municipal Airport, Morristown, New Jersey, has 13 tenants with
non-cancelable operating leases with terms remaining ranging from one to eleven
years. The loss of either of the largest two tenants (with leases which expire
in February 2006 and June 1999 for the largest and second largest tenant,
respectively) could have a material effect on the Company.
F-30
<PAGE>
Lynton Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997, 1996 and 1995
The Company's additional FBO facility, through Ramapo, also located at the
Morristown Municipal Airport, Morristown, New Jersey, has 13 tenants of which 5
have non-cancelable operating leases with one year remaining on three-year
terms. The remaining tenants rent on a month to month basis.
The following is a schedule, by fiscal year, of minimum future rental income
under noncancellable tenant operating leases as of September 30, 1997:
<TABLE>
<S> <C>
1998 $3,191,083
1999 2,195,867
2000 1,593,237
2001 1,667,778
2002 1,385,610
Thereafter 3,117,623
Total minimum future rentals $13,151,198
</TABLE>
The above schedule includes deferred annual revenues from Hanson North America
and Millennium Holdings, through 2001, pursuant to the lease agreement
discussed in Note 9.
14. SUBSEQUENT EVENT (UNAUDITED)
On December 23, 1997, the Company acquired, through Limited, (the "Magec
Acquisition") all of the issued and outstanding shares of Magec Aviation
Limited, a company organized under the laws of England ("Magec") in a business
combination which will be accounted for as a purchase. The purchase price
(including transaction costs) of approximately $28,000,000 exceeded the
estimated fair value of the assets of Magec by $4,000,000, which will be
amortized over its expected useful life at a rate to be determined.
The purchase price allocation is based on preliminary estimates of the fair
value of the assets acquired and is subject to adjustment as additional
information becomes available in fiscal 1998. The results of operations of
Magec will be included with the results of the Company from January 1, 1998.
Assuming the acquisition has occurred on October 1, 1995, the Company's pro
forma (unaudited) net revenue, net income, primary and fully diluted earnings
per share for the years ended September 30, are estimated to have been as
follows:
<TABLE>
<CAPTION>
1997 1996
(Pro forma-unaudited)
<S> <C> <C>
Net revenue $47,500,000 $41,500,000
Net income $1,393,000 $386,000
Primary earnings per share $0.11 $0.05
Fully diluted earnings per share $0.11 $0.05
</TABLE>
The aforementioned pro forma (unaudited) financial information should be read
in conjunction with the related historical consolidated financial statements of
the Company and its subsidiaries, included on pages F-3 to F-31. Further, the
aforementioned pro forma (unaudited) financial information is not necessarily
indicative of the results that would have been attained had the transaction
occurred at October 1, 1995.
F-31
<PAGE>
Report of Independent Certified Public Accountants on Schedule
Lynton Group, Inc.
In connection with our audits of the consolidated financial statements of
Lynton Group, Inc. and subsidiaries as of September 30, 1997 and 1996, we have
also audited the consolidated Schedule II-Valuation and Qualifying Accounts
included in this Annual Report (Form l0-K).
In our opinion, the consolidated schedule referred to above presents fairly, in
all material respects, the information required to be stated therein.
/s/ Grant Thornton LLP
New York, New York
January 13, 1998
F-32
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lynton Group, Inc.
In connection with our audit of the consolidated financial statements of Lynton
Group, Inc. and subsidiaries for the year ended September 30, 1995, we have
also audited the consolidated schedule included in this Annual Report (Form l0-
K).
In our opinion, the consolidated schedule referred to above presents fairly, in
all material respects, the information required to be stated therein.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 21, 1995
F-33
<PAGE>
Lynton Group, Inc. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Balance at
Beginning of End of
Period Additions Deductions Period
<S> <C> <C> <C> <C>
Year ended September 30, 1997:
Allowance for doubtful accounts $21,465 $731 (1) - $22,196
Year ended September 30, 1996:
Allowance for doubtful accounts $21,808 - $(343) (1) $21,465
Year ended September 30, 1995:
Allowance for doubtful accounts $291,103 $15,916 $(285,211) (2) $21,808
</TABLE>
(1)Represents effect of exchange rate differences.
(2)Represents the write-off of doubtful receivables of $285,211.
In addition, during fiscal 1996, the Company wrote off approximately $191,000
due from an entity controlled by the President and Chief Executive Officer of
the Company.
F-34
<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> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> SEP-30-1997
<CASH> 726,645
<SECURITIES> 0
<RECEIVABLES> 4,513,695
<ALLOWANCES> 22,196
<INVENTORY> 803,677
<CURRENT-ASSETS> 6,235,945
<PP&E> 18,045,935
<DEPRECIATION> 4,652,703
<TOTAL-ASSETS> 26,223,248
<CURRENT-LIABILITIES> 7,287,302
<BONDS> 13,459,832
<COMMON> 1,918,462
0
0
<OTHER-SE> 2,605,398
<TOTAL-LIABILITY-AND-EQUITY> 26,223,248
<SALES> 25,585,102
<TOTAL-REVENUES> 25,585,102
<CGS> 19,229,033
<TOTAL-COSTS> 23,062,317
<OTHER-EXPENSES> 77,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,161,549
<INCOME-PRETAX> 1,283,889
<INCOME-TAX> 238,393
<INCOME-CONTINUING> 1,045,496
<DISCONTINUED> 0
<EXTRAORDINARY> 46,864
<CHANGES> 0
<NET-INCOME> 1,092,360
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
