SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission file number: 0-6867
LYNTON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2688055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 AIRPORT ROAD
MORRISTOWN MUNICIPAL AIRPORT 07960
MORRISTOWN, NEW JERSEY (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 292-9000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
Common, $.30 par value per share: 6,394,872
Outstanding as of MAY 1, 1998
<PAGE>
Part 1 - FINANCIAL INFORMATION
LYNTON GROUP, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PERIOD ENDED MARCH 31, 1998
ITEM PAGE
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1998 and September 30, 1997 3
Condensed Consolidated Statements of Operations -
For the Three and Six months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
For the Six months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash $968,043 $726,645
Accounts receivable 4,512,510 3,268,879
Investment in jointly-owned company
held for resale - 1,222,620
Inventories 1,531,957 803,677
Aircraft held for resale 13,984,233 -
Prepaids and other current assets 643,483 214,124
Total current assets 21,640,226 6,235,945
Property, plant and equipment 33,417,119 18,045,935
Less accumulated depreciation
and amortization 5,356,637 4,652,703
28,060,482 13,393,232
Funds held in escrow 150,000 150,000
Aircraft held for resale - 1,870,233
Long-term ground lease,
less accumulated amortization 2,287,822 1,933,861
Goodwill, less accumulated amortization 9,462,862 2,155,007
Other assets and deferred charges,
less accumulated amortization 664,216 484,970
$62,265,608 $26,223,248
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $5,778,624 $4,201,508
Advances from customers and
deferred revenue 1,680,349 1,761,950
Current portion of capital lease
obligations 42,468 38,480
Current portion of debt on aircraft
held for resale 12,210,492 -
Current portion of other long-term debt 3,853,043 1,285,364
Total current liabilities 23,564,976 7,287,302
Long term debt, less current portion 22,854,677 13,459,832
Subordinated convertible debentures 5,816,000 -
Deferred revenue 600,000 720,000
Obligations under capital leases,
less current portion 49,723 69,071
Deferred income taxes 4,850,750 163,183
Stockholders' equity:
Common stock 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (7,111,971) (7,141,115)
Translation adjustment (45,484) (21,962)
4,540,830 4,535,208
Common stock held in treasury (11,348) (11,348)
Total stockholders' equity 4,529,482 4,523,860
$62,265,608 $26,223,248
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUNSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net revenues $10,706,086 $6,211,691 $17,616,057 $12,083,282
Expenses:
Direct costs 8,143,907 4,657,558 13,579,936 9,261,435
Selling, general and
administrative 1,350,878 755,290 2,058,052 1,414,205
Depreciation 476,946 172,181 656,749 343,195
Amortization of goodwill
and ground lease 141,089 31,913 173,043 63,837
Operating income 593,266 594,749 1,148,277 1,000,610
Amortization of debt
discount and issuance
costs 24,237 19,337 43,574 38,674
Interest 723,558 274,310 1,037,959 515,419
(Loss) income before
provision for income
taxes (154,529) 301,102 66,744 446,517
Income tax provision 8,700 - 37,600 -
Net (loss) income
attributable to
Common Stock $(163,229) $301,102 $29,144 $446,517
Net (loss) income per share of Common Stock :
Basic $(0.03) $0.05 $0.00 $0.07
Diluted $0.00 $0.05 $0.02 $0.07
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $29,144 $446,517
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 873,366 445,706
Change in certain assets and liabilities:
Accounts receivable 1,980,719 700,288
Due from/to affiliates (net) - (24,108)
Inventories (177,909) 60,216
Prepaids and other assets (237,006) 242,604
Accounts payable and accrued expenses (415,210) (1,520,275)
Advances from customers and deferred
revenues (201,601) (263,658)
Net cash provided by operating activities 1,851,503 87,290
Cash flow from investing activities:
Cash paid for Magec Aviation and related
acquisition costs (30,294,785) -
Cash paid for Jet Systems Acquisition
and related acquisition costs (1,797,720) -
Capital expenditures (net) (163,125) (234,195)
Net cash used by investing activities (32,255,630) (234,195)
Cash flow from financing activities:
Capital lease obligations (net) (15,360) 54,647
Proceeds from financing for Magec
Aviation acquisition 30,177,451 -
Proceeds from financing for Jet
Systems acquisition 1,625,000 -
Proceeds from other debt financing 40,789 -
Repayment of notes payable and
long-term debt (1,854,226) (569,577)
Net cash provided (used) by financing
activities 29,973,654 (514,930)
Effect of exchange rate changes on cash (23,523) 30,382
Decrease in cash (453,996) (631,453)
Cash, beginning of period 726,645 1,268,475
Cash, end of period $272,649 $637,022
Supplemental Information :
Interest Paid $950,076 $512,576
Taxes Paid $5,250 $90,000
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six-month
period ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending September 30, 1998. The balances as of
September 30, 1997 in the accompanying balance sheets have been derived from
the audited financial statements as of such date. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Lynton Group, Inc. (the "Company") Annual Report on Form 10-K for the
year ended September 30, 1997.
Note 2. ACQUISITIONS
In December 1997, the Company acquired through Lynton Group Limited, a wholly-
owned subsidiary of the Company, all of the issued and outstanding shares of
capital stock (the "Magec Shares") of Magec Aviation Limited ("Magec"), a
company organized under the laws of England in a business combination which has
been accounted for as a purchase. Magec provides hangarage and refueling,
charter, management, and maintenance services for corporate aircraft from its
own exclusive terminal at London Luton Airport, England. The purchase price
(including acquisition costs) of $30,295,000 exceeded the estimated fair value
of the net assets of Magec by $7,426,000, which will be amortized using the
straight line method over twenty years. The purchase price allocation is based
on the following:
<TABLE>
<CAPTION>
<S> <C>
Tangible fixed assets $13,995,207
Aircraft held for resale 12,114,000
Inventories 550,371
Accounts receivable 2,001,731
Prepaids and other assets 192,351
Cash and cash equivalents 695,394
Accounts payable and accrued expenses (2,022,694)
Deferred tax provision (4,657,200)
Net assets acquired $22,869,160
Purchase price 30,294,785
Goodwill on acquisition $7,425,625
</TABLE>
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998
The consideration paid to Magec was 17,000,000 Pounds Sterling (equal to
$28,288,000) paid in cash at Closing. The funds used to purchase Magec
(including acquisition costs) included bank financing in the principal amount
of 12,827,000 Pounds Sterling with the balance of the purchase price from debt
financing as follows: (i) promissory notes (the "December 1999 Notes") in the
aggregate principal amount of $1,664,000 due on December 23, 1999, with
interest at 12.0% per annum, issued and sold to entities which may be deemed
affiliates of Paul R. Dupee, Jr., Chairman of the Board and a director of the
Company, and (ii) a non interest bearing loan in the principal amount of
$1,353,000 due on December 23, 1998, pursuant to an Option Agreement entered
into between Magec and an unrelated party to acquire a certain aircraft owned
by Magec, and (iii) 8.0% Subordinated Convertible Debentures due December 31,
2007 in the aggregate principal amount of $5,816,000 (the "Debentures") issued
and sold to certain directors and principal stockholders of the Company, and/or
their affiliates, as well as other third parties.
In connection with the aforesaid financing, an Option Agreement was entered
into between Magec and Westbury Properties Corporation ("Westbury"), which may
be deemed an affiliate of Paul R. Dupee, Jr., Chairman of the Board and a
director of the Company, whereby Westbury was granted an option expiring
December 23, 1999 to acquire a certain aircraft owned by Magec for the purchase
price of $6,664,000. Subsequent to the quarter ended March 31, 1998 the said
aircraft was sold by Magec for the purchase price of $7,250,000. In connection
therewith, the December 1999 Notes including accrued interest thereon were paid
in full, certain other bank indebtedness in the amount of $4,998,000 was repaid
and Westbury surrendered its option over said aircraft in return for a sum
equal to the difference between the purchase price ($7,250,000) and the option
exercise price ($6,664,000).
The 8% Subordinated Convertible Debentures, referred to above, are
convertible into shares of the Company's Common Stock at the option of the
holder at any time prior to maturity at an initial conversion price of $1.00
per share (subject to adjustment upon the occurrence of certain events) once
the Certificate of incorporation is modified to increase the number of
authorized shares of Common Stock. The conversion price was set at $1.00 which
management believed to be fair market price based on recent bid prices for
certain Common Stock of the Company (reference is made to information on page 9
of the Subject Form 10-K Annual Report for September 30, 1997). Conversion of
the Debentures, if still held by the original purchasers at the time of
conversion, would not lead to a significant change in ownership as the
significant majority of the Debentures were purchased by certain existing
principal stockholders of the Company in significant proportion to their
current stockholding in the Company. However if these certain stockholders
were to transfer their interests in the Debentures prior to such conversion
then this could result in a substantial change in ownership of the Company.
Assuming the acquisition of Magec had occurred on October 1, 1996 the Company's
pro forma (unaudited) net revenue, net loss, basic and diluted loss per share
for the three and six months ended March 31, 1998 and 1997 are estimated to
have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $10,706,000 $11,563,000 $23,230,000 $22,727,000
Net loss $(163,000) $(126,000) $(205,000) $(179,000)
Basic loss per
common share $(0.03) $(0.02) $(0.03) $(0.03)
Diluted loss per
common share $(0.00) $(0.02) $(0.02) $(0.03)
</TABLE>
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998
On February 27, 1998 the Company, through Lynton Jet Centre, Inc. ("Lynton
Jet"), a wholly-owned subsidiary of the Company, acquired for $1,798,000 in
cash (including acquisition costs) substantially all the assets of Jet Systems,
including its ground lease on a hangar facility, located at Morristown
Municipal Airport, Morristown, New Jersey (the "Jet System Acquisition"),
pursuant to an Asset Purchase Agreement between 41 North 73 West Inc. d/b/a Jet
Systems and Lynton Jet. The funds used to purchase Jet Systems included bank
financing from Finova Capital Corporation in the principal amount of
$1,625,000. The purchase price allocation is based on the following:
<TABLE>
<CAPTION>
<S> <C>
Tangible fixed assets $1,175,000
Covenant not to compete 50,000
Ground lease 400,000
Acquisition costs 173,000
Purchase price $1,798,000
</TABLE>
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998
Note 3. LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Mortgage due to bank with interest at
Sterling LIBOR rate (7.19% at September
30, 1997) plus 2.0%, due in monthly
installments through April, 2001. $- $210,866
Mortgage Note payable to Massachusetts
Mutual Life Insurance Company with an
interest rate of 6.69% due in monthly
installments through January 3, 2006. 7,188,885 7,485,990
Mortgage Note payable to Finova Capital
Corp. with an interest rate of 10.7%
due in monthly installments through
December 1, 2004, with a final
installment payment of $1,400,000 due
December 1, 2004. 3,724,633 3,820,525
Mortgage note payable to Finova Capital
Corp. with an interest rate of 10.1% due
in monthly installments through February 1,
2003 with a final installment payment of
$568,750 due March 1, 2003. 1,625,000 -
Senior Subordinated Convertible Debentures
with interest at 10%, payable on
December 31, 1998. 795,000 795,000
Note payable to finance company with interest
at Sterling LIBOR rate (7.19% at September
30, 1997) plus 3.5% payable in monthly
installments through August, 2000. 451,629 536,597
Aircraft financing note payable to finance
company with an interest rate of 10.0% with
principal due every six months and interest
due every four months through January 20,
1999, with a final installment payment of
$1,589,698 due January 20, 1999. 1,776,721 1,870,233
Notes payable to bank with interest at
Sterling LIBOR rate plus 2.25% payable in
installments through September 2002. 20,279,176 -
Promissory notes payable to entities, which
may be deemed to be affiliates of the
Company's Chairman of the Board, with
interest at 12% per annum payable in one
installment on December 31, 1999. 1,664,000 -
Loan note payable to third party at zero
interest, payable in one installment on
December 23, 1998. 1,353,323 -
Notes payable due to finance company with
an interest rate of 10.5%, due in monthly
installments through February, 2000. 59,845 25,985
$38,918,212 $14,745,196
Less:
Amount due within one year (16,063,535) (1,285,364)
$22,854,677 $13,459,832
</TABLE>
The Finova loans require compliance with certain covenants, financial and
otherwise, as defined in the loan agreements, including maintaining a minimum
consolidated net worth; a minimum earnings, before interest taxes, depreciation
and amortization coverage ratio; and a total liabilities to consolidated net
worth coverage ratio, by both Lynton Jet, as borrower, and Lynton Group, Inc.
as guarantor. At March 31, 1998 Lynton Group, Inc. was in technical default of
its total liabilities to consolidated net worth coverage ratio. This default
was cured, within the period allowed to remedy default under article 7.1.2 of
the loan agreement, as two of the aircraft held in stock at March 31, 1998 were
sold by April 8, 1998 and the outstanding associated liabilities repaid in
full.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998
Note 4. EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Average shares outstanding
- -Basic earnings per share 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average of Common
Stock equivalents (1) 431,299 - 431,299 -
Assumed conversion of 10%
Senior Subordinated
Convertible Debentures (1) 432,445 - 432,445 -
Assumed conversion of 8%
Subordinated Convertible
Debentures (1) 3,163,648 - 3,163,648 -
Average shares outstanding
- -Diluted earnings per share 10,422,264 6,394,872 10,422,264 6,394,872
BASIS EARNINGS PER SHARE:
Average shares outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Net (loss) income available
to common shareholders $(163,229) $301,102 $29,144 $446,517
Per share amount $(0.03) $0.05 $0.00 $0.07
DILUTED EARNINGS PER SHARE:
Average shares outstanding 10,422,264 6,394,872 10,422,264 6,394,872
Net (loss) income $(163,229) $301,102 $29,144 $446,517
Plus effect of dilutive
securities 175,774 - 177,718 -
Net income available to
common shareholders plus
assumed conversions $12,545 $301,102 $206,862 $446,517
Per share amount $0.00 $0.05 $0.02 $0.07
</TABLE>
(1) Certain options to purchase shares of Common Stock of the Company, and the
Convertible Debentures have a an exercise price below the fair value of common
stock for the three and six months ended March 31, 1998, had a dilutive effect
on earnings per share and are, therefore included on a weighted average basis
in the calculation of diluted earnings per share. Fair market value has been
computed using the weighted average market price of shares traded in the three
and six months ended March 31, 1998.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Pursuant to a Share Sale and Purchase Agreement dated December 5, 1997 among
Lynton Group, Inc. (the "Company"), Lynton Group Limited, a company organized
under the laws of England and a wholly-owned subsidiary of the Company
("Limited"), and The General Electric Company p.l.c., the owner of all the
shares of capital stock of Magec Aviation Limited, a company organized under
the laws of England ("Magec"), the Company through Limited acquired on December
23, 1997 all of the issued and outstanding shares of capital stock of Magec.
The purchase price for Magec was 17,000,000 Pounds Sterling paid in cash (see
Liquidity and Capital Resources for details of financing) and has been
accounted for as a purchase. Magec operates from hangars, workshops and office
facilities of approximately 65,000 square feet at London Luton Airport,
England. Magec provides a full range of services for users of corporate
aircraft including refueling and handling, charter, engineering, management and
maintenance services for corporate aircraft. The acquisition has more than
doubled the total asset base of the Company since September 30, 1997. The
purpose of the acquisition is to enhance the long term earnings ability of the
Company by enlarging the asset base of the UK operations. The acquisition has
resulted in the expansion of the Company's fixed wing aviation capability as
well as providing a complimentary facility to the fixed base operation at
Morristown Municipal Airport, New Jersey.
On February 27, 1998 the Company, through Lynton Jet Centre, Inc. ("Lynton
Jet"), a wholly-owned subsidiary of the Company, acquired for $1,798,000 in
cash (including acquisition costs) substantially all the assets of Jet Systems,
including its ground lease on a hangar facility, located at Morristown
Municipal Airport, Morristown, New Jersey (the "Jet System Acquisition"),
pursuant to an Asset Purchase Agreement between 41 North 73 West Inc. d/b/a Jet
Systems and Lynton Jet. The purchase will enable Lynton Jet to provide
additional FBO facilities for corporate aircraft users of Morristown Municipal
Airport.
RESULTS OF OPERATIONS
REVENUES & OPERATING INCOME
Revenues for the three and six months ended March 31, 1998 increased to
$10,706,000 and $17,616,000 from revenues of $6,212,000 and $12,083,000 for the
comparable fiscal 1997 periods, an increase of $4,494,000 and $5,533,000 or 72%
and 46% respectively. This increase is primarily attributable to the inclusion
from January 1, 1998 of the revenues for Magec of $4,616,000 along with
increase in fuel sales volume and tenant occupancy at the Company's US fixed
base operation, offset by reduced maintenance revenues.
Operating income for the three months ended March 31, 1998 decreased to
$593,000 compared to operating income of $595,000 for the three months ended
March 31, 1997, a decrease of $2,000 but increased for the six months ended
March 31, 1998 to $1,148,000 compared to operating income of $1,001,000 for the
six months ended March 31, 1997, an increase of $147,000. The increase in the
six months ended March 31, 1998 primarily consists of increased operating
income from the fixed base operation in the US and charter operations in the
UK, partly offset by the increase in depreciation and amortization expense.
Management believe the level of activity between the date of acquisition of
Magec and December 31, 1997 is not material and therefore has consolidated the
results of operations for Magec with effect from January 1, 1998. The
annualized effect of the consolidation of Magec will be to increase revenues by
approximately $20,000,000 per annum and increase operating income by
approximately $1,300,000 compared to historical revenues of $25,000,000 and
operating income $2,500,000.
INTEREST
Interest expense for the three and six months ended March 31, 1998 increased to
$724,000 and $1,038,000 compared to interest expense of $274,000 and $515,000
for the comparable fiscal 1997 periods, an increase of $450,000 and $523,000
respectively. This increase results from higher levels of borrowings
specifically relating to the acquisition of Magec and one months interest
charge relating to the additional borrowings for the Jet Systems acquisition.
As a direct result of the debt finance (see Liquidity and Capital Resources)
raised to purchase Magec, the Company's interest expense will increase by
approximately $1,500,000 per annum.
NET INCOME
The Company had a net loss for the three months ended March 31, 1998 of
$163,000 compared to a net income of $301,000 for the comparable fiscal 1997
period, a decrease of $464,000. For the six months ended March 31, 1998 the
Company had net income of $29,000 compared to net income of $447,000 for the
comparable fiscal 1997 period, a decrease of $418,000. This net decrease is
primarily the result of the increased amortization and interest expense as
discussed above.
The proforma effect on per share earnings for the six months ended March 31,
1998 would have been to reduce the basic net income per share from $0.00 to a
basic loss per share of $(0.03) and to reduce the diluted income per share from
$0.02 to a diluted net loss per share of $(0.02).
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, the Company sold its 50% share of the capital stock in PDG to
the remaining 50% shareholders of PDG for approximately $1,307,000. Under the
purchase agreement, the aggregate purchase price is payable in two payments,
the first of which was received in November 1997. The final payment is due on
July 31, 1998 and the investment held for resale has been included in accounts
receivable.
At March 31, 1998, the Company had a working capital deficit of $1,925,000 as
compared to a working capital deficit of $1,051,000 at September 30, 1997, an
decrease in working capital of $874,000. This decrease in working capital is
primarily attributable to increase in current portion of long term debt
specifically relating to the Magec acquisition of $1,800,000 and the
reclassification under current liabilities at March 31, 1998 of $795,000 for
the retirement of the Company's senior subordinated convertible debentures in
December 1998, offset by an increase in aircraft held for resale.
In connection with the acquisition of Magec, the consideration paid was
17,000,000 Pounds Sterling (equal to $28,288,000) paid in cash. The funds used
to purchase Magec (including acquisition costs) included bank financing in the
principal amount of 12,827,000 Pounds Sterling (equal to $21,344,000) with the
balance of purchase price from debt financing as follows: (i) promissory notes
(the "December 1999 Notes") in the aggregate principal amount of $1,664,000 due
on December 23, 1999, with interest at 12.0% per annum, issued and sold to
entities which may be deemed affiliates of Paul R. Dupee Jr., Chairman of the
Board and a director of the Company; (ii) a non interest bearing loan in the
principal amount of $1,353,000 due on December 23, 1998, pursuant to an Option
Agreement entered into between Magec and an unrelated party to acquire a
certain aircraft owned by Magec, and (iii) 8.0% Subordinated Convertible
Debentures due December 31, 2007 in the aggregate principal amount of
$5,816,000 (the "Debentures") issued and sold to certain directors and
principal stockholders of the Company, and/or their affiliates, as well as
other third parties. The Debentures will be convertible into shares of the
Company's Common Stock at the option of the holder at any time prior to
maturity at an initial conversion price of $1.00 per share (the "Conversion
Price") once the Certificate of Incorporation is modified to increase the
number of authorized shares of Common Stock. The Conversion Price will be
subject to adjustment upon the occurrence of certain events, which include,
among other things, the issuance of Common Stock or the issuance of securities
convertible into or exchangeable for shares of Common Stock (with certain
exceptions as set forth in the Debentures) at less than the then current market
price of the Common Stock, in which event the Conversion Price will be reduced
(i) proportionately by the difference between the then current market price and
the offering price if such offering price is greater than the then Conversion
Price or (ii) to equal the offering price if such offering price is less than
the then Conversion Price. In addition, the Company may from time to time
reduce the Conversion Price by any amount for any period of time if the period
is at least 20 days and if the reduction is irrevocable during the period,
provided that in no event may the Conversion Price be less than the par value
of a share of Common Stock.
Subsequent to the quarter ended March 31, 1998, the December 1999 Notes (in the
principal amount of $1,664,000) were repaid in full as a result of the sale of
a certain aircraft by Magec for the purchase price of $7,250,000. In
connection therewith, certain other bank indebtedness in the amount of
$4,998,000 was repaid, and Westbury Properties Corp. (which may be deemed an
affiliate of the company's Chairman of the Board) which entity held an option
to acquire said aircraft for the price of $6,664,000 surrendered its option
over said aircraft in return for a sum equal to the difference between the
purchase price ($7,250,000) and the option price ($6,664,000).
The Company anticipates seeking additional equity and/or debt financing during
the next twelve months although no assurance can be given that any such
financing will be successfully completed. In connection therewith, the Company
may effect such financing which may require an adjustment in the Conversion
Price of the Debentures described above (as well as requiring an adjustment in
other outstanding convertible debentures of the Company) or the Company may
voluntarily decide to reduce the Conversion Price of any such instruments in
order to encourage their conversion.
The Finova loans require compliance with certain covenants, financial and
otherwise, as defined in the loan agreements, including maintaining a minimum
consolidated net worth; a minimum earnings, before interest taxes, depreciation
and amortization coverage ratio; and a total liabilities to consolidated net
worth coverage ratio, by both Lynton Jet, as borrower, and Lynton Group, Inc.
as guarantor. At March 31, 1998 Lynton Group, Inc. was in technical default of
its total liabilities to consolidated net worth coverage ratio. This default
was cured, within the period allowed to remedy default under article 7.1.2 of
the loan agreement, as two of the aircraft held in stock at March 31, 1998 were
sold by April 8, 1998 and the outstanding associated liabilities repaid in
full.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Dollar Air is a defendant in an action pending in the United Kingdom relating
to certain actions taken by Dollar Air in connection with its acting as a
broker in the sale of a certain helicopter. In such action, the plaintiff is
seeking damages in the approximate amount of 170,000 Pounds Sterling
(approximately $250,000). Dollar Air has denied the allegations therein and
the Company has defended and intends to continue to defend this matter
vigorously. While the Company cannot predict the outcome of such litigation,
it does not expect, based upon advice of counsel, that damages will be awarded
to the full extent of plaintiff's claim.
Other than the foregoing, there are no material pending legal proceedings to
which the Company is a party or to which any of its property is subject.
Item 2. CHANGES IN SECURITIES
As previously reported, on December 23, 1997, the Company acquired through
Lynton Group Limited, a wholly-owned subsidiary of the Company, all of the
issued and outstanding shares of capital stock of Magec Aviation Limited for a
purchase price of 17,000,000 Pounds Sterling paid in cash. The Company
obtained part of the purchase price through the sale of securities, which were
not registered under the Securities Act of 1933, as amended (the "Act"). In
connection therewith, and as of December 23, 1997, the Company issued and sold
8.0% Subordinated Convertible Debentures due December 31, 2007 in the aggregate
principal amount of $5,816,000 (the "Debentures") to certain accredited
investors (as defined in Rule 501 under the Act) comprised of certain directors
and principal stockholders of the Company, and/or their affiliates, as well as
other third parties. The Debentures will be convertible into shares of the
Company's Common Stock at the option of the holder at any time prior to
maturity at an initial conversion price of $1.00 per share (subject to
adjustment upon the occurrence of certain events) once the Certificate of
Incorporation is modified to increase the number of authorized shares of Common
Stock. No underwriter was engaged in connection with or participated in the
foregoing sale of the Debentures. Sales of Debentures were made in reliance
upon Section 4(2) and Regulation D of the Act.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None (other than referred to in Part 1, Item 2, Management's Discussion and
Analysis).
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
<PAGE>
PART II - OTHER INFORMATION CONTINUED
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
11.0 Statement re Computation of Per Share Earnings
(B) Reports on Form 8-K
Listed below are reports on Form 8-K filed during the fiscal quarter ended
March 31, 1998:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
LYNTON GROUP, INC.
Dated: May 15, 1998 By: /S/ CHRISTOPHER TENNANT
Christopher Tennant, President
and Chief Executive Officer
Dated: May 15, 1998 By: /S/ PAUL A. BOYD
Paul A. Boyd, Secretary, Treasurer and
Principal Financial Officer
<PAGE>
Exhibit 11 - Computation of per share earnings
<TABLE>
<CAPTION>
LYNTON GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the three and six months ended March 31, 1998 and 1997
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Average shares outstanding
- -Basic earnings per share 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average shares of
Common Stock outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Weighted average of Common
Stock equivalents (1) 431,299 - 431,299 -
Assumed conversion of 10%
Senior Subordinated
Convertible Debentures (1) 432,445 - 432,445 -
Assumed conversion of 8%
Subordinated Convertible
Debentures (1) 3,163,648 - 3,163,648 -
Average shares outstanding
- -Diluted earnings per share 10,422,264 6,394,872 10,422,264 6,394,872
BASIS EARNINGS PER SHARE:
Average shares outstanding 6,394,872 6,394,872 6,394,872 6,394,872
Net (loss) income available
to common shareholders $(163,229) $301,102 $29,144 $446,517
Per share amount $(0.03) $0.05 $0.00 $0.07
DILUTED EARNINGS PER SHARE:
Average shares outstanding 10,422,264 6,394,872 10,422,264 6,394,872
Net (loss) income $(163,229) $301,102 $29,144 $446,517
Plus effect of dilutive
securities 175,774 - 177,718 -
Net income available to
common shareholders plus
assumed conversions $12,545 $301,102 $206,862 $446,517
Per share amount $0.00 $0.05 $0.02 $0.07
</TABLE>
(1) Certain options to purchase shares of Common Stock of the Company, and the
Convertible Debentures have a an exercise price below the fair value of common
stock for the three and six months ended March 31, 1998, had a dilutive effect
on earnings per share and are, therefore included on a weighted average basis
in the calculation of diluted earnings per share. Fair market value has been
computed using the weighted average market price of shares traded in the three
and six months ended March 31, 1998.
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 968,043
<SECURITIES> 0
<RECEIVABLES> 4,535,405
<ALLOWANCES> 22,895
<INVENTORY> 15,516,190
<CURRENT-ASSETS> 21,640,226
<PP&E> 33,417,119
<DEPRECIATION> 5,356,637
<TOTAL-ASSETS> 62,265,608
<CURRENT-LIABILITIES> 23,564,976
<BONDS> 28,670,677
0
0
<COMMON> 1,918,462
<OTHER-SE> 2,611,020
<TOTAL-LIABILITY-AND-EQUITY> 62,265,608
<SALES> 17,616,057
<TOTAL-REVENUES> 17,616,057
<CGS> 13,579,936
<TOTAL-COSTS> 16,467,780
<OTHER-EXPENSES> 43,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,037,959
<INCOME-PRETAX> 66,744
<INCOME-TAX> 37,600
<INCOME-CONTINUING> 29,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,144
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.02
</TABLE>
