SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission file number: 0-6867
LYNTON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2688055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 AIRPORT ROAD
MORRISTOWN MUNICIPAL AIRPORT
MORRISTOWN, NEW JERSEY 07960
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 292-9000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
Common, $.30 par value per share: 6,394,872
Outstanding as of FEBRUARY 8, 1999
<PAGE>
Part 1 - FINANCIAL INFORMATION
LYNTON GROUP, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PERIOD ENDED DECEMBER 31, 1998
ITEM PAGE
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
December 31, 1998 and September 30, 1998 3
Condensed Consolidated Statements of Income -
For the Three months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
For the Three months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and results of operations 8-9
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash $2,173,208 $3,095,662
Accounts receivable 6,205,280 6,587,563
Inventories 3,178,931 3,226,939
Aircraft held for resale 2,907,306 2,979,310
Prepaids and other current assets 1,461,528 1,536,170
Total current assets 15,926,253 17,425,644
Property, plant and equipment 33,623,413 34,555,683
Less accumulated depreciation
and amortization 6,892,069 6,424,635
26,731,344 28,131,048
Funds held in escrow 150,000 150,000
Aircraft held for resale 5,150,000 5,150,000
Long-term ground lease, less
accumulated amortization 2,093,763 2,158,449
Goodwill, less accumulated amortization 11,027,746 11,404,791
Other assets and deferred charges, less
accumulated amortization 632,307 662,978
$61,711,413 $65,082,910
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $9,003,929 $10,067,617
Advances from customers and deferred
revenue 2,426,515 2,002,446
Current portion of capital lease
obligations 49,194 54,119
Current portion of debt on aircraft held
for resale 3,100,000 3,100,000
Current portion of other long-term debt 2,788,216 3,053,354
Total current liabilities 17,367,854 18,277,536
Long term debt, less current portion 23,723,572 25,149,670
Subordinated convertible debentures 10,980,806 11,439,499
Deferred revenue 420,000 480,000
Obligations under capital leases, less
current portion 46,040 56,396
Deferred income taxes 4,693,006 4,809,236
Stockholders' equity:
Common stock 1,918,462 1,918,462
Additional paid-in capital 9,779,823 9,779,823
Accumulated deficit (7,051,827) (7,014,742)
Translation adjustment (154,975) 198,378
4,491,483 4,881,921
Common stock held in treasury (11,348) (11,348)
Total stockholders' equity 4,480,135 4,870,573
$61,711,413 $65,082,910
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net revenues $15,957,644 $6,909,971
Expenses:
Direct costs 12,742,012 5,436,029
Selling, general and administrative 1,706,108 707,174
Depreciation 511,947 179,803
Amortization of goodwill and
ground lease 207,274 31,954
Operating income 790,303 555,011
Amortization of debt discount and
issuance costs 31,761 19,337
Interest 770,324 314,401
Income before provision for income taxes (11,782) 221,273
Income tax provision 25,303 28,900
Net income $(37,085) $192,373
Net (loss)/income per share of Common Stock
Basic $(0.00) $0.03
Diluted $(0.00) $0.03
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $(37,085) $192,373
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 750,982 231,094
Change in certain assets and liabilities:
Accounts receivable 243,890 1,560,302
Inventories (25,106) (12,544)
Prepaids and other assets 41,749 (414,647)
Accounts payable and accrued expenses (916,212) 9,384
Advances from customers and deferred
revenues 400,142 23,202
Net cash provided by operating activities 458,360 1,589,164
Cash flow from investing activities:
Cash paid for Magec Aviation and related
acquisition costs - (30,294,785)
Capital expenditures (net) 508,974 (66,735)
Net cash provided (used) by investing
activities 508,974 (30,361,520)
Cash flow from financing activities:
Capital lease obligations (net) (13,521) (6,077)
Proceeds of financing for Magec
Aviation acquisition - 30,177,451
Repayment of notes payable and
long-term debt (1,870,248) (547,813)
Net cash (used) provided by
financing activities (1,883,769) 29,623,561
Effect of exchange rate changes on cash (6,019) 55,990
(Decrease) increase in cash (922,454) 907,195
Cash, beginning of period 3,095,662 726,645
Cash, end of period $2,173,208 $1,633,840
Supplemental Information
Interest Paid $698,292 $311,596
Taxes Paid $- $5,250
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 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 three-month
period ended December 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1999. The balances as of
September 30, 1998 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, 1998.
Note 2. LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
(Unaudited) (Audited)
<S> <C> <C>
Mortgage Note payable to Massachusetts
Mutual Life Insurance Company with an
interest rate of 6.69% due in monthly
installments through January 3, 2006. $6,724,842 $6,882,109
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. 3,540,928 3,603,802
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. 1,498,359 1,541,639
Note payable to finance company with
interest at Sterling LIBOR rate (7.5%
at September 30, 1998) plus 3.5% payable
in monthly installments through
August, 2000. - 357,126
Notes payable to Bank of Scotland with
interest at Sterling LIBOR rate (7.5%
at September 30,1998) plus 2.25% payable
in installments through September 2002. 14,810,665 15,877,806
Loan note payable to third party at zero
interest, pursuant to an option
agreement to purchase an aircraft. 2,987,500 2,987,500
Notes payable due to finance company with
an interest rate of 10.5%, due in
monthly installments through
February, 2000. 49,494 53,042
$29,611,788 $31,303,024
Less:
Amount due within one year (5,888,216) (6,153,354)
$23,723,572 $25,149,670
</TABLE>
<PAGE>
LYNTON GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 3. EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended
December 31,
1998 1997
<S> <C> <C>
Weighted average shares of Common Stock outstanding 6,394,872 6,394,872
Average shares outstanding-Basic earnings per share 6,349,872 6,394,872
Weighted average shares of Common Stock outstanding 6,394,872 6,394,872
Weighted average Common Stock equivalents (1) - 431,299
Assumed conversion of 10% Senior Subordinated
Convertible Debentures (2) - 77,772
Assumed conversion of 8% Subordinate Convertible
Debentures (2) - 568,957
Average shares outstanding-Diluted earnings per share 6,394,872 7,472,900
BASIC EARNINGS PER SHARE:
Average shares outstanding 6,394,872 6,394,872
Net (loss)/income available to common shareholders $(37,085) $192,373
Per share amount $(0.00) $0.03
DILUTED EARNINGS PER SHARE:
Average shares outstanding 6,394,872 7,472,900
Net income $(37,085) $192,373
Plus effect of dilutive securities - 1,944
Net (loss)/income available to common shareholders
plus assumed conversions $(37,085) $194,317
Per share amount $(0.00) $0.03
</TABLE>
(1) Certain options to purchase shares of Common Stock of the Company that have
an exercise price below the average market price of common stock for the three
months ended December 31, 1998, had an antidilutive effect on earnings per
share due to the net loss in the period and are therefore excluded from the
calculation of diluted earnings per share. Average market price has been
computed using the weighted average market price of shares traded in the three
months ended December 31, 1998.
(2) Certain convertible debentures of the Company, when calculated on an "if
converted" basis, would be antidilutive for the three months ended December 31,
1998 and are excluded from the calculation.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
During the fourth quarter of fiscal 1998, the Company filed with the Securities
and Exchange Commission (the "Commission") a Preliminary Information Statement
in connection with action proposed to be taken by written consent of
stockholders with respect to certain matters including a reverse stock split of
the Company's Common Stock. The Company has filed amendments to such materials
as a result of comments received from the Commission and the Company is hopeful
that a definitive Information Statement can be mailed to stockholders during
the second quarter of fiscal 1999. If the proposed reverse stock split is
effected, the Company expects to have fewer than 300 stockholders and the
Company expects to terminate the registration of its Common Stock under the
Securities Exchange Act of 1934 and cease the filing of certain reports with
the Commission. There can be no assurance, however, that the actions
contemplated by said Information Statement will be undertaken. In addition, in
the event the Company completes the proposed reverse stock split, the Company
may change the Company's legal domicile to outside the United States, attempt
to effect a public offering in the United Kingdom and have its securities
listed on The London Stock Exchange. There can be no assurance that the
Company will attempt to effect any or all of the foregoing transactions or, if
attempted, that any of such transactions will be successfully completed.
RESULTS OF OPERATIONS
REVENUES & OPERATING INCOME
Revenues for the three months ended December 31, 1998 increased to $15,958,000
from revenues of $6,910,000 for the comparable fiscal 1998 period, an increase
of $9,048,000 or 131%. This increase is primarily attributable to the
acquisitions completed in fiscal 1998.
Operating income for the three months ended December 31, 1998 increased to
$790,000 compared to operating income of $555,000 for the three months ended
December 31, 1997, an increase of $235,000. This increase is primarily
attributable to the increased operating income as a result of the acquisitions
completed in fiscal 1998 offset by an increase in goodwill amortization
expense.
INTEREST
Interest expense for the three months ended December 31, 1998 increased to
$770,000 compared to interest expense of $314,000 for the three months ended
December 31, 1997, an increase of $456,000. This increase is attributable to
higher levels of bank borrowings and convertible debt used to finance the
acquisitions completed in fiscal 1998.
NET INCOME
The net loss for the three months ended December 31, 1998 was $37,000 as
compared to a net income of $192,000 for the three months ended December 31,
1997, a decrease of $229,000. This decrease is primarily the result of the
increased interest expense due to higher levels of debt.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had a working capital deficit of $1,442,000
as compared to a working capital deficit of $1,647,000 at September 30, 1998,
an increase in working capital of $205,000. This increase is largely
attributable to a reduction in the current portion of long term debt.
In January 1998 the aircraft held for resale, classified as a current asset,
was sold for cash. The proceeds were utilized to fully repay the debt
outstanding on the aircraft and to provide additional working capital for the
Company.
The Company expects to continue to meet all of its obligations in the coming
year by focusing on both its established and newly acquired operations. Cash
flows from these operations are expected to be sufficient to meet all of its
operating requirements, and debt service requirements.
OTHER MATTERS
The Year 2000 ("Y2K") issue is the result of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret data beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. In fiscal 1998, the Company began to methodically review its
current computer systems in order to (a) identify those systems that are not
Y2K compliant; (b) identify the costs of repairs and modifications required to
existing systems in order to ensure Y2K compliance; and (c) estimate the cost
of replacement for those systems that were not capable of being modified to a
Y2K compliant state. The Company has identified that its financial and
informational systems are the most critical systems that will require Y2K
modifications. The internal review identified certain computer hardware systems
that were not Y2K compliant and a replacement and modification program
commenced in the latter half of fiscal 1998, and is scheduled to be complete
during the third quarter of fiscal 1999. Additionally certain computer software
programs were also found not to be Y2K compliant. The Company, largely due to
the acquisitions during fiscal 1998, is currently in the process of upgrading
its software programs and is ensuring that new software is Y2K compliant. As
the Company is continually upgrading and improving systems in the ordinary
course of business, the cost of ensuring the Company is Y2K compliant is
estimated to be approximately $250,000 of which approximately $50,000 has been
expensed in fiscal 1998. Although no assurances can be given that there will be
no interruption of operations in the year 2000 the Company believes that it has
reasonably assessed all of its systems in order to ensure that the Company will
not suffer any material adverse effect of not being Y2K compliant.
<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 at a time when Dollar Air was owned
by the Company. 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, if any, 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
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the three months ended December 31, 1998 to a
vote of the security holders. See Part I, Item 2, for information on actions
proposed to be submitted to stockholders during fiscal 1999.
Item 5. OTHER INFORMATION
None.
PART II - OTHER INFORMATION CONTINUED
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)Exhibits
11.0 Statement re Computation of Per Share Earnings
(B) Reports on Form 8-K
Listed below are reports on Form 8-K filed during the fiscal quarter ended
December 31, 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:February 15, 1999 By: /s/ CHRISTOPHER TENNANT
Christopher Tennant, President
and Chief Executive Officer
Dated:February 15, 1999 By: /s/ PAUL A. BOYD
Paul A. Boyd, Secretary, Treasurer and
Principal Financial Officer
<PAGE>
Exhibit 11 - Computation of per share earnings
LYNTON GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
For the three months ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Weighted average shares of Common Stock outstanding 6,394,872 6,394,872
Average shares outstanding-Basic earnings per share 6,349,872 6,394,872
Weighted average shares of Common Stock outstanding 6,394,872 6,394,872
Weighted average Common Stock equivalents (1) - 431,299
Assumed conversion of 10% Senior Subordinated
Convertible Debentures (2) - 77,772
Assumed conversion of 8% Subordinate Convertible
Debentures (2) - 568,957
Average shares outstanding-Diluted earnings per share 6,394,872 7,472,900
BASIC EARNINGS PER SHARE:
Average shares outstanding 6,394,872 6,394,872
Net (loss)/income available to common shareholders $(37,085) $192,373
Per share amount $(0.00) $0.03
DILUTED EARNINGS PER SHARE:
Average shares outstanding 6,394,872 7,472,900
Net income $(37,085) $192,373
Plus effect of dilutive securities - 1,944
Net (loss)/income available to common shareholders
plus assumed conversions $(37,085) $194,317
Per share amount $(0.00) $0.03
</TABLE>
(1) Certain options to purchase shares of Common Stock of the Company that have
an exercise price below the average market price of common stock for the three
months ended December 31, 1998, had an antidilutive effect on earnings per
share due to the net loss in the period and are therefore excluded from the
calculation of diluted earnings per share. Average market price has been
computed using the weighted average market price of shares traded in the three
months ended December 31, 1998.
(2) Certain convertible debentures of the Company, when calculated on an "if
converted" basis, would be antidilutive for the three months ended December 31,
1998 and are excluded from the calculation.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM LYNTON GROUP, INC.'S QUARTERLY
REPORT FOR THE QUARTER ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,173,208
<SECURITIES> 0
<RECEIVABLES> 6,286,542
<ALLOWANCES> 81,262
<INVENTORY> 3,178,931
<CURRENT-ASSETS> 15,926,253
<PP&E> 33,623,413
<DEPRECIATION> 6,892,069
<TOTAL-ASSETS> 61,711,413
<CURRENT-LIABILITIES> 17,367,854
<BONDS> 34,704,378
0
0
<COMMON> 1,918,462
<OTHER-SE> 2,561,673
<TOTAL-LIABILITY-AND-EQUITY> 61,711,413
<SALES> 15,957,644
<TOTAL-REVENUES> 15,957,644
<CGS> 12,742,012
<TOTAL-COSTS> 15,167,341
<OTHER-EXPENSES> 31,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 770,324
<INCOME-PRETAX> (11,782)
<INCOME-TAX> 25,303
<INCOME-CONTINUING> (37,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,085)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
