U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For Quarterly Period Ended March 31, 1996.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to .
Commission File No. 0-26558
BALTIC INTERNATIONAL USA, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 76-0336843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1990 Post Oak Blvd., Suite 1630, Houston, Texas 77056
(Address of principal executive offices) (zip code)
Issuer's Telephone Number: (713) 961-9299
Indicate by check mark whether the issuer (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 .
Number of shares outstanding of each of the issuer's classes of common stock as
of May 17, 1995: 5,905,592 shares.
BALTIC INTERNATIONAL USA, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 3
Condensed Statements of Operations -
Three Months Ended March 31,1996 and 1995 4
Condensed Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults on Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
Part I - Financial Information
Item 1 - Financial Statements
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Balance Sheets
March 31, December 31,
1996 1995
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 411,355 $ 139,240
Accounts receivable 1,059,976 87,178
Income taxes receivable 16,860 16,860
Inventory 59,888 14,265
Prepaids and deposits 84,099 6,418
--------- --------
Total current assets 1,632,178 363,961
PROPERTY AND EQUIPMENT, net 16,894 20,035
INVESTMENT IN AND ADVANCES TO:
Air Baltic 937,200 2,630,000
BIA 500,000 -
BCS 332,655 284,834
LAMCO 10,000 -
GOODWILL, NET 216,935 223,593
--------- ---------
Total assets $ 3,645,862 $ 3,522,423
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (CAPITAL DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 748,583 $ 807,470
Short-term debt, net 250,000 324,063
Commitments for guarantees on BIA liabilities 654,935 1,019,521
Other current liabilities 351,786 342,143
--------- ---------
Total liabilities 2,005,304 2,493,197
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Preferred stock:
Series A, $2 convertible, $10 par value, 500,000
shares authorized, 123,000 shares issued and
outstanding 1,230,000 1,230,000
Series B, convertible, $10 par value, 70 shares
authorized, 50 shares issued and outstanding 1,250,000 -
Common stock, $.01 par value, 20,000,000 shares
authorized, 5,905,592 and 5,758,241 shares
issued and outstanding 59,056 57,582
Additional paid-in capital 8,691,561 8,703,883
Deficit (9,590,059) (8,962,239)
--------- ---------
Total stockholders' equity (capital deficit) 1,640,558 1,029,226
--------- ---------
Total liabilities and stockholders' equity
(capital deficit) $ 3,645,862 $ 3,522,423
========= =========
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Operations
(unaudited)
For the Three Months
ended March 31,
1996 1995
REVENUES:
Freight revenue $ 63,309 $ 155,089
Net equity in earnings of BCS 82,821 78,340
--------- ---------
Total operating revenues 146,130 233,429
--------- ---------
OPERATING EXPENSES:
Cost of revenue 27,666 245,192
General and administrative 387,249 249,892
Net equity in losses of BIA 612,385 703,245
--------- ---------
Total operating expenses 1,027,300 1,198,329
--------- ---------
INCOME (LOSS) FROM OPERATIONS (881,170) (964,900)
--------- ---------
OTHER INCOME (EXPENSE)
Interest expense (13,240) (67,038)
Interest income 15 -
Other 297,200 30,504
--------- ---------
TOTAL OTHER INCOME (EXPENSE) 283,975 (36,534)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (597,195) (1,001,434)
INCOME TAX EXPENSE - -
--------- ---------
NET INCOME (LOSS) $ (597,195) $(1,001,434)
========= =========
LOSS PER COMMON SHARE $ (0.11) $ (0.34)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,858,842 2,920,670
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Three Months
Ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (597,195) $(1,001,434)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Net equity in earnings and losses
of joint venture investments 529,564 (624,905)
Gain on sale of assets (297,200) -
Other 23,494 21,324
Changes in assets and liabilities (493,784) (117,905)
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (835,121) (237,300)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net investments in, advances to,
distributions and repayments from joint ventures (1,122,385) (749,246)
Distributions and repayments from joint ventures 35,000 75,038
Proceeds from sale of Air Baltic stock 745,970 -
Repayment of subordinated debt to Air Baltic 290,000 -
Acquisition of property and equipment (501) (452)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (51,916) (674,660)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings - 850,000
Repayments of notes (80,000) -
Reduction of deferred lease credits - 15,656
Issuance of stock, net of related costs 1,239,848 100,000
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,159,152 965,656
--------- ---------
Net increase in cash 272,115 53,696
Cash and cash equivalents, beginning of period 139,240 98,757
--------- ---------
Cash and cash equivalents, end of period $ 411,355 $ 152,453
========= =========
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Notes to Condensed Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been
preparedby Baltic International USA, Inc. (the "Company") and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of financial results for the three months ended March 31, 1996
and 1995, pursuant to the rules and regulations of the Securities and Exchange
Commission. All adjustments and provisions included in these consolidated
statements are of a normal recurring nature.
The information contained herein is condensed from that which would appear
in the annual financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the Annual Report on
Form 10-KSB filed by the Company with the Securities and Exchange Commission
for the fiscal year ended December 31, 1995. Accounting measurement at
interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim period presented are not
necessarily indicative of the results which can be expected for the
entire year.
NOTE 1 - Operations and Financial Condition
The Company owns 49%, and assists in the management of Baltic International
Airlines (BIA), a joint venture registered in the Republic of Latvia. The
routes and passenger service operations of BIA were transferred to a new
Latvian carrier, Air Baltic Corporation ("Air Baltic") effective October 1,
1995. The Company owns a 8.02% interest in Air Baltic after the sale of 12%
of Air Baltic stock in January 1996 discussed in Note 12. The Company is
also engaged in providing services to Air Baltic and other airlines through
its 50% interest in Baltic Catering Services ("BCS"), a Riga, Latvia-based
aviation catering and distribution company. The Company also serves as a
cargo marketing and sales company to Air Baltic through Baltic World Air
Freight ("BWAF"). American Distributing Company ("ADC"), a wholly owned
subsidiary, began operations on December 1, 1995 as a distribution company.
The Company's financial statements include an investment in BIA which has
incurred losses of $12,546,661 from inception through March 31, 1996. In
addition, the Company has committed to loan additional funds to BIA if
necessary. The Company's future plans for BIA are to continue operations as
a charter and cargo service in the Baltic region.
The Company requires substantial capital to pursue its operating strategies.
To date, the Company has relied upon net cash provided by financing
activities to fund its capital requirements. There can be no assurance that
the Company's business interests will generate sufficient cash in future
periods to satisfy its capital requirements. These factors historically
have adversely affected the Company's capital resources and liquidity and
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments related to the recoverability and classification of recorded
assets or other adjustments should the Company be unable to continue as a
going concern.
NOTE 2 - SALE OF INVESTMENT IN AIR BALTIC
On January 10, 1996, the Company entered into an agreement to sell 12% of Air
Baltic stock to SAS for $1.7 million in cash and the assumption by SAS of the
remaining subordinated debt obligation of the Company to ABC of $2,175,000.
The Company will retain a 8.02% interest in Air Baltic. A gain of $297,200
was recognized on the sale of the Air Baltic stock.
NOTE 3 - CATERING OPERATIONS
In February 1996, the Company entered into a joint venture agreement with
TOPflight AB, a Swedish company to create a joint venture, Airo Catering
Services ("ACS"), that will set up airline catering facilities across
Eastern Europe. The Company owns 51% of ACS and TOPflight AB owns 49%. ACS
is developing a detailed business plan targeting six airports for in-flight
catering development. On April 2, 1996, the catering operations of BCS were
acquired by Riga Catering Services ("RCS"), previously owned by TOPflight AB,
in exchange for shares in RCS. RCS is currently owned 35% by ACS, 23.5% by
the Company and 41.5% by the principals of the Company's partner in BCS. The
business of BCS after the transfer of the catering business to RCS is the
operation of the restaurant in the Riga airport. The total assets of BCS
remaining after the transfer of the catering business is about $230,000.
The Company will account for the acquisition of its interest in RCS using the
purchase method of accounting.
NOTE 5 - Earnings/Loss Per Common Share
The computations of earnings/loss per common share are computed using
5,858,842 and 2,920,670 weighted average shares of common stock for the three
months ended March 31, 1996 and 1995, respectively. Stock warrants and
options are considered to be dilutive for earnings per share purposes if the
average market price during the three month period ending on the balance
sheet date exceeds the exercise price and the Company had earnings for the
period.
NOTE 6 - Equity Transactions
Effective February 22, 1996, the Company created its Series B Convertible
Redeemable Preferred Stock ("Series B Preferred Stock"), 70 shares authorized
$25,000 stated value per share and $10 par value, and issued 50 shares
thereof for net proceeds of $1,090,200 in February and March 1996. The
Series B Preferred Stock: (i) is not entitled to receive dividends; (ii) is
convertible at any time by the holders thereof on or after the 55th day after
the date that the shares were issued at the conversion price of the lesser of
$2 per share or 82% of the 5-day average closing bid price of the Company's
common stock; (iii) is non-voting; (iv) carries a liquidation preference of
$25,000 per share and an amount equal to 10% per annum since the issuance
date after payment in full of the Series A Preferred Stock; and (v) is
redeemable only at the option of the Company if the conversion price is $0.75
or less per share.
NOTE 7 - Related Party Transactions
The Company earned commission income from BIA for services to BIA as
international promotional sales agent. Commissions are based upon a
percentage of passenger ticket and cargo revenue earned on sales originating
outside of Riga. The Company also charged a management fee to BIA to cover
certain administrative costs and other expenses incurred by the Company on
behalf of BIA. The Company earned $0 and $33,302 in such commissions and
fees for the three months ended March 31, 1996 and 1995, respectively.
The Company subleased two Boeing 727 aircraft to BIA for an aggregate of
$80,000 per month. For the three months ended March 31, 1995, the Company
received $240,000 related to these subleases. These aircraft were returned
to the owner in 1996.
BALTIC INTERNATIONAL USA, INC.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's revenues are derived from its equity in the net income of its
joint ventures and from revenue generated by BWAF and ADC. Since 1994, the
Company has elected to account for its revenue earned from BIA on a cash basis.
Quarter Ended March 31, 1996 and 1995
For the quarter ended March 31, 1996, the Company had revenues of $146,130
compared with $233,429 for the quarter ended March 31, 1995. The 37% decrease
is principally due to less freight revenue for 1996 as compared to 1995.
The Company's operating expenses for the quarter ended March 31, 1996 were
$1,027,300 compared to $1,198,329 for the same quarter in 1995. Cost of
revenue decrease by $217,526 primarily as the result of no aircraft rental
expense in 996 as compared to $155, 289 in 1995. The Boeing aircraft were
returned to the owner in 1996. The expenses incurred for the return of the
aircraft were accrued as of December 31, 1995 by BIA. General and
administrative expenses increased from $249,892 in 1995 to $387,249 in the
same quarter of 1996. This increase was due primarily to bonus expense
payable through the issuance of common stock for 1995 bonuses. These shares
have not been issued as of March 31, 1996 and an additional $76,168 was
expensed in 1996 for the change in the market price of the stock from
December 31, 1995 to March 31, 1996.
Interest expense decreased 80% from $67,038 in the first quarter of 1995 to
$13,240 in 1996, reflecting the conversion of $1,288,137 of notes payable to
equity during the second and third quarters of 1995 and reduced borrowings
incurred through March 31, 1996.
The Company recorded a gain of $297,200 on the sale of the 12% Air Baltic
stock to SAS during the first quarter of 1996. No such gain was recorded in
1995.
The Company had a net loss of $597,195 for the quarter ended March 31, 1996
compared to a net loss of $1,001,434 for the quarter ended March 31, 1995.
The decrease in net loss is due to the gain recorded on the sale of Air
Baltic stock and reduction of aircraft rental expense.
Liquidity and Capital Resources
The Company had $411,355 in cash at March 31, 1996, compared to $139,240
at December 31, 1995.
At March 31, 1996, the Company had a working capital deficit of $373,126 as
compared to $2,129,236 at December 31, 1995. The decrease in the working
capital deficit is due primarily to an increase in cash of 272,115, an
increase in accounts receivable of $956,298, a decrease in accounts payable
and accrued liabilities of 75,387, a decrease in short-term debt of $74,063
and a decrease in commitments for guarantees on BIA liabilities of $364,586.
Net cash used in operating activities for the three months ended March 31,
1996 was $835,121 as compared to $237,300 for the same period of 1995. Such
increase primarily was due to increased receivable for the sale of the Air
Baltic stock from SAS. Net cash used in investing activities was $51,916 for
the three months ended March 31, 1996 compared to $674,660 for the three
months ended March 31, 1995. The decrease was due primarily to the proceeds
from the sale of the Air Baltic stock to SAS partially offset by additional
advances to BIA. Net cash provided by financing activities was $1,159,152
for the three months ended March 31, 1996 compared to $965,656 for the three
months ended March 31, 1995.
The Company and BIA require substantial capital to pursue their operating
strategies. To date, the Company has relied upon net cash provided by
financing activities to fund its capital requirements. The Company has no
firm commitments for external sources of financing upon which the Company will
rely for the near future.
BALTIC INTERNATIONAL USA, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings, None
Item 2. Changes in Securities, None
Item 3. Defaults Upon Senior Securities, None
Item 4. Submission of Matters to a Vote of Security-Holders, None
Item 5. Other Information, None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits, None
(b) The Company filed a Current Report on Form 8-K dated January 10, 1996
pursuant to which the Company entered into an agreement to sell 12% of
Air Baltic Corporation stock to Scandinavian Airlines System
Denmark-Norway-Sweden.
BALTIC INTERNATIONAL USA, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BALTIC INTERNATIONAL USA, INC.
(Registrant)
Date: May 20, 1996 BY: /s/ Robert L. Knauss
Robert L. Knauss,
Chairman of the Board and
Chief Executive Officer
Date: May 20, 1996 BY: /s/ James W. Goodchild
James W. Goodchild,
Chief Operating and
Financial Officer
